[Senate Hearing 116-512]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 116-512

                         SUPPLY CHAIN INTEGRITY

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

                                HEARING

                               before the

                            SUBCOMMITTEE ON
                    READINESS AND MANAGEMENT SUPPORT

                                 of the

                      COMMITTEE ON ARMED SERVICES
                          UNITED STATES SENATE

                     ONE HUNDRED SIXTEENTH CONGRESS

                             SECOND SESSION

                               __________


                            OCTOBER 1, 2020

                               __________

         Printed for the use of the Committee on Armed Services






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                 U.S. GOVERNMENT PUBLISHING OFFICE

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                      COMMITTEE ON ARMED SERVICES

                  JAMES M. INHOFE, Oklahoma, Chairman

ROGER F. WICKER, Mississippi	     JACK REED, Rhode Island
DEB FISCHER, Nebraska		     JEANNE SHAHEEN, New Hampshire
TOM COTTON, Arkansas		     KIRSTEN E. GILLIBRAND, New York
MIKE ROUNDS, South Dakota	     RICHARD BLUMENTHAL, Connecticut
JONI ERNST, Iowa		     MAZIE K. HIRONO, Hawaii
THOM TILLIS, North Carolina	     TIM KAINE, Virginia
DAN SULLIVAN, Alaska		     ANGUS S. KING, Jr., Maine
DAVID PERDUE, Georgia		     MARTIN HEINRICH, New Mexico
KEVIN CRAMER, North Dakota	     ELIZABETH WARREN, Massachusetts
MARTHA McSALLY, Arizona		     GARY C. PETERS, Michigan
RICK SCOTT, Florida		     JOE MANCHIN III, West Virginia
MARSHA BLACKBURN, Tennessee	     TAMMY DUCKWORTH, Illinois
JOSH HAWLEY, Missouri                DOUG JONES, Alabama
                                     
                John Bonsell, Staff Director
         Elizabeth L. King, Minority Staff Director

            SUBCOMMITTEE ON READINESS AND MANAGEMENT SUPPORT

                  DAN SULLIVAN, Alaska, Chairman

DEB FISCHER, Nebraska		     TIM KAINE, Virginia
JONI ERNST, Iowa		     JEANNE SHAHEEN, New Hampshire
DAVID PERDUE, Georgia		     MAZIE K. HIRONO, Hawaii
MARTHA McSALLY, Arizona		     TAMMY DUCKWORTH, Illinois
MARSHA BLACKBURN, Tennessee          DOUG JONES, Alabama
                                     
                                     
                                     
                                     

                                (ii)

  






                           C O N T E N T S

                             ____________

                            October 1, 2020

                                                                   Page

Supply Chain Integrity...........................................     1

                           Members Statements

Statement of Senator Dan Sullivan................................     1

Statement of Senator Tim Kaine...................................     6

                          Witnesses Statements

Lord, The Honorable Ellen M., Under Secretary of Defense for          7
  Acquisition and Sustainment.


Questions for the Record.........................................    35

                                 (iii)










 
                         SUPPLY CHAIN INTEGRITY

                              ----------                              


                       THURSDAY, OCTOBER 1, 2020

                  United States Senate,    
                      Subcommittee on Readiness    
                            and Management Support,
                               Committee on Armed Services,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 9:15 a.m. in 
room SD-G50, Dirksen Senate Office Building, Senator Dan 
Sullivan (Chairman of the Subcommittee) presiding.
    Subcommittee Members present: Senators Sullivan, Ernst, 
Kaine, Shaheen, Hirono, Duckworth, and Jones.

           OPENING STATEMENT OF SENATOR DAN SULLIVAN

    Senator Sullivan. Good morning. This hearing of the 
Subcommittee on Readiness and Management will come to order.
    The Subcommittee meets today to receive testimony from 
Under Secretary of Defense for Acquisition and Sustainment 
Ellen Lord concerning supply chain integrity for the Department 
of Defense (DOD) and the United States.
    Since her initial confirmation as the Under Secretary of 
Defense, Secretary Lord has overseen significant acquisition 
reform at the Department of Defense, and I am sure we will talk 
about some of that today. As the U.S. National Armaments 
Director, she has traveled throughout the U.S. and to see our 
allies and partners with regard to the development and 
manufacturing activities around the world and, unfortunately, 
has seen firsthand just how reliant the United States defense 
industrial base chain has become particularly as it relates to 
China.
    With the rise of China in great power competition and the 
global COVID-19 pandemic, the vulnerabilities and gaps in our 
supply chains, particularly as it relates to national security, 
have taken on a new urgency.
    I want to thank Ranking Member Kaine for his interest in 
this topic as well. Both of us recognize how important the 
defense industrial base is to our Nation's security and our 
nation's economy, and we are pleased to have this timely 
hearing.
    Secretary Lord has been a prominent voice in sounding the 
alarm on this important issue, and I would like to personally 
thank her for being here today.
    In July of 2017, the President issued an executive order 
(EO) on the U.S. manufacturing and defense industrial base that 
focuses on resilient supply chains that are essential to the 
economic strength and national security of our nation and also 
the importance of jobs as it relates to key components in 
manufacturing and the defense industrial base.
    The newly released National Security Strategy and National 
Defense Strategy of the Trump administration, which I often 
cite as an area of bipartisan support with the reorientation to 
great power competition--I believe most of the Members of the 
Armed Services Committee recognize that that was an important 
and much needed change to our broader national security and 
strategic interests. That National Security Strategy document 
from the Department of Defense notes, quote, every year 
competitors such as China steal United States intellectual 
property valued at hundreds of billions of dollars.
    Members of this Committee will certainly agree that so much 
technological change has happened in this digital age. Highly 
technical weapon systems, as well as consumer electronics like 
laptops and cell phones increasingly have a role in warfighting 
and are increasingly reliant on Chinese supply chains.
    One area of supply chain integrity that is particularly 
important to me and I think the rest of the country is our 
supply of strategic critical minerals and metals that go into 
many of our modern day electronics and our modern day weapons. 
In this year's Senate-passed NDAA [National Defense 
Authorization Act], I would like to highlight sections 809 and 
810 which work together to ensure the defense industrial base 
have secure sources of strategic and critical minerals by the 
year 2030. I appreciate the bipartisan support for this goal, 
and I also appreciate Secretary Lord's work with me and others 
on the key issue.
    As a matter of fact, just last night the President issued 
an executive order entitled `Addressing the Threat to the 
Domestic Supply Chain for Reliance on Critical Minerals from 
Foreign Adversaries,' and I would like to submit this for the 
record with my opening statement, without objection.
    [The information follows:]

 Executive Order on Addressing the Threat to the Domestic Supply Chain 
      from Reliance on Critical Minerals from Foreign Adversaries
                     issued on: september 30, 2020
    By the authority vested in me as President by the Constitution and 
the laws of the United States of America, including the International 
Emergency Economic Powers Act (50 U.S.C. 1701 et seq.) (IEEPA), the 
National Emergencies Act (50 U.S.C. 1601 et seq.) (NEA), and section 
301 of title 3, United States Code,
    I, DONALD J. TRUMP, President of the United States of America, find 
that a strong America cannot be dependent on imports from foreign 
adversaries for the critical minerals that are increasingly necessary 
to maintain our economic and military strength in the 21st Century. 
Because of the national importance of reliable access to critical 
minerals, I signed Executive Order 13817 of December 20, 2017 (A 
Federal Strategy To Ensure Secure and Reliable Supplies of Critical 
Minerals), which required the Secretary of the Interior to identify 
critical minerals and made it the policy of the Federal Government ``to 
reduce the Nation's vulnerability to disruptions in the supply of 
critical minerals.'' Pursuant to my order, the Secretary of the 
Interior conducted a review with the assistance of other executive 
departments and agencies (agencies) that identified 35 minerals that 
(1) are ``essential to the economic and national security of the United 
States,'' (2) have supply chains that are ``vulnerable to disruption,'' 
and (3) serve ``an essential function in the manufacturing of a 
product, the absence of which would have significant consequences for 
our economy or our national security.''
    These critical minerals are necessary inputs for the products our 
military, national infrastructure, and economy depend on the most. Our 
country needs critical minerals to make airplanes, computers, cell 
phones, electricity generation and transmission systems, and advanced 
electronics. Though these minerals are indispensable to our country, we 
presently lack the capacity to produce them in processed form in the 
quantities we need. American producers depend on foreign countries to 
supply and process them. For 31 of the 35 critical minerals, the United 
States imports more than half of its annual consumption. The United 
States has no domestic production for 14 of the critical minerals and 
is completely dependent on imports to supply its demand. Whereas the 
United States recognizes the continued importance of cooperation on 
supply chain issues with international partners and allies, in many 
cases, the aggressive economic practices of certain non-market foreign 
producers of critical minerals have destroyed vital mining and 
manufacturing jobs in the United States.
    Our dependence on one country, the People's Republic of China 
(China), for multiple critical minerals is particularly concerning. The 
United States now imports 80 percent of its rare earth elements 
directly from China, with portions of the remainder indirectly sourced 
from China through other countries. In the 1980s, the United States 
produced more of these elements than any other country in the world, 
but China used aggressive economic practices to strategically flood the 
global market for rare earth elements and displace its competitors. 
Since gaining this advantage, China has exploited its position in the 
rare earth elements market by coercing industries that rely on these 
elements to locate their facilities, intellectual property, and 
technology in China. For instance, multiple companies were forced to 
add factory capacity in China after it suspended exports of processed 
rare earth elements to Japan in 2010, threatening that country's 
industrial and defense sectors and disrupting rare earth elements 
prices worldwide.
    The United States also disproportionately depends on foreign 
sources for barite. The United States imports over 75 percent of the 
barite it consumes, and over 50 percent of its barite imports come from 
China. Barite is of critical importance to the hydraulic fracturing 
(``fracking'') industry, which is vital to the energy independence of 
the United States. The United States depends on foreign sources for 100 
percent of its gallium, with China producing around 95 percent of the 
global supply. Gallium-based semiconductors are indispensable for 
cellphones, blue and violet light-emitting diodes (LEDs), diode lasers, 
and fifth-generation (5G) telecommunications. Like for gallium, the 
United States is 100 percent reliant on imports for graphite, which is 
used to make advanced batteries for cellphones, laptops, and hybrid and 
electric cars. China produces over 60 percent of the world's graphite 
and almost all of the world's production of high-purity graphite needed 
for rechargeable batteries.
    For these and other critical minerals identified by the Secretary 
of the Interior, we must reduce our vulnerability to adverse foreign 
government action, natural disaster, or other supply disruptions. Our 
national security, foreign policy, and economy require a consistent 
supply of each of these minerals.
    I therefore determine that our Nation's undue reliance on critical 
minerals, in processed or unprocessed form, from foreign adversaries 
constitutes an unusual and extraordinary threat, which has its source 
in substantial part outside the United States, to the national 
security, foreign policy, and economy of the United States. I hereby 
declare a national emergency to deal with that threat.
    In addition, I find that the United States must broadly enhance its 
mining and processing capacity, including for minerals not identified 
as critical minerals and not included within the national emergency 
declared in this order. By expanding and strengthening domestic mining 
and processing capacity today, we guard against the possibility of 
supply chain disruptions and future attempts by our adversaries or 
strategic competitors to harm our economy and military readiness. 
Moreover, additional domestic capacity will reduce United States and 
global dependence on minerals produced in countries that do not endorse 
and pursue appropriate minerals supply chain standards, leading to 
human rights violations, forced and child labor, violent conflict, and 
health and environmental damage. Finally, a stronger domestic mining 
and processing industry fosters a healthier and faster-growing economy 
for the United States. Mining and mineral processing provide jobs to 
hundreds of thousands of Americans whose daily work allows our country 
and the world to ``Buy American'' for critical technology.
    I hereby determine and order:
    Section 1. (a) To address the national emergency declared by this 
order, and pursuant to subsection 203(a)(1)(B) of IEEPA (50 U.S.C. 
1702(a)(1)(B)), the Secretary of the Interior, in consultation with the 
Secretary of the Treasury, the Secretary of Defense, the Secretary of 
Commerce, and the heads of other agencies, as appropriate, shall 
investigate our Nation's undue reliance on critical minerals, in 
processed or unprocessed form, from foreign adversaries. The Secretary 
of the Interior shall submit a report to the President, through the 
Assistant to the President for National Security Affairs, the Assistant 
to the President for Economic Policy, and the Assistant to the 
President for Trade and Manufacturing Policy, within 60 days of the 
date of this order. That report shall summarize any conclusions from 
this investigation and recommend executive action, which may include 
the imposition of tariffs or quotas, other import restrictions against 
China and other non-market foreign adversaries whose economic practices 
threaten to undermine the health, growth, and resiliency of the United 
States, or other appropriate action, consistent with applicable law.
      (b) By January 1, 2021, and every 180 days thereafter, the 
Secretary of the Interior, in consultation with the heads of other 
agencies, as appropriate, shall inform the President of the state of 
the threat posed by our Nation's reliance on critical minerals, in 
processed or unprocessed form, from foreign adversaries and recommend 
any additional actions necessary to address that threat.
      (c) The Secretary of the Interior, in consultation with the heads 
of other agencies, as appropriate, is hereby authorized to submit 
recurring and final reports to the Congress on the national emergency 
declared in this order, consistent with section 401(c) of the NEA (50 
U.S.C. 1641(c)) and section 204(c) of IEEPA (50 U.S.C. 1703(c)).
    Sec. 2. (a) It is the policy of the United States that relevant 
agencies should, as appropriate and consistent with applicable law, 
prioritize the expansion and protection of the domestic supply chain 
for minerals and the establishment of secure critical minerals supply 
chains, and should direct agency resources to this purpose, such that:
        (i) the United States develops secure critical minerals supply 
chains that do not depend on resources or processing from foreign 
adversaries;
        (ii) the United States establishes, expands, and strengthens 
commercially viable critical minerals mining and minerals processing 
capabilities; and
        (iii) the United States develops globally competitive, 
substantial, and resilient domestic commercial supply chain 
capabilities for critical minerals mining and processing.
      (b) Within 30 days of the date of this order, the heads of all 
relevant agencies shall each submit a report to the President, through 
the Director of the Office of Management and Budget, the Assistant to 
the President for National Security Affairs, and the Assistant to the 
President for Economic Policy, that identifies all legal authorities 
and appropriations that the agency can use to meet the goals identified 
in subsection (a) of this section.
      (c) Within 60 days of the date of this order, the heads of all 
relevant agencies shall each submit a report as provided in subsection 
(b) of this section that details the agency's strategy for using the 
legal authorities and appropriations identified pursuant to that 
subsection to meet the goals identified in subsection (a) of this 
section. The report shall explain how the agency's activities will be 
organized and how it proposes to coordinate relevant activities with 
other agencies.
      (d) Within 60 days of the date of this order, the Director of the 
Office of Science and Technology Policy shall submit a report to the 
President, through the Director of the Office of Management and Budget, 
the Assistant to the President for National Security Affairs, the 
Assistant to the President for Economic Policy, and the Assistant to 
the President for Trade and Manufacturing Policy, that describes the 
current state of research and development activities undertaken by the 
Federal Government that relate to the mapping, extraction, processing, 
and use of minerals and that identifies future research and development 
needs and funding opportunities to strengthen domestic supply chains 
for minerals.
      (e) Within 45 days of the date of this order, the Secretary of 
State, in consultation with the United States Trade Representative, 
shall submit a report to the President, through the Assistant to the 
President for National Security Affairs, the Assistant to the President 
for Economic Policy, and the Assistant to the President for Trade and 
Manufacturing Policy, that details existing and planned efforts and 
policy options to:
        (i) reduce the vulnerability of the United States to the 
disruption of critical mineral supply chains through cooperation and 
coordination with partners and allies, including the private sector;
        (ii) build resilient critical mineral supply chains, including 
through initiatives to help allies build reliable critical mineral 
supply chains within their own territories;
        (iii) promote responsible minerals sourcing, labor, and 
business practices; and
        (iv) reduce the dependence of the United States on minerals 
produced using methods that do not adhere to responsible mining 
standards.
    Sec. 3. The Secretary of the Interior, in consultation with the 
Secretary of Defense, shall consider whether the authority delegated at 
section 306 of Executive Order 13603 of March 16, 2012 (National 
Defense Resources Preparedness) can be used to establish a program to 
provide grants to procure or install production equipment for the 
production and processing of critical minerals in the United States.
    Sec. 4. (a) Within 30 days of the date of this order, the Secretary 
of Energy shall develop and publish guidance (and, as appropriate, 
shall revoke, revise, or replace prior guidance, including loan 
solicitations) clarifying the extent to which projects that support 
domestic supply chains for minerals are eligible for loan guarantees 
pursuant to Title XVII of the Energy Policy Act of 2005, as amended (42 
U.S.C. 16511 et seq.) (``Title XVII''), and for funding awards and 
loans pursuant to the Advanced Technology Vehicles Manufacturing 
incentive program established by section 136 of the Energy Independence 
and Security Act of 2007, as amended (42 U.S.C. 17013) (``the ATVM 
statute''). In developing such guidance, the Secretary:
        (i) shall consider whether the relevant provisions of Title 
XVII can be interpreted in a manner that better promotes the expansion 
and protection of the domestic supply chain for minerals (including the 
development of new supply chains and the processing, remediation, and 
reuse of materials already in interstate commerce or otherwise 
available domestically);
        (ii) shall examine the meaning of the terms ``avoid, reduce, or 
sequester'' and other key terms in section 16513(a) of title 42, United 
States Code, which provides that the Secretary ``may make guarantees 
under this section only for projects that--(1) avoid, reduce, or 
sequester air pollutants or anthropogenic emissions of greenhouse 
gases; and (2) employ new or significantly improved technologies as 
compared to commercial technologies in service in the United States at 
the time the guarantee is issued'';
        (iii) shall consider whether relevant provisions of the ATVM 
statute may be interpreted in a manner that better promotes the 
expansion and protection of the domestic supply chain for minerals 
(including the development of new supply chains and the processing, 
remediation, and reuse of materials already in interstate commerce or 
otherwise available domestically), including in such consideration the 
application of these provisions to minerals determined to be components 
installed for the purpose of meeting the performance requirements of 
advanced technology vehicles; and
        (iv) shall examine the meaning of the terms ``qualifying 
components'' and other key terms in subsection 17013(a) of title 42, 
United States Code.
      (b) Within 30 days of the date of this order, the Secretary of 
Energy shall review the Department of Energy's regulations (including 
any preambles thereto) interpreting Title XVII and the ATVM statute, 
including the regulations published at 81 Fed. Reg. 90,699 (Dec. 15, 
2016) and 73 Fed. Reg. 66,721 (Nov. 12, 2008), and shall identify all 
such regulations that may warrant revision or reconsideration in order 
to expand and protect the domestic supply chain for minerals (including 
the development of new supply chains and the processing, remediation, 
and reuse of materials already in interstate commerce or otherwise 
available domestically). Within 90 days of the date of this order, the 
Secretary shall propose for notice and comment a rule or rules to 
revise or reconsider any such regulations for this purpose, as 
appropriate and consistent with applicable law.
    Sec. 5. The Secretary of the Interior, the Secretary of 
Agriculture, the Secretary of Commerce, the Administrator of the 
Environmental Protection Agency, the Secretary of the Army (acting 
through the Assistant Secretary of the Army for Civil Works), and the 
heads of all other relevant agencies shall, as appropriate and 
consistent with applicable law, use all available authorities to 
accelerate the issuance of permits and the completion of projects in 
connection with expanding and protecting the domestic supply chain for 
minerals.
    Sec. 6. The Secretary of the Interior, the Secretary of Energy, and 
the Administrator of the Environmental Protection Agency shall examine 
all available authorities of their respective agencies and identify any 
such authorities that could be used to accelerate and encourage the 
development and reuse of historic coal waste areas, material on 
historic mining sites, and abandoned mining sites for the recovery of 
critical minerals.
    Sec. 7. Amendment. Executive Order 13817 is hereby amended to add 
the following sentence to the end of section 2(b): ``This list shall be 
updated periodically, following the same process, to reflect current 
data on supply, demand, and concentration of production, as well as 
current policy priorities.''
    Sec. 8. Definitions. As used in this order:
      (a) the term ``critical minerals'' means the minerals and 
materials identified by the Secretary of the Interior pursuant to 
section 2(b) of Executive Order 13817, as amended by this order; and
      (b) the term ``supply chain,''when used with reference to 
minerals, includes the exploration, mining, concentration, separation, 
alloying, recycling, and reprocessing of minerals.
    Sec. 9. General Provisions. (a) Nothing in this order shall be 
construed to impair or otherwise affect:
        (i) the authority granted by law to an executive department or 
agency, or the head thereof; or
        (ii) the functions of the Director of the Office of Management 
and Budget relating to budgetary, administrative, or legislative 
proposals.
      (b) This order shall be implemented consistent with applicable 
law and subject to the availability of appropriations.
      (c) This order is not intended to, and does not, create any right 
or benefit, substantive or procedural, enforceable at law or in equity 
by any party against the United States, its departments, agencies, or 
entities, its officers, employees, or agents, or any other person.

Donald J. Trump

THE WHITE HOUSE,
September 30, 2020.

    Senator Sullivan. The key issue on this is that we know we 
are reliant on China. In many cases we, the United States of 
America, actually have these critical minerals, for example, in 
the great State of Alaska, and we actually mine them and 
process them in ways with much, much higher environmental 
standards than the Chinese. If that is the case and mining and 
processing create good jobs, why would we not do it here as 
opposed to over there? I think people are starting to recognize 
that. Madam Secretary, I look forward to discussing this 
executive order and the broader topic of strategic critical 
minerals in our hearing today.
    I would like to conclude by just commending the Secretary 
with regard to addressing some of the significant defense 
industrial base challenges, particularly as our country and the 
world go through this pandemic, and I want to thank Senator 
Kaine for his interest in this topic. I believe this is an area 
of bipartisan interest, and we want to hear from you, Madam 
Secretary, on what you think the Congress can be doing and what 
you should be continuing doing addressing this issue, which has 
been highlighted even more with the rise of China, our 
reliance, and the COVID-19 pandemic.
    Without further comment, I would like to turn the hearing 
over to Senator Kaine for his opening comments.

                 STATEMENT OF SENATOR TIM KAINE

    Senator Kaine. Thank you, Mr. Chair, and I am glad to be 
here together with my colleagues, some in person and some 
virtually, for this important hearing about readiness supply 
chain integrity.
    I welcome our distinguished witness, and I want to thank 
Secretary Lord for her constructive conversation earlier this 
week working together to prepare for this hearing, but also to 
just generally discuss the many challenges that the DOD 
[Department of Defense] faces today.
    We are all aware of the role that our defense industrial 
base plays in supporting national security and in contributing 
to the economic strength of the nation, and many of the 
hearings of the Readiness Subcommittee, at least or in part, 
deal with that topic. The health of our industrial base and its 
ability to support national security needs is under many severe 
challenges under normal times, but now the challenges are 
escalating. I hope today we can discuss those challenges, 
including the global economic downturn resulting from the 
COVID-19 pandemic, the way that that pandemic itself affects 
the operations of our supply chain, the loss of trusted 
suppliers and manufacturers in key technology areas referenced 
by the chair, including microelectronics, rare earth minerals, 
advanced materials, cybersecurity threats to our companies that 
result in the loss of valuable intellectual property and 
national security secrets, and finally, adversarial capital, 
sometimes sponsored by foreign nations that find their way into 
our supply chain seeking to gain control of emerging and 
innovative high tech businesses.
    I also want Secretary Lord to know that we are all 
concerned about an article that ``The Washington Post'' ran 
recently, which raised questions about how the Department of 
Defense has used funds provided to it under the CARES 
[Coronavirus Aid, Relief, and Economic Security] Act. I 
actually think this is an issue that is directly related to the 
topic of today's supply chain integrity, and I hope that the 
Secretary may address some of the important issues raised in 
that article so that we can all, not only on the Committee, but 
the American public, have confidence that the Department is 
being a careful steward of taxpayer dollars, including those 
provided in the CARES Act.
    We all want to help address the problems that we see. We 
will certainly discuss problems today in our manufacturing and 
industrial base, but hopefully this is also a hearing that is 
more about solutions than it is about problems. We will assess 
the challenges but also are most interested in hearing what the 
DOD is doing to address them and how we can be helpful.
    Mr. Chair, thanks for calling the hearing, and I thank our 
witness for her service and for being here today to testify.
    Senator Sullivan. Great. Thank you, Senator Kaine.
    Madam Secretary, I am going to have you issue your opening 
statement. Please try to keep it to 5 minutes. We will submit 
for the record a longer written statement.
    I am going to apologize in advance. I have a hearing, a 
very short hearing, I need to be at with another Committee at 
9:30, so if you see me stepping out, you will be in good hands 
with Senator Kaine. I will be back very, very quickly.
    But the floor is yours, and thanks again for being here.

 STATEMENT OF THE HONORABLE ELLEN M. LORD, UNDER SECRETARY OF 
            DEFENSE FOR ACQUISITION AND SUSTAINMENT

    Secretary Lord. Thank you. Chairman Sullivan, Ranking 
Member Kaine, and distinguished Members of the Readiness and 
Management Support Subcommittee, thank you for the opportunity 
to testify today on the defense industrial base.
    The Office of the Under Secretary for Acquisition and 
Sustainment has released the most substantial change to 
acquisition policy in the last several decades called the 
Adaptive Acquisition Framework, or AAF. It improves the 
acquiring of warfighting capability and allows DOD to better 
partner with industry. The AAF replaces the one-size-fits-all 
approach used in the past, and it includes six practical 
acquisition pathways, each tailored to the unique 
characteristics of the capability being acquired. In fact, we 
do have a trifold that is a good pictorial description of this, 
which we have made available to you for your reference.
    Last December, we released our small business strategy, 
reducing small business barriers to becoming part of the 
defense industrial base and to educate small business on 
cybersecurity readiness. Again, we have provided for you what 
we call our Welcome Mat with a guide for business, how to work 
with DOD, with a number of hyperlinks.
    For reference in terms of small business, 24.2 percent, or 
$75.4 billion, in 2019 went to small business in terms of DOD 
spend. Further, subcontracting was 38.6 percent in 2019, or 
$62.3 billion. In other words, there is significant flow-down 
from major defense primes to small businesses.
    Additional efforts to strengthen our U.S. industrial base 
include the Cybersecurity Maturity Model Certification, or 
CMMC, program. The interim DFARS [Defense Federal Acquisition 
Regulation Supplement] role published 2 days ago implements the 
CMMC framework, which establishes cybersecurity as fundamental 
to DOD acquisition and secures the DOD supply chain.
    DOD also released its first policy on intellectual property 
to support effective approaches and customize strategies for 
acquiring and licensing IP [intellectual property] and 
technical data rights. DOD can now better support the entire 
lifecycle of its programs.
    Upon Congress' passing of the CARES Act, we worked closely 
with executive and legislative branch stakeholders to balance 
the needs of both the medical and defense industrial base 
affected by COVID. We are thankful to Congress for providing 
the authorities and resources that enabled the interagency to 
invest in U.S. production of critical medical resources and 
protect key defense capabilities from the consequences of 
COVID.
    DOD has supported production of essential medical items and 
investments in capacity expansion for the medical industry. 
Following initial investment, the Department, in coordination 
with the Department of Health and Human Services, or HHS, and 
the Federal Emergency Management Agency, or FEMA, leveraged 
Defense Production Act, DPA, Title III funds to mitigate 
adverse COVID impacts to the DIB [Defense Industrial Base]. DOD 
continued to provide vital contracting support to expand 
domestic production of medical resources, leveraging HHS 
funding that Congress had provided for the purpose.
    Of the nearly $658 million DOD has invested in expanding 
medical resources and capacity, $213 million comes from DPA 
Title III funds, $427.5 million comes from HHS CARES Act 
funding, and $17.6 million comes from the Health Care 
Enhancement Act. DOD has obligated $6.57 billion for the 
Federal COVID-19 effort, and just over 62 percent of these 
obligations have gone to small businesses, $4.07 billion. Over 
75 percent of the DOD small business spending has been 
obligated in the medical category, including drugs and 
biologicals, surgical instruments, equipment and supplies, 
hospital and surgical clothing, related special purpose items, 
and other product service code items.
    Congress appropriated $1 billion of CARES Act funding for 
DOD to be executed under the DPA Title III program. DOD has 
invested $213 million for health and medical resources, such as 
N95 masks, respirators, and injection technology. $687 million 
of CARES Act funding is dedicated to saving parts of the 
defense industrial base threatened either by COVID-19 health or 
financial impacts. We targeted regions severely affected to 
sustain vital domestic industrial base capabilities and spur 
local job creation. The expenditures have protected U.S. 
workers and ensured that our industrial base survived COVID.
    DPA Title III CARES Act efforts to date mostly target 
supply chains in aircraft, shipbuilding, soldier systems, 
microelectronics, space, and rare earth elements. Investment in 
products and services for these fragile DIB sectors stimulate 
the sub-tiers and small businesses that support programs 
critical to national security. Economic and national security 
are tightly interrelated, and our industrial base is the nexus 
of the two.
    In conclusion, I look forward to continuing to work with 
Congress to ensure the resiliency and security of the defense 
industrial base. With congressional support, we will focus on 
fragile DIB areas such as microelectronics and rare earth 
elements, but it will require a multi-pronged approach 
utilizing investments, legislation, and policy solutions. A 
U.S. rare earth mineral strategy should, with the necessary 
congressional authorizations and appropriations, consist of 
national stockpiles of certain rare earth elements, 
reestablishing rare earth mineral processing in the U.S. by 
implementing new incentives and removing disincentives, and R&D 
[research and development] around new forms of clean rare earth 
mineral processing and substitutes. We will need your help.
    At the same time, we will continue to support the 
Department's and the nation's response to COVID-19.
    I appreciate the opportunity to speak with you today and 
look forward to answering your questions. Thank you.
    [The prepared statement of Secretary Lord follows:]

                  Prepared Statement by Ellen M. Lord
    Chairman Sullivan, Ranking Member Kaine, and distinguished Members 
of the Readiness and Management Support Subcommittee of the Senate 
Committee on Armed Services, thank you for the opportunity to testify 
today on matters related to the Defense Industrial Base.
    Before the unprecedented challenge of COVID-19, the Department was 
working proactively to secure and strengthen the Defense Industrial 
Base (DIB), in line with the 2018 National Defense Strategy (NDS), and 
the recommendations of the October 2018 ``Assessing and Strengthening 
the Manufacturing and Defense Industrial Base and Supply Chain 
Resiliency of the United States'' Report to President Trump in 
Fulfillment of Executive Order 13806 (EO 13806 Report). Our EO 13806 
Report developed the foundational risk framework DOD uses to identify 
and address risks and issues in the DIB. The Department uses that 
framework to continually update the assessment, and to focus DOD's 
resources to address the industrial base's shortfalls. COVID-19 has had 
a profound impact on the Nation; and in response, the Department has 
mounted an aggressive response to mitigate new challenges facing the 
DIB. With Secretary Esper's leadership, the Department of Defense (DOD) 
has made a significant contribution to the Administration's Whole-of-
Government response.
    Today I will outline the achievements the Department has made to 
strengthen and secure the DIB, both before and since the President 
issued ``Proclamation on Declaring a National Emergency Concerning the 
Novel Coronavirus Disease (COVID-19) Outbreak'' on: March 13, 2020. I 
will describe key elements of how the acquisition enterprise, under my 
direction, has used existing authorities, as well as new authorities 
provided by the Coronavirus Aid, Relief, and Economic Security (CARES) 
Act in support of the DIB and other Federal agencies.
    The 2018 NDS provides a clear roadmap for the Department to address 
the re-emergence of long-term strategic competition from near-peer 
competitors. The strong support provided in the National Defense 
Authorization Act (NDAA) and the DOD Appropriations Act for Fiscal Year 
2020 displays the confidence Congress has in our DOD leaders to 
accomplish the defined priorities and related tasks to meet the NDS 
objectives. This confidence is not taken lightly, and we have made 
tough decisions to ensure our highest priorities are adequately funded.
    The mission of the Office of the Under Secretary of Defense for 
Acquisition & Sustainment (A&S) is to enable the delivery and 
sustainment of secure and resilient capabilities to the Warfighter and 
international partners quickly and cost effectively. My role as Under
    Secretary is to ensure that we have an acquisition system that 
moves at the speed of relevance. I am also committed to sustaining our 
important weapon systems and platforms, ensuring both their 
availability and affordability. Proactive sustainment drives readiness.
    The DIB is an essential component of the A&S mission. America's 
manufacturing and defense industrial base consists of innovators, both 
private and public, that design, produce, and maintain the end-to-end 
set of capabilities, platforms, and weapon systems upon which our 
Warfighters depend. We regularly engage with the industrial base to be 
better partners in executing the NDS. The Department's Office of 
Industrial Policy assesses, promotes, and protects the DIB. This office 
regularly conducts assessments to ensure the DIB's health and 
resilience, and to identify risks and issues. DOD leverages its various 
authorities such as the Title III of the Defense Production Act to 
promote the DIB and mitigate those risks and issues. Protecting the DIB 
includes monitoring foreign investments through the Committee on 
Foreign Investments in the United States (CFIUS), and tracking defense-
related merger and acquisition activity.
    Using the NDS lines of efforts, I will describe how we have 
mitigated industrial base risks in order to support the NDS and DOD 
objectives.
            nds line of effort 1: build a more lethal force
    As the NDS states, the United States faces a return to great power 
competition, as well as continued threats from terrorism and regional 
adversaries. Ensuring we are able to address those threats requires a 
coordinated effort between DOD and our industry partners. Delivering 
high-quality systems to the Warfighter is a core acquisition mission, 
which includes ensuring our DIB can support the requirements of the 
Service's platforms and weapons.
    Since 2017, A&S has created acquisition-focused Munitions War Rooms 
to improve Department readiness. We conduct deep dives into weapon 
system supply chains to identify and then mitigate production 
constraints and inventory shortfalls for existing systems. These War 
Rooms are also designed to ensure that industry has the capability and 
capacity to produce our new weapons. Our War Rooms have enabled us to 
increase production for key munitions by mitigating supply chain 
constraints. For example, this year, we established the Hypersonic 
Weapon System War Room, to ensure we can produce these weapons once 
they pass the current prototyping phase. We also created the Strategic 
Systems War Room to ensure industry can accommodate the large ramp in 
weapons and platforms associated with nuclear modernization, while 
sustaining the existing systems until new systems become available. The 
DIB is and will be stressed as multiple new hypersonic weapons systems 
transition to production at the same time that DOD's nuclear 
modernization systems are also ramping up production. These War Room 
activities will help alleviate that stress and enable the Department 
and industry to make informed strategic decisions on investments to 
increase capability and capacity where necessary.
    For strategic systems, the 2018 Nuclear Posture Review reaffirmed 
the need for a modernized nuclear triad. DOD's fiscal year 2021 budget 
request contains $28.9 billion to sustain and modernize all three legs 
of the triad, with key investments in the Ground-Based Strategic 
Deterrent missile, the Long-Range Stand-Off missile, the B-21 stealth 
bomber, the Columbia-class submarine, and enhanced nuclear command, 
control, and communications (NC3) systems.
    With its core mission of ensuring the United States maintains a 
safe, secure, effective, and reliable nuclear stockpile, our partners 
at the Department of Energy/National Nuclear Security Administration 
(DOE/NNSA) require secure and resilient supply chains to support timely 
deployment of U.S. nuclear warheads. As the chair of the Nuclear 
Weapons Council--the joint DOD and DOE/NNSA body responsible for 
alignment, coordination, and prioritization of nuclear stockpile 
modernization and sustainment activities--I work with NNSA to ensure 
the safety, security, and robustness of their supply chains, as they 
are critical to meeting the demands of these activities.
    DOD's fiscal year 2021 budget also reflects our commitment to 
maintaining technological superiority by investing $106.6 billion in 
research, development, testing, and evaluation (RDT&E), which 
represents the largest RDT&E budget in our history. DOD's focus on 
research and technology efforts to bring advanced capabilities to the 
field will ensure we maintain overmatch against near-peer competitors. 
This budget request maximizes the amount of money we can effectively 
and responsibly spend on these critical and emerging technologies.
    Reduced U.S. capability in microelectronics is a particularly 
troublesome area for the DIB. Government incentives and low labor costs 
in foreign countries have been the main drivers for the migration of 
microelectronics manufacturing, packaging, and testing to off-shore 
suppliers. This strains our ability to acquire and sustain 
microelectronic components embedded in systems critical to national 
security and national defense. Reliance on non-United States suppliers 
for microelectronics leaves DOD vulnerable. The risks of this reality 
include: availability of microelectronics in case of embargo; loss of 
U.S. intellectual property from offshore dependency; and loss of 
confidence the technology will function as intended due to possible 
malicious activity by foreign fabricators.
    A&S, in conjunction with the Office of the Under Secretary for 
Research and Engineering, is proposing a new model to help restore U.S. 
microelectronics, which requires novel business concepts allowing DOD 
to leverage commercial market advancements and demand, which drive the 
microelectronics industry. Such novel relationships will allow 
government and industry to collaborate and co-invest to build and 
sustain domestic microelectronics capability that neither can afford to 
fund independently. Investment in industry's capability to produce high 
volume state-of-the-art microelectronics would provide the commercial 
sustainability that would then allow the production of low volume 
state-of-the-present and legacy parts DOD requires.
    A&S leverages multiple authorities to mitigate industrial base 
vulnerabilities. Last year presented significant challenges with the F-
35 Lightning II program's global supply chain, and we have worked 
expeditiously with our industrial base partners to strengthen those 
supply chains and mitigate risk. In July 2019, the President issued a 
Presidential Determination (PD) authorizing the use of Defense 
Production Act (DPA) Title III authorities to expand the domestic 
production capacity for Integrally Bladed Rotors essential to the 
production of the F-35 engine. A contract for that expansion was in 
place within days of the PD issuance, which is expected to reduce 
schedule impacts stemming from the disruptions to the supply chain in 
2019 by half. Authorities such as those in DPA Title III provide 
essential tools for the Department to take expedient action to mitigate 
strategic risk, and strengthen the health and resiliency of the supply 
chains upon which our Warfighters rely. Indeed, even before COVID-19, 
the Department had nearly quadrupled DPA Title III funded projects from 
$34.4 million in fiscal year 2018 to $125.4 million in fiscal year 
2019.
  nds line of effort 2: strengthen alliances and attract new partners
    The United States' competitive advantage is not only a result of 
our unrivaled warfighters, state-of-the-art weapon systems, and 
materiel, but also our unmatched network of alliances and partnerships. 
The U.S. military works every day to strengthen and expand its 
alliances and partnerships, enabling security and prosperity for 
millions around the world.
    Working with our closest allies and partners is an increasingly 
important tool for DOD to mitigate shared industrial base risks. 
Strategic partnerships focused on international cooperation and 
acquisition enable the Department to obtain advanced technologies from 
the global DIB. Within the National Technology Innovation Base (NTIB), 
collaborative activities with Australia, Canada, and the U.K. are 
underway for critical chemicals, strategic materials such as rare earth 
elements, and shipbuilding. In the two years since the expansion of the 
NTIB to include Australia and the U.K., the group has achieved a number 
of successes that directly support shared national security objectives. 
These include ways to address interoperability before equipment gets to 
the field, joint projects on co-development and co-production of 
critical technologies, a mechanism to resolve specific supply chain 
problems, and adoption and harmonization of measures to protect against 
adversarial foreign investment.
    Additionally, DOD has built partnerships with India and Japan, 
including fostering industry-to-industry ties. The Defense Technology 
and Trade Initiative (DTTI) continues to be an important bilateral tool 
for advancing defense trade with India. The DTTI Industry Collaboration 
Forum--adopted in December 2019--provides a standing mechanism for 
dialogue between United States and Indian industry.
    A&S continues to deepen its already-robust relationship with Japan 
on industrial cooperation, with a special focus on foreign direct 
investment, rare earth elements, and microelectronics. For instance, 
the Industrial Base Analysis and Sustainment (IBAS) program has an 
agreement with a Japanese-backed rare earth element producer to perform 
an engineering and market research study on developing United States 
processing capabilities for heavy rare earth elements.
nds line of effort 3: reform the department for greater performance and 
                             affordability
    The Department seeks to ensure a secure and resilient industrial 
base, and to improve the speed and ease of acquisition. A&S has 
spearheaded the most substantial change to acquisition policy in the 
last several decades called the Adaptive Acquisition Framework (AAF). 
It has allowed us to improve the process of acquiring warfighting 
capability, and to be a better partner to industry. The AAF replaces 
the ``one-size-fits-all'' approach used in the past, and includes six 
acquisition pathways, each tailored specifically to the unique 
characteristics of the capability being acquired. Of note, we have 
begun implementing the Middle Tier of Acquisition (MTA) Policy to 
rapidly prototype and field mature technologies in an operational 
environment within five (5) years. As of September 2020, there are 74 
MTA programs. Broken out by Service/Component, the Air Force has 32, 
the Navy has 16, the Army has 14, USSOCOM has 11, and DISA has 1. 
Additionally, the Software pathway facilitates the rapid and iterative 
delivery of software capabilities to the operational environment. This 
pathway integrates modern software development practice such as Agile 
Software Development, DevSecOps, and Lean Practices.
    Additional efforts include the Cybersecurity Maturity Model 
Certification (CMMC) program. CMMC will establish cybersecurity as a 
fundamental aspect of DOD acquisition, and combines various 
cybersecurity standards to secure the DOD supply chain. In parallel, 
DOD released its first policy on Intellectual Property (IP) to support 
more effective approaches and customized strategies for acquiring and 
licensing IP and technical data rights. This will enable DOD to better 
support the entire life-cycle of its programs, as well as more clearly 
communicate with industry while leveraging best practices.
    The Department also uses interagency cooperation to mitigate risks 
to the industrial base, particularly via CFIUS. This Committee reviews 
certain transactions involving foreign investment into U.S. businesses. 
New regulations implementing the Foreign Investment Risk Review 
Modernization Act of 2018 (FIRRMA), which became effective on February 
13, 2020, allow CFIUS to more effectively address current national 
security concerns arising from foreign investment transactions. Among 
other things, FIRRMA expanded the types of transactions that CFIUS can 
review to include certain non-controlling, non-passive investments into 
specified U.S. businesses--including those involved in critical 
technologies. This further enables the U.S. Government to address 
national security challenges posed by the inbound flow of capital from 
threat actors and protects the National Security Innovation Base 
(NSIB).
    Supporting Small Businesses remains imperative to the Department. 
Last December, we released our Small Business Strategy, outlining 
efforts to reduce barriers to entry for small businesses to become part 
of the DIB, and to educate and train the Small Business community on 
cyber security readiness. Since the revision of the DOD 5000 series, 
the Department has spent more than $73 billion on prime contracts with 
small companies.
    In November 2019, we launched the Trusted Capital program, which 
seeks to align venture capital and private equity investment to 
supplement DOD's investment programs. Trusted Capital offers small- and 
medium-sized critical technology companies an alternative to 
adversarial capital, in particular from China or Russia. The 
Department's first Trusted Capital event, where we partnered with the 
Texas A&M University System, was aimed at developing a domestic 
industrial base for small unmanned aerial systems, an area where China 
dominates.
    The Department has established new mechanisms to address industrial 
base challenges. In December 2019, A&S re-energized the Industrial Base 
Council (IBC) to synchronize DIB efforts across the Department. 
Comprised of the Service Acquisition and Sustainment executives, the 
Joint Staff, and OSD, the IBC addresses risks and issues in the 
industrial base, prioritizes and aligns mitigation efforts to DOD's 
strategic priorities, and develops policy to address industrial base 
vulnerabilities identified in the EO 13806 Report. Since the report was 
published in October 2018, the risks to the DIB and the needs of the 
defense industrial base have evolved; however, the Department continues 
to utilize the EO 13806 framework to track known risks, identify 
emerging risks, and prioritize mitigation actions as appropriate and 
necessary.
    A&S has been working to re-shore critical industrial base 
capabilities to address the foreign dependency risk identified in the 
EO 13806 Report. We have made significant progress in the long-term 
objective of re-establishing domestic rare earth element production--
which is key to reducing Chinese dependency. We are using both IBAS 
funding for domestic separation capability, and DPA Title III funding 
to re-establish capability to produce the Neodymium Iron Boron (NdFeB) 
magnets used in precision guided munitions and electric vehicles. IBAS 
funds have also been used to establish a new domestic capability for 
large, heavy section weld assemblies for critical parts in the new 
Columbia-class submarines. DPA Title III funding has been provided to 
the small unmanned aerial systems industrial base to reduce a large 
Chinese dependency for these systems.
                           covid-19 response
    COVID-19 required A&S to pivot from a purely offensive strategy 
with regards to DIB activities and investments toward a defensive 
strategy to combat the impacts of the pandemic on the DIB. Companies 
that were healthy and able to provide what the Department needed were 
suddenly faced with issues such as shut downs directed by local 
governments, reduced workforce due to either COVID-19 infections or 
social distancing requirements, and loss of sub-tier suppliers for some 
of the same reasons. These factors led to distress within the DIB that 
threatened our ability to procure the items and systems we needed.
CARES Act Funding
    In addition to DIB stresses due to COVID-19, the pandemic 
identified significant shortfalls in domestic capacity for critical 
medical resources needed to combat the virus. On March 25, 2020, I 
established the COVID-19 Joint Acquisition Task Force (JATF) to serve 
as the single DOD entity to support the interagency acquisition and 
logistics needs during this global pandemic.
    Initially, the JATF supported the immediate response to the 
national health crisis, leveraging unique authorities of the Department 
to support the Federal Emergency Management Agency (FEMA) and the 
Department of Health and Human Services (HHS) in execution of DPA 
authorities. JATF's role was to prioritize and increase production 
capacity of needed medical resources as well as assist in acquisitions 
using multiple DOD contracting teams, including the Defense Logistics 
Agency (DLA).
    A&S worked with HHS leadership, entering into a Memorandum of 
Understanding (MOU), to expand and replenish the Strategic National 
Stockpile and increase domestic production of critical medical supplies 
and PPE. In short, DOD helped HHS develop a medical supply chain 
capability with a focus on domestic sources of supply.
    As the COVID-19 pandemic evolved, the Department realized the 
structure and processes developed in operationalizing the JATF should 
be formally codified in a playbook and sustained under our existing 
Joint Rapid Acquisition Cell (JRAC) so we are prepared for future 
national emergencies. Based on lessons learned from this national 
response, the JATF will continue to support our HHS colleagues, with a 
plan to transition our support as a more permanent structure under the 
JRAC.
    Over the last six months, DOD has invested nearly $638 million in 
industrial base expansion efforts to support increased capacity in the 
areas of: screening and diagnostics, N95 masks, respirators and filter 
media, injection technology, ventilator media and supply chain, gloves, 
surgical masks, and blood plasma technology. Of the nearly $638 million 
DOD has invested, $213.1 million comes from the DPA Title III for 
Health Resources, $407.5 million comes from HHS CARES Act funding, and 
$17.6 million comes from the Health Care Enhancement Act.
    DOD received $1 billion in DPA Title III funding through the 
Coronavirus Aid, Relief, and Economic Security (CARES) Act. DOD is 
using $687 million of CARES Act funding to retain critical DIB 
companies significantly impacted by COVID, and has dedicated $100 
million to support implementation of Executive Order 13922 to execute 
the DPA Title III loan program in collaboration with the International 
Development Finance Corporation (DFC). In order to re-shore critical 
healthcare manufacturing capability, $213 million was used to increase 
capacity and throughput for the healthcare supply chain.
    The $687 million of CARES Act funding will offset financial 
distress in the DIB caused by the COVID-19 national emergency targeting 
those regions most severely impacted to sustain essential domestic 
industrial base capabilities and spur local job creation. The 
Industrial Base Council (IBC) has identified prioritized risks that can 
be mitigated with this funding. To date, the Department has awarded 
$663.4 million of CARES Act funding to support essential DIB partners. 
In accordance with the CARES Act Spend Plan submitted to Congress in 
May 2020, the IBC continued to evaluate and reprioritize efforts to 
address impacts to the DIB caused by COVID-19. For example, as the 
significant impacts to the nation's aircraft industrial base emerged, 
the Department acted quickly to respond to a financially distressed 
propulsion industry and make targeted investments to retain essential 
national capabilities. This constant evaluation and prioritization has 
resulted in the following investments:
      $252.1 million to sustain and preserve the aircraft and 
propulsion industrial base,
      $236.0 million for the shipbuilding industrial base,
      $35.5 million to support and maintain the space 
industrial base,
      $20.9 million to support body armor, force protection, 
survivability equipment, uniforms, and sustaining the soldier 
survivability industrial base,
      $79.1 million to support the electronics industrial base, 
and
      $39.8 million to preserve at-risk essential materials 
suppliers and support and maintain the hypersonics industrial base.
    DPA Title III CARES Act efforts to-date mostly target the supply 
chains in aircraft, shipbuilding, soldier systems, microelectronics, 
space, and rare earth elements. Investment projects in products and 
services for these fragile DIB sectors will stimulate the sub-tiers and 
small businesses that support programs critical to national security, 
and enable companies to persevere through COVID-19-related challenges.
DPA Title III Loans through the U.S. International Development Finance 
        Corporation (DFC)
    To enable execution of Executive Order 13922 the DOD allocated $100 
million to the DFC for the domestic production of strategic resources 
needed to respond to the COVID-19 outbreak, and to strengthen any 
relevant domestic supply chains. Loans will help create, maintain, 
protect, expand, or restore domestic industrial base capabilities 
supporting the national response and recovery to the COVID-19 outbreak, 
and improve the resiliency of domestic supply chains.
CARES Act Section 3610 Funding Implementation
    Since early March, we have taken proactive measures in response to 
the COVID-19 crisis by implementing Congressional direction, empowering 
the contracting workforce, and ensuring a healthy DIB through continued 
guidance and direction.
    Section 3610 of the CARES Act allows agencies to reimburse 
contractors for payment associated with the preservation of workforces 
prevented from working due to COVID-19 facility closures or other 
restrictions. The Department moved swiftly to provide the contracting 
community the ability to implement this legislation.
    It is important to note that section 3610 authorized, but did not 
appropriate, the funds needed to make these reimbursements. While the 
Department may be able to use other appropriated funds to reimburse 
contractors, the cost for 3610 is likely well beyond the Department's 
resourced ability to do so without significantly jeopardizing 
modernization or readiness efforts. Based on Rough Order of Magnitude 
estimates (ROMs) provided by just our largest prime contractors, 
approximately $3 billion in 3610 reimbursements would be necessary. 
When extrapolated to all affected contracts, that number could be two 
to three times higher.
    Section 3610 leave costs are just one category of COVID-19 related 
costs impacting the DIB. Other COVID-19 related costs include those 
associated with contracting officer direction such as a stop work 
orders, purchasing PPE, cleaning and sterilization costs, impacts 
related to implementing Centers for Disease Control and Prevention 
guidance, such as spacing out factory floors, and the costs associated 
with schedule delays emanating from the supply chain. The Department 
issued guidance on this category of costs on July 2 so that, when 
determined to be in the best interest of the government, the costs 
could be reimbursed, subject to the availability of funds. As with 
section 3610, the Department currently does not have the funding to 
cover these costs. Using the same ROM information discussed earlier, 
approximately $4 billion in costs would fall into this category for 
just the major primes and their affected subcontractors.
    The Committee is aware that in the early stages of the pandemic, 
the Department increased the progress payment rate from 80 percent to 
90 percent for large businesses, and from 90 percent to 95 percent for 
small businesses, to address what industry identified as the number one 
issue it was facing due to COVID-19: liquidity or cash flow issues, 
specifically within the supply chain and with small businesses. This 
change will infuse an estimated $3 billion in cash to all levels of the 
DIB. As of mid-August 2020, over $2.6 billion has already been paid 
out. The Department has also partnered with the major primes to ensure 
this increase in cash was quickly making its way throughout the supply 
chain.
                               conclusion
    Our objective within Acquisition and Sustainment is to ensure that 
our Defense Industrial Base can support the requirements of the 
Service's platforms, weapons, and equipment to meet our warfighters' 
assigned missions in the near- and far-terms. We have had numerous 
accomplishments over the last three plus years that have increased the 
security and resiliency of our industrial base, which includes 
companies of all sizes. COVID-19 has forced us to pivot some of our 
efforts to a more defensive strategy--to rescuing our existing, once 
healthy DIB companies from the effects of the pandemic--but we are 
still aggressively pursuing offensive DIB mitigations as well. COVID-19 
has highlighted how fragile our industrial base is, especially due to 
our reliance on foreign suppliers. We are working to re-shore critical 
DIB capabilities to lessen our dependence on adversarial countries, and 
being extra vigilant to prevent adversarial influence within our supply 
chain.
    The Department's response to COVID-19 addresses a full spectrum of 
needs. I am incredibly proud of the Department's response to this 
national emergency, including our work helping our inter-agency 
colleagues in the fight against COVID-19. I am proud of our dedicated 
employees, who have worked so diligently on behalf of the American 
people.
    A&S is well postured to fulfill its mission going forward, and I 
look forward to continuing to work with Congress to ensure the 
resiliency and security of the DIB. With Congressional support, we will 
focus on fragile DIB areas, such as microelectronics and rare earth 
elements, but it will require a multi-pronged approach utilizing 
investments, legislation, and policy solutions. We intend to work to 
re-shore these critical capabilities, and to strengthen the domestic 
defense industrial base, but we will need your help. At the same time, 
we will continue to support the Department's, and the Nation's response 
to COVID-19. I appreciate the opportunity to brief you today, and look 
forward to answering your questions.

    Senator Kaine [presiding]. We will begin a 5-minute round 
of questions. We will alternate between parties and have a 
number here participating both virtually and in person.
    Secretary Lord, ``The Washington Post'' article that I 
referred to in my opening comments, when it came out, suggested 
that the DOD was using CARES funds, and the suggestion in the 
article was that the funds were either being used improperly or 
in ways that were not really core to the reason that Congress 
appropriated monies to the DOD.
    You have testified in your opening comments about how those 
dollars were used and why. Let me just ask a set of simple 
questions about that.
    Number one, in using those dollars, has the DOD carefully 
examined the purposes and restrictions in those dollars and 
attempted to use them completely in accord with guidance in the 
CARES Act?
    Secretary Lord. Yes.
    Senator Kaine. Over the course of time before today, has 
the DOD kept both houses of Congress informed about how the 
CARES Act dollars were being used?
    Secretary Lord. Absolutely. In fact, what I would like to 
do is enter into the record a timeline of DPA spending, all of 
the numerous calls and briefings that we have done, as well as 
hearings.
    Senator Kaine. Without objection, that will be entered into 
the record.
    [The information referred to follows:]
                        timeline of dpa spending
      25 March: Ms. Lord signed JATF memo.

      16 April: DSD briefed WHTF on overarching strategy and 
gained approval from VP.

      20 April: OMB requested meeting to discuss policy for 
domestic production expansion funding.

      20, 21,22, 23 April: meetings HHS shared their conclusion 
that they have the authority under the CARES Act to invest in 
industrial expansion projects as authorized in Public Health and Social 
Services Emergency Fund Appropriation.

      23 April: ASPR/DOD sign MOU codifying assisted 
acquisition under Economy Act.

      24 April: In April, we shared a written roll up of COVID 
activities to HASC/SASC/HAC-D/SAC-D.

      27 April: HHS Signed Economy Act D&F for N-95 mask 
investment to accompany 7600A and B to USAF.

      30 April: ``The department's DPA Title 3 investment in 
response to COVID-19 remains on increasing manufacturing capacity and 
throughput. DOD continues to use DPA Title 3 for DIB resiliency and 
security, as we always have, as well as medical and health care 
resources with HHS and FEMA coordination.'' Ms. Lord Press Briefing.

      1 May: Held first weekly call with Professional Staff 
Members from HASC/SASC/HAC-D/SAC-D.

      11 May: HHS meeting to establish SNS 2.0 strategy to 
include creation of SNS Steering Committee (HHS, DOD, VA, OMB, OTMP, 
EOP, DFC, FEMA).

      29 May: DOD CARES Act Spend Plan transmitted to Congress.

      6 June: HASC briefing with A&S staff. Discussed DIB and 
Medical investments.

      10 June: Lord testimony to HASC detailing 2 lines of 
effort for title III ``DIB resiliency and security; and industrial 
expansion for Medical and Healthcare resources, with HHS and Federal 
Emergency Management Agency (FEMA) coordination.''

      11 September: Ms. Lord HASC briefing.

    Senator Kaine. If I could just try to summarize quickly 
your testimony, the idea is these CARES Act dollars have been 
used to deal both within the DOD and within our supply chain 
with the health effects of coronavirus so that we can continue 
to do the work that is needed, but also to shore up economic 
damage that is being visited upon some of the key actors in the 
supply chain so that we will not see an erosion of the supply 
chain that would hurt our national defense. Is that basically 
your testimony?
    Secretary Lord. Yes, very well said.
    Senator Kaine. I noticed the DOD issued a statement the day 
after ``the Washington Post'' article that mentioned many of 
these things, and I was a little bit surprised that that 
statement was not really reflected in ``The Washington Post'' 
story. Had that material been provided to ``The Washington 
Post'' before the story was written?
    Secretary Lord. Yes, it had. In fact, ``The Washington 
Post'' had two different journalists who had been conversing 
back and forth with my public affairs individuals, and what is 
particularly interesting is there was a very lengthy interview 
with Stacy Cummings, who is here with me today, who has 
directed our Joint Acquisition Task Force (JTAF). None of that 
was included in the article, and that is why we very quickly 
the next day put out the public statement reflecting all of the 
conversations we have had.
    Senator Kaine. Thank you for addressing this. We really owe 
it to the American public to use the dollars correctly and to 
be transparent about how they are being used, and I am glad 
that you were able to address this this morning. Other Members 
may have additional questions.
    I want to focus on an item that you and I talked about and 
that both you and the chairman raised in your opening 
statements. COVID has made us look at a lot of supply chain 
issues in different ways and ask ourselves whether there are 
elements of supply chains that we need to more bring back on 
shore to deal with moments like the one we are living in now. 
Often we attempt to accomplish that goal through ``Buy 
American'' provisions, and those Buy American policies have 
been a fairly standard feature of discussions every year in the 
Committee as we do the National Defense Authorizing Act (NDAA).
    Would you support policies under which the DOD would work 
to procure more goods and services from American companies? If 
the answer to that is yes--and I am sure that it is--describe 
the process that you use at the DOD to determine how and when 
we should bring more of our supply chain back on shore?
    Secretary Lord. Security and resiliency of our defense 
industrial base is one of my key missions, and in fact, as 
Senator Sullivan had mentioned, in September 2018, we had 
published the response to the executive order looking at the 
defense industrial base, and that has remained the foundational 
document that we have used.
    So the process is we use a whole series of criteria called 
out in the 13806 report, and we convene what we call the 
industrial base committee within DOD that is comprised of both 
A&S [acquisition and sustainment] reps, as well as our service 
acquisition executives, as well as agency representatives, and 
we hear from the totality of this group where they have 
fragility in their supply chain. We rack and stack on a weekly 
basis during COVID--now it is biweekly--where those issues are. 
So we have a one-to-end list of both specific companies, 
basically categorized under industry segments, as well as 
regions, that we believe need investment in order to keep those 
businesses going. That is an iterative process, and that is how 
we have determined what we invested in in terms of DPA Title 
III dollars for the defense industrial base and that guides us 
moving forward.
    Senator Kaine. Thank you, Secretary Lord. My time has 
expired. I may come back to this in a second round, but let me 
now call on Senator Ernst.
    Senator Ernst. Thank you very much, Mr. Chair.
    Thank you very much, Secretary Lord, for joining us today.
    I have a company in my State of Iowa. It is Wellman 
Dynamics. They are a key part of the defense industrial base, 
and they make components for rotary wing aircraft for the 
military, including the CH-53 and others. This company was 
described but not named on page 47 of the report fulfilling 
President Trump's executive order on the defense industrial 
base as a fragile supplier. This was before COVID, and many, 
many companies in the aerospace industry are very much hurting 
right now due to the diminished demand for civilian aircraft.
    What is the DOD doing to make sure that critical parts of 
the aerospace supply base in Iowa or anywhere else in America 
are able to continue through the crisis and are there for our 
military?
    Secretary Lord. So we are doing a number of things.
    First of all, our industrial policy team I consider the 
help desk for industry and this Welcome Mat that we provided 
you a copy of has critical links for how to speak with them.
    During pandemic, we actually upped our interaction with 
industry listening to what the issues were and pushing what we 
thought were solutions. We did this through three-times-a-week 
calls using our industrial association partners to do that. We, 
pre-COVID, held quarterly meetings where I brought 15 or so 
leaders from DOD to meet with 15 or so CEOs [chief executive 
officers] representing millions of companies, but we had 3 
industry associations that we basically worked with. During 
COVID, we expanded that to 15, and that way we were able to 
work with industry.
    We specifically have held small business webinars and calls 
as well. Those continue.
    So it is really communication that it comes down to.
    Now, if there are specific companies that have issues, I 
asked them to reach out to the services who are their customers 
but also to industrial policy in A&S and join these industrial 
base council--I think I misspoke earlier--these industrial base 
council meetings. We discuss those very issues.
    Senator Ernst. That is very helpful, Secretary, and I am 
thankful that DOD is working with specific plans and paths 
forward there.
    Outside of the DOD, what as Congress do we need to do to 
ensure that the defense industrial base, especially as we look 
at the aerospace sector, can survive through the pandemic?
    Secretary Lord. I think supporting a lot of the moves we 
have made within A&S. For instance, we have increased the 
amount of progress payments from 80 to 90 percent for large 
companies and medium companies, 90 to 95 percent for small 
companies. We have pre-awarded some contracts. We have 
basically provided liquidity.
    In addition what we need is an extension of section 3610 of 
the CARES Act in order to give us the authorization to be able 
to take care of one-time costs. But just as importantly, we 
need the appropriation to have the money to do that. So what 
these are are onetime costs when employees were out for COVID 
to re-lay out plant floors so that we were meeting CDC [Centers 
for Disease Control and Prevention] guidelines for social 
distancing and so forth. Unless we get an appropriation, what 
is going to happen is that will come out of program funding 
that will impact not only readiness but modernization.
    Senator Ernst. That is an excellent answer, Secretary, and 
I think it is up to us as Members of this Subcommittee and 
Committee to communicate that to other Members in Congress that 
there are specific items and pieces of legislation that we need 
to continue from the CARES Act moving forward. It is still not 
business as usual. So I would just encourage other Members on 
the Committee to continue that dialogue with others just how 
important this is.
    What our DOD has received through the CARES Act and other 
provisions has been a very, very small sliver of what we have 
allocated for general support programs across the United 
States. It is very important that we not slide backwards in our 
support to the men and women in uniform.
    So thank you very much, Secretary, for being here with us 
today.
    Secretary Lord. Thank you.
    Senator Sullivan [presiding]. Senator Shaheen?
    Senator Shaheen. Thank you, Mr. Chairman.
    Secretary Lord, thank you very much for being here today, 
for your testimony, and for taking time to talk with me 
yesterday. I appreciated that.
    One of the issues that we talked about was the continued 
challenges with the KC-46, the refueling tanker. I relayed to 
you the fact that in New Hampshire, our 157th Air Refueling 
Wing was supposed to receive another KC-46 aircraft on Friday. 
We just learned that that delivery was canceled due to 
electrical problems with the aircraft.
    Now, I have spoken to a whole number of officials from 
Boeing, from our military leadership as recently as last week 
with General Van Ovost, who is the head of Air Mobility 
Command, all of whom have assured me that we have had good 
conversations between DOD and Boeing and that the problems are 
being worked out, we are not going to continue to see these 
challenges, and yet we have got another aircraft that is not 
being delivered because of another problem.
    So how do we fix this? Because it is an ongoing challenge 
that is affecting our national security long term if we do not 
get these refueling tankers up and running.
    Secretary Lord. The KC-46 has been an extremely 
problematical program. I speak with Leanne Caret, the CEO of 
the defense side of Boeing, on a regular basis about it.
    One issue is frankly the technical solution that was the 
original design is now being redesigned, but also we have had a 
myriad of manufacturing issues with FOD [foreign object debris] 
and other issues. So we have both an engineering design and 
execution issue, as well as a manufacturing problem.
    Senator Shaheen. Excuse me for interrupting. Can you just 
explain what FOD is?
    Secretary Lord. Yes. I am sorry. Foreign object debris. So, 
in other words, when you are manufacturing an aircraft, we want 
it to be very, very clean because we only want going in that 
aircraft what should be in that aircraft, and you do not want 
any pieces and parts of other parts of the aircraft going in 
certain sections and so forth. That could potentially lead to 
operational issues, and we have very, very stringent 
requirements for that.
    I fundamentally think that the root cause of this is the 
contract type that was awarded for this, and this is why with 
our new adaptive acquisition framework, we are giving many, 
many different pathways to our acquisition professionals and we 
are teaching them how to use this in a very different way.
    In the past, we typically sort of locked down acquisition 
professionals for 2 or 3 weeks and lectured to them on 
acquisition policy where it is obviously a fascinating topic. 
It is not particularly useful to be lectured on it. So we have 
changed, over the last 3 years, how we are doing things at the 
Defense Acquisition University (DAU), and we are bringing in 
actual practitioners and talking about real time problems they 
have had with their programs and explaining how they are using 
the authorities that Congress has given us and that we have 
translated into policy and instructions to give them the 
flexibility to really tailor their programs to what they need.
    We are also giving newer program managers the forums to be 
able to ask questions and learn from others. So we are doing 
podcasts. We actually have a license from Ted Talks, and we are 
doing TedxDAU. We are trying to be more contemporary in how we 
are teaching our acquisition workforce to move at what I would 
call the speed of relevance.
    Senator Shaheen. That sounds really positive. It is really 
exciting to hear that.
    I guess the question still is, though, how do we get this 
contract back on track so that we are actually getting the 
planes that we need and avoid these kinds of continuing issues 
that seem to crop up whenever any plane is delivered?
    Secretary Lord. At this point with KC-46, it will take very 
careful senior DOD attention. Secretary Mark T. Esper and I 
have both spoken to the CEO of Boeing, as well as I said Leanne 
Caret, but Dave Calhoun as well, and we will do that on a 
frequent basis. I talk with the service acquisition executive, 
Will Roper, about it.
    But what I do is I have metrics that I follow very, very 
closely on our major defense acquisition programs. I believe 
you have to manage by the data, and I follow on a monthly basis 
what cost, timing, as well as actual functionality of these key 
programs looks like, and if we are not hitting the mark, so to 
speak, we re-engage.
    Senator Shaheen. Thank you.
    Thank you, Mr. Chairman.
    Senator Sullivan. Thank you, Senator Shaheen, and I share 
your concerns on the KC-46. It is a huge problematic issue. The 
Air Force has delayed and delayed with regard to its OCONUS 
[outside continental United States] decision on where to base 
the KC-46. I think--and this Committee, by the way, thinks--
that should be in Alaska, but that is a different topic. But 
the broader topic of KC-46 delays I think is a really important 
one. So I appreciate you raising that.
    Madam Secretary, I want to dive into this issue of 
strategic critical minerals. The U.S. Geological Survey, a 
interagency study recently, and then just as I mentioned last 
night, the new executive order from the President on this topic 
highlights some of the major concerns that I think all of us 
have. I am just going to highlight some of the language from 
the executive order.
    Thirty-one of the thirty-five critical minerals that we 
have for our defense industrial base--the United States imports 
more than half of its annual consumption, and the United States 
has no domestic production for 14 of these critical minerals. 
The dependence that we have on one country, the People's 
Republic of China, for these critical minerals is particularly 
concerning. The United States now imports 80 percent of its 
rare earth minerals from China, with portions of the remainder 
indirectly sourced from China through other countries.
    In the 1980s, the United States produced more of these 
elements than any other country in the world, and by the way, 
we still have them. We still have them in my State. Bokan 
Mountain is an example. But China used aggressive economic 
practices to strategically flood the global market for rare 
earth elements and displaced its competitors. Since gaining 
this advantage, every time another supplier, whether in the 
United States or somewhere else in the world, looks like they 
are going to be able to start mining and producing, the Chinese 
flood the market to destroy their competition. It is 
outrageous. As the President's EO last night highlights, it is 
a real vulnerability that we have. You may see China does not 
even hide it. In 2010 in a dispute with Japan, they just cut 
off any rare earth elements and have threatened to do it to us.
    So can you talk about this dependence on critical minerals 
and how it affects the integrity of our defense industrial 
base, and what are we doing about it, either just us or 
hopefully with our allies, to deter China from these type of 
actions? Because as I have been saying, it is not a matter of 
if but when they are going to do this to us. As you know, many 
of our critical weapon systems like the F-35 have enormous 
amounts of these minerals in them. We are very, very vulnerable 
to our biggest strategic adversary in the world who has no 
qualms about playing hard ball.
    Secretary Lord. This is clearly an area of risk. It was 
called out in the 13806 report. We have a number of tools we 
can use at DOD, including DPA Title III investments, to help 
re-shore this capability to build both the capacity and 
throughput. We have made a few awards, for instance, on 
neodymium-iron-boride that is needed for magnets. We had one 
award there, and I have about six others here. There are a few 
more that will be coming out in the next couple of days. But we 
need to build the capacity and the capability to at least 
process, if not mine as well.
    We have some other tools that reach out into the 
interagency looking at adversaries who are disrupting our 
supply chain in a variety of ways. So we work closely with 
Commerce on IEPA standards and so forth.
    But I would say what we could do today is begin the mining 
and processing, number one.
    Two, we can think about stockpiling some more of these. I 
actually have responsibility for the DOD stockpile. We work 
through the Defense Logistics Agency (DLA) on that, and I think 
as you know, 50 U.S.C. 98 was amended in 1979 building on this 
authority that was created in 1939. We annually put out a 
report on what is in the stockpile. We look at fragilities. We 
have targeted rare earths.
    We also are looking at clean substitutes for some of these.
    So re-shoring, stockpiling, and looking at substitutes. But 
we need the authorities to move forward with these in some 
cases, and we certainly need appropriations. When Senator Ernst 
had earlier asked me what can Congress do to support the 
fragility of the DIB, one of the things that I did not have a 
chance to get to was talking about ongoing authorities and 
appropriations for DPA Title III. We actually have worked 
through OMB [Office of Management and Budget] and have 
submitted to Congress and hoped to see another appropriation to 
DOD under the CARES Act, and we actually had submitted $5 
billion for another DPA Title III appropriation because our 
industrial business council has a very long list of critical 
fragilities that we are trying to address. Rare earths are a 
key one.
    Senator Sullivan. Great. Thank you.
    I think we are going to begin a second round of 
questioning. Senator Kaine?
    Senator Kaine. Thank you, Mr. Chair, because I still have a 
lot of questions. Now I am really into this topic.
    So let me raise one, and COVID has been so bad, but I 
wonder if there are some opportunities that we should explore. 
I will give you an example.
    Many layoffs are occurring globally in the aviation 
industry because travel is down and then that is leading both 
airlines but also manufacturers to do layoffs. Rolls Royce has 
a big presence in Virginia. So we think of Rolls car, but Rolls 
Royce is really an engine company and they are high-end marine 
and aviation engines. There is a facility in Virginia called 
Crosspointe in Prince George County which had about 280 workers 
that just announced they were shutting down. Crosspointe, a 
very sophisticated manufacturing facility that makes components 
to high-end civil aviation jet engines. They are closing down 
because the demand for purchase of these aircraft on the civil 
side is going to be reduced in coming years.
    But it is a workforce that has some transferable work 
skills. I am wondering, for example, on the aviation side of 
our acquisitions in DOD, are we thinking about when we see 
Boeing contemplating layoffs or others contemplating layoffs on 
the civil side, are there things that we could do, say for 
example, with existing aviation platform contracts to dialogue 
with those suppliers about, hey, could we speed up production 
if we could transform a workforce that is doing civil aviation 
components over to the military side. We may be able to advance 
our procurement of some military assets by taking advantage of 
and productively using this workforce that is stranded right 
now. So I am wondering if you are contemplating that.
    Secretary Lord. Absolutely. In fact, we have been working 
that. You mentioned Rolls Royce. I was with Tom Bell the other 
day working with him on F-35 issues. I will tell you both Pratt 
and Whitney and Rolls Royce have looked to the defense side of 
the house, if you will, and they have been able to catch up on 
some issues and we are looking at pushing forward.
    I mentioned that we have done industry association calls 
pulling in many, many different industry representatives over 
the last few months with a much greater frequency than 
previously. We talk about these very issues, how we can take 
the drastic slowdown on the commercial side and leverage that 
on the defense side. We have actually worked with each of the 
military services to have early awards of some contracts to 
again both help with liquidity at the companies, as well as 
retaining the workforce, because you know, these skills are not 
generated overnight. Quite often on the defense side, we need 
clearances to work on some of the products. If we have a 
situation where these dual use type companies, if you will, 
that service both commercial and defense aviation--if they lose 
a significant portion of their commercial business, their 
overhead rates are going to go up significantly as well, and 
the defense cost is going to go up. So we are trying to create 
as large a base as we can and actively working with each of 
those companies.
    Senator Kaine. Thank you for that, Secretary Lord.
    Just one comment and then one final question.
    A comment about your point with respect to section 3610. I 
share your view on that point, and I think this is now a little 
bit of a cross-government point. There is all sorts of funding 
in our appropriations act. It could be for grants through the 
NIH [National Institutes of Health] or funds to universities or 
HUD [Department of Housing and Urban Development] gave out an 
award where the money was supposed to be spent by a certain 
time. Section 3610 contracts were supposed to be done by a 
certain time with outside contractors. COVID has dramatically 
changed the timing, the ability of folks to act in a timely 
fashion. It is my hope that Congress will recognize that and 
continue to allow flexibility in use of funds even past the 
time that may have been the allotted time or the agreed upon 
time pre-COVID because COVID has changed the reality.
    I am getting these requests from local governments and 
research institutions. I think the section 3610 issue kind of 
fits in that category. So I share your view that we should try 
to be flexible with that.
    Here is the last question I wanted to ask you. Last year's 
NDAA required the Department to compile plans to mitigate and 
adapt the effects of extreme weather on our bases. These are 
called military installation resilience plans. We have yet to 
receive any plans for the Department or any of the services. 
Can you tell me what the status of those required resilience 
plans is and when can Congress expect to see them?
    Secretary Lord. I know that my sustainment team works on 
those very issues under the installations group. I do not know 
the exact date and status of that, but I will take that one for 
the record and certainly get back to you.
    [The information referred to follows:]

    Secretary Lord. The Fiscal Year 2020 NDAA amended 10 USC 2864, to 
require installation master plans to include a new resilience 
component. The Department issued updated guidance for installation 
master planning to include this new component, and the Military 
Departments are now in the process of resourcing and undertaking the 
development of these new resilience components to their installation 
master plans. The Department plans to submit its first progress report 
to Congress by March 1, 2021, providing a list of all master plans with 
a resilience component completed during calendar year 2020.

    Senator Kaine. Thank you so much.
    Thanks, Mr. Chair.
    Senator Sullivan. Senator Shaheen?
    Senator Shaheen. One of the things that Assistant Secretary 
Gillis is about to receive is a letter from Senator Rounds and 
me that raises concerns that we have about the Defense 
Logistics Agency's significant reduction in their obligation 
authority. It is something that you and I discussed yesterday. 
I understand that their working capital fund has been 
constricted dramatically and that has led to that issue.
    I am particularly concerned about what this means for the 
troop support clothing and textile supply chain. It is a 
particularly fragile aspect of our defense industrial base, and 
further constriction of DLA's authority and the ability to 
award those contracts is really having a significant impact.
    Can you speak to that? Can you also talk about what you are 
thinking in terms of how we address those companies that are 
really being affected so that we do not have a significant loss 
of that aspect of our industrial base?
    Secretary Lord. Absolutely. Two different points there.
    One, the way the Defense Logistics Agency works is they are 
a working capital fund. So they have a certain amount of money 
that they can go and spend, and they obligate it before they 
spend it. If they do not liquidate the inventory they have on 
hand, it holds onto money, and therefore, you cannot continue 
the cycle.
    During COVID, the disbursement of a lot of these goods did 
not happen as quickly because there was a slowdown in the 
entire system, and so we got a lot of feedback about where are 
the orders. We have been working on that with companies. If 
particular companies have problems, again our DPA Title III can 
help, as well as 3610 for the one-time cost they have. We have, 
in fact, begun re-shoring quite a bit in terms of clothing and 
so forth, and we are working on that through our industrial 
base council.
    But what we think in terms of the demand signal, if you 
will, for liquidating the inventory--we are seeing it start to 
pick up, and we think in the October time frame we will begin 
to see some more of those obligations. But frankly, it is pure 
supply and demand.
    Senator Shaheen. Well, it is encouraging to hear that we 
think October may see a resurgence.
    A related issue to that and it sort of goes back to the 
issues that Senator Kaine was raising, that ``The Washington 
Post'' has raised. As we look at the awards, there have been 
some significant awards from the DLA to contracts for medical 
gowns to address PPE [personal protective equipment] 
shortfalls. IT is my understanding that some of those contracts 
have been to companies that have very little experience with 
producing that kind of equipment, that the standards have not 
always been up to par, and it has created some real challenges. 
I understand that the awards were made using lowest price 
technically acceptable contracting procedures. Maybe you can 
confirm that or not, and if that is the case, if it has 
resulted in sub-par products, should we think about, as we are 
looking at companies that are doing new products to address our 
domestic supply needs, that maybe the lowest price technically 
acceptable contract is not the best way to do that, that we 
ought to be looking at best value contracting. But can you 
speak to the challenges with that?
    Secretary Lord. In terms of the gowns, when we stood up the 
Joint Acquisition Task Force, there was a number of orders and 
a series of purchases that were put in place. We came on board 
and used our expertise to look at available supply and at the 
demand signal, and particularly for these gowns, we worked with 
DLA very recently to have two industry days and reached out to 
many, many, many small businesses often through industry 
associations again to make sure that they got all of the 
information and that we explained to them exactly what the 
process is. Then we went through a very rigorous process and 
just recently awarded some of those.
    But what I will do is make sure that we get back to your 
office specifically with the specific companies and the issues 
and the process we use. I know this was raised to us early on, 
and we spent an enormous amount of time at the JATF making sure 
we had free and open competition and that very stringent 
criteria were met and adhered to.
    Senator Shaheen. Thank you. I would appreciate if you could 
let us know what you find out.
    Mr. Chairman, can I ask one more question?
    Senator Sullivan. Sure.
    Senator Shaheen. Can you tell me what the status is of our 
efforts with Turkish suppliers and when they are going to be 
removed from the F-35 supply chain?
    Secretary Lord. As you know, because of the S-400 purchase, 
we had multiple face-to-face meetings with the Turks and a lot 
of correspondence. I was involved in these saying the S-400 and 
F-35 were mutually incompatible, and we said that there were 
some boundary conditions. If the Turks took delivery, we would 
then remove the supply chain.
    We estimated it would be about $600 million or $700 million 
in non-recurring engineering to begin to do that. We did 
actually begin the work prior to announcing that we were 
withdrawing from Turkey.
    When the S-400 actually was delivered to Turkey, we then 
very overtly began the work. Prior to that we were quietly 
doing some things.
    What we found was that although we balanced out the 
majority of contracts, there were a number of them for the 
center fuselage, from some of the F-135 engine parts, 
integrally bladed rotors, for instance where these are very 
large, complicated parts. If we terminated the contract by 
December 2020, we would incur almost $1 billion and affect the 
production of the F-35. So we made a decision on a number of 
parts that it was smarter in terms of taxpayer dollars and 
warfighter readiness to let those contracts play out in Turkey 
so that we would not have these huge termination liability 
costs. So we have a few of the products that will go until 
2022.
    But we have detailed information we can get you on this. I 
know Senator Langford and I have talked about this multiple 
times and Secretary Esper actually has had the same 
conversations.
    I want to assure you that we are balancing what the cost is 
to remove the supply chain from Turkey and what impact it would 
have on warfighter readiness not only in the United States but 
for our international partners. We are well on our way, and the 
bulk of the parts will be out by the end of the year.
    Senator Shaheen. Does that mean we are not concerned about 
that compromising the technology of the F-35 and being able to 
have that shared with Russia and other adversaries?
    Secretary Lord. We have worked very, very closely with 
Turkey on any sensitive information, and at this point, we are 
confident with where we are.
    Senator Shaheen. Can you explain that a little bit more? 
What does that mean when we say we are confident----
    Secretary Lord. Perhaps in a different setting, we can talk 
about that.
    Senator Shaheen. Mr. Chairman, I think that would be a good 
topic for another hearing perhaps in a classified setting.
    Senator Sullivan. I agree.
    Senator Shaheen. Thank you.
    Senator Sullivan. Thank you, Senator Shaheen.
    I hope the Pentagon kind of longer-term lessons learned on 
this is making sure we do not have to go through this again 
with allies. Turkey is an important ally, but we cannot be 
reliant on an ally that all of a sudden starts to be very 
focused on cooperation with one of our biggest strategic 
adversaries. So I think it is an important lesson for the 
Pentagon kind of writ large going forward.
    I want to turn back to the issue of strategic critical 
minerals. Madam Secretary, you talked about authorities and 
funding. You know, the one issue that I think is a good 
example--and I want to get your opinion on it--in the early 
1970s after the first Arab oil embargo, the United States, 
under United States leadership with all our allies, at the OECD 
[Organisation for Economic Co-operation and Development] and 
others set up the International Energy Agency (IEA). A key 
element of the IEA is the strategic stockpiling of petroleum 
that we now do in the United States, but all of our OECD allies 
do that in coordination with the International Energy Agency. 
Obviously, that took an act of Congress to set up the Strategic 
Petroleum Reserve (SPR), but I think that most people would 
recognize it has been a bipartisan success over decades.
    How does that Strategic Petroleum Reserve differ from the 
national defense stockpile? Should the national defense 
stockpile be expanded to take on a role similar to the 
Strategic Petroleum Reserve? Would you need, you mentioned, 
authorities or funding? Is there a pathway to make that happen?
    Let me just mention that would, of course, provide security 
but also market certainty. I mentioned earlier that whenever 
there is a mine or processing facility, not just in the United 
States but around the world, that looks like it is going to 
make progress on the supply of strategic critical minerals, the 
Chinese have actually aggressively worked to shut that down by 
flooding international markets. So this is an important issue 
for national security, economic security.
    What is your thought on that, and how could we implement 
something like that? Or are we already doing it? Do you have 
the authorities with the national defense stockpile?
    Secretary Lord. It is clearly known that these rare earth 
minerals are very important for many applications. Often we in 
the Department of Defense have the power to convene and the 
ability to invest some money to start on an effort that we 
think is critical for national security. I would assert that we 
are doing the same thing for microelectronics right now. So we 
are on a trajectory to increase our national defense stockpile 
relative to rare earth minerals. The silver lining of COVID has 
been that I think most Americans now understand the importance 
of having domestic supplies.
    We could certainly, especially under the auspices of the EO 
that just came out yesterday, work with the interagency, 
because there is already a lot of work going on, to look at 
expanding the national defense stockpile to include more rare 
earths and to look at that as a national resource. But that 
would----
    Senator Sullivan. How do we make that happen? Can you do 
that? Do you need Congress? Would it be better to have Congress 
do that? Obviously, Congress played a huge role in the setting 
up of the Strategic Petroleum Reserve. We really need to get on 
this.
    Secretary Lord. Yes.
    Senator Sullivan. I think the SPR with the energy sector is 
a great kind of analogy for strategic critical minerals.
    What do you need from us?
    Secretary Lord. I would like to look into that to give you 
specifics to see what authorities--it obviously would take some 
authorities and some appropriations to do that. But I would 
like to take that on and get back to you. Within a month, I 
think we could give you a fairly detailed plan on that.
    Senator Sullivan. Great. Thank you.
    Let me turn to the issue--and you raised it, and I 
appreciate you raising it in your opening statement as it 
relates to the defense industrial base and small businesses. My 
State's economy--we are always looking to diversify our 
economy. We need to do that more in Alaska. We certainly have 
natural resources like oil and gas and minerals. But 
diversifying our economy has been important.
    In the last couple years, we have had a few small 
businesses that have had contracts, for example, with the 
Department of the Navy. I will not mention the company. But 
one, a very sophisticated machine in contract with the Navy. 
But at one point, Navy contracting officers told this company, 
hey, if you really want to keep the relationship going and you 
have opportunities, you might want to think about moving your 
manufacturing base to the Lower 48.
    I heard about this, made a phone call to the Secretary of 
the Navy saying you got to be kidding me. You got to be kidding 
me. What the hell. That is not how we are working to diversify 
small businesses in America, particularly in Alaska.
    So what are we doing to encourage not just in the places 
that have a lot of contractors, you know, like in the Lower 48 
near the big bases and the big contractors, but in more 
frontier-oriented States like mine? What are we doing to help 
those kind of businesses? My goodness, I certainly hope you can 
send through the chain of command in the Pentagon that kind of 
activity by a contracting officer is completely inappropriate. 
What are we doing to help the small businesses in States like 
mine plug into the industrial base and the opportunities that 
it affords, the work you are doing?
    Secretary Lord. First of all, I agree that is totally 
inappropriate. It is the first time I have heard of this.
    What we are doing is underneath of industrial policy in 
Acquisition and Sustainment, we have a small business office. 
Amy Murray runs that. She is highly talented and highly 
motivated, and she again is reaching out through industry 
associations to work with small businesses, connect them with 
the right groups inside of DOD, as well as the other government 
agencies and organizations that can support them.
    So, first of all, what I would ask is again for you to pass 
along these Welcome Mats, if you will, to your constituents so 
they know how to reach out to us. But we are conducting 
webinars on a very frequent basis. We are talking with the 
services. So if we hear about capabilities, we can then match 
those capabilities with others.
    From a top-down point of view, with money we have been 
authorized and appropriated from Congress for DPA Title III or 
anything else, we are putting enormous pressure on the primes 
to be very transparent with the flow-down of those funds to the 
sub-tier companies to make sure they benefit from that.
    Senator Sullivan. Great, and is it one of your goals to 
kind of spread the wealth? Obviously, I am not calling out my 
ranking Member, but places like Virginia, given their big 
industrial base here in the Navy and everything, there are 
probably a lot of opportunities. But to spread the wealth to 
parts of America that--you know, my State has more veterans per 
capita than any State in the country. We are very patriotic. We 
love our military. But to have opportunities in places that 
maybe do not come front of mind to the Pentagon like in Alaska, 
to spread the wealth here for opportunities. Is that part of 
your goal?
    Secretary Lord. Absolutely. We support geographical 
diversity just like all diversities. I will commit to you by 
the end of the year, one of our industrial policy team will 
visit the State of Alaska and meet with your small businesses.
    Senator Sullivan. Perfect. Thank you.
    I think Senator Duckworth is on the line. So I am reaching 
out to her.
    Senator Duckworth. Yes, I am, Mr. Chairman.
    Senator Sullivan. You are up.
    Senator Duckworth. Good morning. Thank you for having this 
hearing.
    Under Secretary Lord, thinking through the challenges of 
peer competition and conflict, I am very concerned about our 
ability to sustain our troops while they execute the vision of 
warfighting laid out in the NDS. In particular, I am focused on 
the Indo-Pacific region which presents unique challenges.
    Our services plan to operate in smaller, more distributed 
formations across a large and geopolitically complex region 
perhaps with limited communications. It is clear that INDOPACOM 
[U.S. Indo-Pacific Command], DLA Indo-Pacific, and the military 
services will have to rethink the way they sustain warfighters 
in theater not only with critical food, fuel, parts, and other 
maintenance equipment. These all will potentially have to 
travel greater distances if they cannot be sourced locally. But 
higher headquarters might not receive the sort of feedback and 
visibility on supply levels and efficiencies that our logistics 
enterprise has grown accustomed to operating in in the last 
several years.
    Under Secretary Lord, from your perspective, what are the 
biggest challenges to ensuring that the supply chain can 
respond to the needs of distributed warfighters in the Indo-
Pacific region?
    Secretary Lord. Senator, this is a key area of focus for 
the Department. In fact, every Monday, senior leadership, 
military and civilian, get together for a national defense 
strategy implementation meeting. One of the topics we are 
focusing on here in the near term are contested logistics for 
that very reason. With force employment, this becomes much more 
of a challenge.
    I would say that number one issue is planning to understand 
what we are going to do and then, two, communications. We are 
looking at our distribution network, at our supply network to 
make sure that we are there in the time of need. So we 
obviously have warfighting plans. We have very detailed 
logistical plans to go along with that, and just as we are 
sending aircraft carriers out with little notice and perhaps 
surprising some, we are sending aircraft places surprising 
others. We have a lot of work going on in logistics that we do 
not talk about, but to be there for the very reason you state, 
to support the warfighter wherever they might be.
    Senator Duckworth. Are there any particular procedures or 
programs that we should be considering to address these 
challenges?
    Secretary Lord. I will tell you that is a very, very 
important question and offer. I would like to take that for the 
record and come back to you in the next couple weeks because we 
are actually convening some very critical meetings on this 
topic literally in the next week or two.
    [The information referred to follows:]

    The Department of Defense (DoD) continues to develop the Joint 
Concept for Contested Logistics (JCCL)--one of four supporting concepts 
for the Joint Warfighting Concept (JWC)--to address supply chain 
integrity in the near-, mid-, and long-term. This seminal, global, and 
combined concept represents a top-down approach to requirement and 
capability development. In this effort and beyond, we ask for the 
continued support of Congress in shaping programs and policy to address 
extant challenges.

      Defense Industrial Base. Authorities that incentivize 
industry, as articulated in 50 U.S. Code section 4517, are essential to 
effectual support of the warfighter. Ensuring surge capacity and 
removing single points of failure may drive additional investments. 
Additionally, commercial partnerships are necessary to enable possible 
future action.
    Further, we recognize the need for stewardship of scarce resources 
in transitioning to a lighter footprint, expressed in the efforts of 
demand reduction, support of allies and partners, and forward presence 
(force structure and prepositioned stocks).

      Forward Presence & Agile Basing. Contingency construction 
authority for Combatant Commanders will enhance the ability to project 
and sustain the force. Forward presence and agile basing depend on 
contracting speed and agility.

      Multi-Capable Distribution Platforms. Sealift capacity is 
critical in projecting power and sustaining operations. Expanding 
alliance agreements, the Vessel Intermodal Sealift Agreement (VISA), 
and the Maritime Security Program (MSP) to increase capacity will 
mitigate risk during the period of organic fleet recapitalization. 
Accordingly, the DoD supports the 2021 NDAA language that decouples new 
vessel construction from used foreign-built vessel procurement.
        Additionally, to effectively deploy and sustain the Joint Force 
in a contested environment, investment is necessary in realizing over-
the-shore fuel distribution and an effective blend of manned and 
unmanned platforms (above and below the surface).

      Logistics Intelligence. The capability to access, 
aggregate, and synthesize logistics data across all classes of supply 
and weapon systems at echelon across all domains, is necessary to 
achieve decision advantage and provide the Joint Force Commander 
options in a contested environment.

    Senator Duckworth. Wonderful. I would love to be read in on 
the follow-on to those meetings, please.
    Secretary Lord. Very good.
    Senator Duckworth. Thank you.
    I know the Department understands the risk, as you said, of 
our supply chain posed by competitor nations and potential 
adversaries. I am pleased to hear that the Department has been 
taking more offensive steps to shore up our supply chain, from 
encouraging domestic production of key products and systems, as 
you have already mentioned, reducing international independence 
to working with allies and friendly partners to mitigate risk 
to that supply chain. These and other efforts I think really 
display good foresight.
    However, I am concerned about our ability to actually 
deliver sustainment to our troops in a peer conflict. While the 
Indo-Pacific region poses some particular challenges, I believe 
that our logistics enterprise needs to be prepared to operate 
in a contested environment on a global scale.
    Are we prepared to deliver necessary weapons and 
sustainment to a broad footprint of foreign-based troops around 
the world within a contested environment? How does our supply 
chain need to evolve to meet these challenges?
    Secretary Lord. We are developing those plans right now, 
and perhaps in a different setting, at a classified level, we 
could talk about that a little bit more.
    Senator Duckworth. Thank you.
    Mr. Chairman, I would love to have that hearing in a 
classified environment, if you would consider it.
    Senator Sullivan. Yes. I think that is a growing consensus, 
Senator Duckworth, on this hearing that we will do that. So 
thanks for weighing in on that.
    Senator Duckworth. Thank you.
    Senator Sullivan. I have one more just quick set of 
questions, and I think one more Senator is trying to jump in 
and if we get him on time, we will do that. Otherwise, we will 
wrap up this hearing.
    I appreciate again, Madam Secretary, your hard work on a 
lot of these issues.
    I want to talk about kind of the more directly related to 
the issues of COVID and how we are trying to get through this 
pandemic and the important role that DLA and others are playing 
in this regard. Let me ask two questions.
    One--and I do not know if you have thought about it, but 
one of the things that I have heard back at home with regard to 
testing is these kind of continued challenges with the reagent 
supply. Has there been any focus on you or others taking a more 
aggressive approach with regard to the industrial production of 
that critical aspect of testing? That is one question.
    The second, with regard to the possibility that hundreds of 
millions of vaccines will be needed to be distributed to the 
U.S. population in the coming months and next year, our 
government is going to need a massive coordinated distribution 
plan to get vaccines from assembly lines to American citizens. 
What is DOD doing to ensure that they can help distribute 
vaccines? Hopefully we will see those soon that are safe and 
ready that are likely to be available, but logistically we have 
a big country. What are you doing on that? Because I think the 
Department of Defense can play an important role in that 
regard.
    So testing reagent and vaccine work are my two questions.
    Secretary Lord. Testing reagents is an area that we are 
working with HHS [Department of Health and Human Services] on 
industry expansion and throughput. We are investing CARES Act 
money using all the input from a team that we are sitting with 
at HHS to prioritize. We work with ASPR [Assistant Secretary 
for Preparedness and Response], Dr. Kadlec, at HHS, and then we 
go and place those orders both for industry expansion, as well 
as assisted acquisition for the production of those. I can take 
a question for the record here and get back to you with some 
specifics around that. So there is a lot of momentum right now 
in that area and quite a few awards that are being made.
    [The information referred to follows:]

    Secretary Lord. On July 10, 2020, The DoD's Defense 
Assisted Acquisition (DA2) Cell and the Department of the Air 
Force's Acquisition COVID-19 Task Force (DAF ACT) posted a 
Commercial Solutions Opening (CSO) announcement to solicit 
solution briefs to meet HHS' COVID-19 response priorities. The 
CSO contained multiple Areas of Interest (AOI), including one 
to expand the domestic manufacturing production capacity of 
screening and diagnostic tests and reagents. This CSO closed on 
August 15, 2020.
    The U.S. Government evaluated submissions and, based upon 
HHS priorities, invited offerors to the final stage of the 
solicitation process. To date, the DoD has awarded five 
contracts worth $178 million from the screening and diagnostics 
AOI.
    The DA2 is aware of other supply chain and raw material 
issues caused by increased demand of COVID-19 testing. To 
present additional investment options to meet this demand, the 
DA2 and DAF ACT opened a second CSO to invest in industrial 
base expansion of Point of Care testing and illuminate 
additional supply chain constraints. This CSO opened on 12 Nov 
and will close on 1 Dec. Upon evaluation of the proposals, the 
DoD will present additional investment options to HHS to 
increase domestic capacity.

    On the second question in terms of distribution of vaccine, 
as you know, General Perna is working at senior levels, 
Operation Warp Speed, that is looking at that distribution. We 
have many military individuals detailed to that effort. So 
Operation Warp Speed is leveraging our military know-how and 
infrastructure. The White House right now is deciding exactly 
how that distribution plan will work, but we stand ready to 
support that.
    Senator Sullivan. Thank you.
    I believe Senator Jones is on the line. Senator Jones?
    Senator Jones. Thank you, Mr. Chairman. I appreciate the 
opportunity here. Thank you for being here.
    Secretary Lord, the Chinese Communist Party strategy that 
is known as the Military-Civil Fusion harnesses output of 
China's civilian economy for the benefit of defense. Do you 
have any concerns that the Chinese are attempting to infiltrate 
United States companies throughout the supply chain, both with 
employees and investors? Have we seen any instances of that 
within our defense-related companies?
    Secretary Lord. I am absolutely concerned about Chinese 
infiltration at every sector of the United States economy, and 
in fact, we spend a lot of our time dealing with cybersecurity 
in large part due to China. That is why we just rolled out our 
CMMC [Cybersecurity Maturity Model Certification]. It is why we 
look at cyber hardening of our weapon systems all the time. We 
work very, very close with the defense industrial base to make 
sure they understand the threats. We partner with NSA [National 
Security Agency] and CYBERCOM [Cyber Command] and with our 
industrial base to inform them of threats. There is every day a 
partnership there. So I would say there is an extremely close 
collaboration, and we are not only playing defense as we used 
to here, we are playing a bit of offense as well. This is only 
getting more aggressive. We work closely at DOD with the 
interagency, with authorities like IEPA and others. We are 
making sure that we neither have technology compromise nor we 
have individuals or HUMINT [human intelligence] that is 
exfiltrating critical national security data.
    Senator Jones. Great. Well, thank you very much.
    Do you have any specific--I really appreciate that answer, 
by the way, and I appreciate all that is being done at your 
level and across the executive branch.
    Do you have any specific recommendations that Congress can 
assist in in any of those efforts?
    Secretary Lord. Let me get back to you with specifics. I 
believe there may well be. A lot of this, frankly, is not 
continuing to engage with these Chinese companies on sensitive 
issues, but in turn, developing industrial bases here that 
makes us not reliant on that back and forth. There is quite a 
bit of discussion within the interagency right now about 
constraining Chinese involvement from everything from 
investments to specific commodities.
    But, again, I think one of the areas where we could have 
the most impact on China broadly is re-shoring 
microelectronics. Right now, my team is working very closely 
across DOD, as well as the interagency, to come up with a very 
specific recommendation for some public-private partnerships in 
order to develop the capability here domestically. We at DOD 
are only about 1 percent of the overall microelectronics 
market. However, we have some critical needs, and we have the 
technical acumen, if you will, as well as perhaps the 
authorities and the appropriations, to overcome that activation 
energy to have some trusted foundries here. Then we think we 
can work with other critical market segments, such as 
industrial controls, automotive, medical, to have just industry 
sustain those facilities. I think, you know, playing offense 
versus playing defense is the way we need to proceed here.
    Senator Jones. Great. I appreciate that. I agree, and we 
stand ready to help you in that regard.
    Let me ask you another question. You said in a press 
conference on September 9 that it might take as long as 6 
months for the defense industrial base companies to receive aid 
that was authorized in the CARES Act. Can you kind of explain 
why that is taking so long to receive these and what DOD is 
doing to maybe expedite that process?
    Secretary Lord. We have a process where we can go out with 
requests for proposals, get all of the one-time costs in, and 
then adjudicate what we can reimburse. The issue is right now, 
although we have all the authorities, we have no appropriations 
to do that. So if we move forward right now, we would be taking 
dollars directly out of programs, which would instantaneously 
affect readiness and then shortly affect modernization. So what 
we are very much hoping for and what we have submitted 
documentation for is an appropriation to take care of one-time 
issues between March 15th and the end of September, whatever 
the accounting would be for different companies. But right now, 
we are going to break programs and affect national security if 
we do those reimbursements out of programs.
    Senator Jones. Thank you, Secretary Lord. I would note for 
the record that we just passed a continuing resolution 
yesterday, and I know that that has a negative impact on the 
Department of Defense and our military. So I am going to take 
that as part of that answer as well, that we should not be 
kicking the can down the road.
    Finally, Mr. Chairman, thank you.
    I would like to associate myself with some of Senator 
Shaheen's comments about the concern about gowns and we will be 
submitting a QFR [question for the record] on that point.
    Thank you, Mr. Chairman, for allowing me to come in.
    Senator Sullivan. Thank you, Senator Jones.
    I think we are going to wrap up here with just a few 
comments. Senator Kaine, would you like to make a few?
    Senator Kaine. Thank you. These comments are really more 
for the Committee, but the testimony of Secretary Lord made me 
think of this.
    One, the trifold that you gave us about acquisition 
process, you have these six tenets at the top, and one is 
empowering program managers, and as you were describing Defense 
Acquisition University training of program managers, 
acquisition professionals, you said rather than just lecture 
them for 2 weeks about policy. We try to be problem solvers.
    You know, one of the things, Mr. Chair, that I guess having 
been on the Committee for a while that I do not yet feel like I 
have confidence in my being up to speed on this is what lessons 
are we learning from acquisition failures or successes. So KC-
46 from the very beginning in the competition, there were all 
kinds of challenges. Somebody went to jail with one of the 
bidders. I think way back when the competition started, it got 
canceled, got rebid. There was big fighting about it.
    What lessons have been learned from that, and have those 
lessons been lessons that the Air Force has learned? Have they 
shared it more broadly across the DOD family? What lessons 
should we take from that?
    F-35, a very good idea. Let us have a platform that could 
be used by multiple services, and why not allies too? Because 
interoperability is a good thing and cost sharing is a good 
thing, and yet, making that platform available and seeking 
investment from all these allies led to security 
vulnerabilities, and this quirky situation that is so upsetting 
with Turkey right now is going to cost us a lot of money and 
impose security risks.
    The Ford-class carrier. If you are going to do a new class 
of carrier, do you make everything new at once? Do you do the 
hull and the propulsion system and the communications system 
and the elevators and the arresting gear and the catapults--do 
you do it all new? Or should you do some of that new, and then 
once you got that down, then you start to add in in subsequent 
ships in the class some of the other innovations?
    Then there are positives. Virginia-class submarines, the 
kind of a co-op-etition that has done between Newport News and 
Electric Boat kind of leads to a spirit of competition between 
these two companies, even though they are ultimately 
participating in the same program, but that has driven some 
efficiencies. But I do not know, you know, have we learned 
about the value of that just within the Navy, or is that lesson 
something that the Air Force and the Army understand too.
    So it might be productive sometime for this Committee to 
kind of have a, you know, greatest hits and greatest failures 
of recent acquisition programs and try to get the DOD to come 
up and tell us, A, what lessons have been learned from either 
the good or the bad, and B, are the lessons being shared across 
all the service branches, and if so, show us some examples of 
how we have achieved some forward motion because of the lessons 
that have been learned.
    I do not really have confidence that we are necessarily 
learning the lessons and applying them. We may be and I am just 
not aware of it. But that might be something good for the 
Committee at some point.
    Senator Sullivan. Well, I really appreciate that comment. I 
agree fully with Senator Kaine.
    Madam Secretary, I think you are in a really good position 
to help us do that work, given your background both in the 
private sector and now in this important position.
    So I think that is something we should be taking on 
because, look, our acquisition system is one of the, I think, 
biggest vulnerabilities that we have. You know, there is a bit 
of a joke that runs through this Committee. Somebody once 
mentioned to me we should take our acquisition regulations, 
stamp them ``top secret,'' even though they are not, put them 
in front of the Chinese embassy and hope that the Chinese take 
on our acquisition program and let them learn the bad things 
that we do here, because it is not helping us and it is hurting 
us. I think that there are a lot of lessons learned that we can 
do, but when you look at a RFP [request for proposal] for a 
next generation handgun, pistol for NATO, and it is 450 pages, 
you know something is wrong with the acquisition system.
    So I think it would be great to be able to do that. I think 
you would be an outstanding point person for the ability to do 
that, lessons learned, good and bad, and then how do we 
implement them. A lot of that would require changes to the law 
and, in my view, getting rid of entire levels of bureaucracy at 
the Pentagon which causes a lot of these problems, well-
intentioned people, though, who are in a system that is not 
helping our nation act nimbly and quickly as we have to address 
the challenges of great power competition.
    So I do want to just thank you again. You know, I think the 
issues, as you are seeing here--this is very bipartisan. The 
whole issue of supply chains, the rise of China, COVID. It is 
outrageous that we are so reliant on the Chinese right now. 
Their calculated attempts to keep supply chains dependent on 
them has to stop, and I think you are in a perfect position to 
do that. I think there is strong bipartisan support and resolve 
to help the Department of Defense do that and to create supply 
chains that not just secure our national security but help 
American workers.
    These are all great jobs. The mining sector in my State has 
an average wage of $100,000 per worker. These are great jobs, 
and we do it better than anybody else with high environmental 
standards, clearly than the Chinese who trash their environment 
when they mine. We do not, so we should bring that home, and I 
think we have a great opportunity here.
    Again, I want to thank you and appreciate my colleagues' 
interest in this hearing. I do think that in short order, we 
should probably be redoing this at a classified setting.
    But with that, I want to mention any questions for the 
record that will be coming your way, we respectfully request 
that you try to get back to the Committee with answers within 2 
weeks. The record will be open for that amount of time for 
additional questions.
    I want to thank the Secretary again for her testimony and 
her service to our nation.
    This hearing is adjourned.
    [Whereupon, at 10:38 a.m., the Committee adjourned.]

    [Questions for the record with answers supplied follow:]

              Questions Submitted by Senator Dan Sullivan
                    defense production act title iii
    1. Senator Sullivan. Secretary Lord, the Defense Production Act 
(DPA) grants the President the authority during times of emergencies to 
purchase commodities that have been deemed critical to national 
defense. This authority is fairly broad and can be executed extremely 
quickly and effectively as we've seen with the President's use of the 
DPA during the COVID-19 pandemic for life-saving personal protective 
equipment. Understanding the speed with which DPA Title III is able to 
be used, do you think grants should be awarded quicker for domestic 
rare earth element production, and do you have personal suggestions on 
how we can deliver these funds faster?
    Secretary Lord. The DPA Title III program responded quickly to the 
COVID-19 pandemic due to several complementary executive and 
legislative actions. The President declared a national emergency under 
Proclamation 9994 and then issued Executive Order (E.O.) 13911. 
Congress also waived portions of the underlying DPA statute in the 
CARES Act. These actions removed numerous administrative burdens on the 
DPA Title III program, allowing it act with speed and at scale to 
respond to COVID-19. With respect to contracting approaches, the DPA 
Title III program used the most expedient method to meet the proposed 
scope of work, such as using Not to Exceed (NTE) letter awards or 
delegating work to other contracting activities.
    Given the highly complex nature of the rare earth metallurgy and 
manufacturing, combined with the outsized market presence of peer 
adversaries, DPA Title III projects in this area require significant 
market research and analysis to right-size investments to the core 
drivers of industrial base risk. DPA Title III awarded two contracts in 
September 2020 in response to the Presidential Determination for the 
domestic production capability of Neodymium Iron Boron (NdFeB) Rare 
Earth Sintered Materials and Permanent Magnets. In addition, the DPA 
Title III program has an ongoing solicitation for heavy and light rare 
earth separation.
    The President recently declared a national emergency with respect 
to certain imports of strategic and critical materials, under E.O. 
13953. Among other functions, this E.O. calls upon the Department of 
Defense to work with the Department of the Interior to resuscitate its 
legacy DPA Title III programs, executed under the delegation of 
authority in Section 306 of E.O. 13603. The Department of the Interior 
has a rich history of supporting the development of strategic and 
critical materials sources, notably through the Defense Minerals 
Administration, whose records are available to the public at the U.S. 
Geological Survey's website. The DPA Title III program has engaged with 
the Department of the Interior to implement E.O. 13953.

    2. Senator Sullivan. Secretary Lord, what are the specific rare 
earth grants made so far by the Department of Defense (DOD) under DPA 
Title III authority since July 2019? Please expand on how they help 
strengthen the U.S. supply chain and help us avoid supply disruption.
    Secretary Lord. In September 2020, the DPA Title III program 
awarded two contracts in response to the Presidential Determination for 
the domestic production capability of Neodymium Iron Boron (NdFeB) Rare 
Earth Sintered Materials and Permanent Magnets.
    The DPA Title III program awarded $1,665,072 ($864,049 in 
Government share, $801,023 in industry share) to Urban Mining Company 
and $3,446,422 ($2,325,125 in Government share, $1,121,297 in industry 
share) to TDA Magnetics. The awardees will demonstrate a domestic 
supply chain for sintered NdFeB permanent magnets by establishing, 
distributing, and managing a strategic stockpile of such magnets. 
Furthermore, both companies will submit reports to the DPA Title III 
program on business and engineering challenges associated with 
stockpiling NdFeB materials (e.g., packaging and rotation 
requirements). Both investments also will ease the path to compliance 
with new strategic sourcing requirements implemented in 10 U.S.C. 
Sec. 2533c.
    In addition, the DPA Title III program has an ongoing solicitation 
for heavy and light rare earth separation. Due to the ongoing nature of 
the solicitation, the DPA Title III program is unable to comment 
further.
    The DPA Title III program also recently issued an award to the 
Urban Mining Company for $38.8 million ($28.8 million in government 
share, $10 million in industry share) using funds appropriated by the 
CARES Act. This investment will sustain a vital domestic supply of rare 
earth materials and prevent a critical workforce disruption at the 
company due to COVID-19.
    Looking forward, these investments in the ``base'' function of the 
DPA Title III program--as opposed to efforts in response to COVID-19--
are hampered by statutory constraints that did not exist until 2014.
    More specifically, the Under Secretary of Defense for Acquisition & 
Sustainment formerly could issue determinations for DPA Title III 
action; today, 50 U.S.C. Sec. 4533(a)(5) establishes that only the 
President may issue such determinations. Additionally, no investment 
may exceed $50 million unless such actions are authorized by Congress. 
This statutory requirement limits the Department's ability to promptly 
mitigate capital intensive domestic industrial base shortfalls 
requiring more than $50 million in funding.
    The Department has previously submitted legislative proposals to 
address the above constraints, as well as a complementary proposal that 
would increase the aggregate funding authority for a positive list of 
high-priority industrial resources shortfalls related to energetic 
materials, rare earths, and hypersonics. The Department would welcome 
your assistance in refining this proposal for appropriate consideration 
or implementation in forthcoming authorization legislation.

    3. Senator Sullivan. Secretary Lord, I have recently heard that the 
DPA Title III office is designating certain projects as ``selectable,'' 
but not moving to formally award these projects with contracts. I also 
understand that the DPA Title III office may be short on funding. How 
does DOD plan to fully resource the DPA Title III office to fully 
resource projects designated as ``selectable'' in a reasonable 
timeframe, including rare earth projects that will reduce United States 
reliance on China for critical minerals?
    Secretary Lord. As stated in the Title III Funding Opportunity 
Announcement (FA8650-19-S-5010), evaluators categorize proposals as 
Selectable or Not Selectable. The basis for source selection is that 
technical evaluation, as well as importance to agency programs and 
funding availability. For proposals categorized as Selectable, 
evaluators recommend proposals for acceptance if there is sufficient 
funding. Additionally, calls under the Funding Opportunity Announcement 
(FOA) identify the estimated program cost and the anticipated number of 
awards.
    The DPA Title III Program relies on congressional appropriations 
and transfers from stakeholders to fund projects. The President's 
Fiscal Year 2021 Budget Request provides $181.9 million to address 
critical industrial base risks identified in the DOD-led report in 
response to Executive Order (E.O.) 13806 and modernization priorities 
to include the rare earths supply chain, radiation-hardened 
electronics, hypersonics, space, small unmanned aerial systems, and 
chemicals for DOD missiles and munitions. However, the expanded 
requirements from E.O. 13806 and the aforementioned Presidential 
Determinations (PDs) significantly outpace program funding. Though the 
fiscal year 2021 budget request provides substantial funding for that 
fiscal year, sustaining enhanced funding for the program will be 
necessary to ensure adequate resourcing to leverage the authorities to 
strengthen essential domestic industrial base capabilities over the 
long term.
    All funds requested in the Fiscal Year 2021 President's Budget 
Request reflect prior PDs and DPA Title III requirements at the time of 
the budget's submission to Congress. The Department of the Interior 
activity under DPA Title III represents a new-start program. 
Consequently, new funding would be required to implement this activity, 
appropriated directly to the DPA Title III program or to the Department 
of the Interior, for subsequent transfer and execution by the DPA Title 
III program.

    4. Senator Sullivan. Secretary Lord, the rare earth sphere is 
attracting innovation for the first time in a decade. What investments 
is DOD making in innovative rare earth element separation technologies, 
such as the RapidSX technology developed by the Army Research 
Laboratory?
    Secretary Lord. The Department strongly supports industry-developed 
technologies for more efficient production of strategic and critical 
materials. For example, the Department routinely solicits for the 
development of more efficient production and recycling techniques 
through the National Defense Stockpile (NDS) program, the Industrial 
Base Analysis and Sustainment (IBAS) program, the Small Business 
Innovation Research (SBIR) program, and the Rapid Innovation Fund 
(RIF).
    However, the Department is executing a larger pivot in the rare 
earth sector. Though we continue to support the bench-scale test work, 
the Department currently places a heavier emphasis on advancing nascent 
producers towards full-rate production, via investments under Title III 
of the Defense Production Act.
    The Department is participating in the broader whole-of-government 
approach to securing critical minerals supply chain as described in the 
report the Department of Commerce published in June 2019 pursuant to 
E.O. 13817 ``A Federal Strategy to Ensure Secure and Reliable Supplies 
of Critical Minerals.'' The Department of Energy (DOE) has been the 
leader in the Federal Government's science and technology investments 
for critical mineral processing, and this leadership will continue as 
the Federal Government executes the new strategy. DOE has the core 
mission, scientific expertise, and appropriations to continue to lead 
the federal government's science and technology investments for 
critical mineral processing.
                      lithium-ion battery minerals
    5. Senator Sullivan. Secretary Lord, the United States is 100 
percent import-dependent on graphite and manganese, with China being 
the world's leading supplier of both. Additionally, China is the 
world's leading provider in cobalt and lithium. These four elements 
together are critical materials in lithium-ion batteries, which as you 
know, are used to provide power to drones, portable communication and 
computer systems, as well as hundreds of weapons platforms. In your 
personal opinion, should graphite, manganese, cobalt, or lithium be 
designated under Title III of the DPA?
    Secretary Lord. As previously noted, on September 30, 2020, the 
President issued an Executive Order (E.O.) declaring a national 
emergency related to imports of strategic and critical materials.
    The DPA Title III program, intrinsically, does not generate 
requirements. DPA Title III is a standing authority that requirements-
owners, such as the Military Services and non-defense agencies, may 
deploy to mitigate their industrial base risks.
    Specific to strategic and critical materials, the authority to 
mitigate activities in this sector is jointly delegated to the 
Department of the Interior and the Department of Defense (DOD) under 
Section 306 of E.O. 13603. As noted earlier, DOD is assisting the 
Department of the Interior with executing this authority. DOD carries 
out Section 306 authority through the National Defense Stockpile (NDS) 
program, and the NDS program submits its requirements to Congress in 
classified reports, covered under 50 U.S.C. Sec. 98h-5. The Department 
estimates that it will deliver the next iteration of this biennial 
report in January 2021.
                     covid-19 vaccine distribution
    6. Senator Sullivan. Secretary Lord, in light of the possibility 
that hundreds of millions of vaccines will need to be distributed to 
the U.S. population next year--in 2021--the U.S. Government (USG) needs 
a massive, coordinated distribution plan to get vaccines from assembly 
lines to arms. The USG provided a contract to one U.S. distributor 
(McKesson Corporation) to distribute all of the vaccines. It seems that 
it will be extremely challenging to distribute vaccines to 350 million 
people in America through one company. What is DOD doing to ensure they 
can help distribute the multiple vaccines that are likely to be 
available?
    Secretary Lord. The Department of Defense (DOD) has an important 
but supporting role in our nation's fight against the COVID-19 
Pandemic. The Department of Health and Human Services (HHS) is the lead 
Federal agency, for the Federal Government's support of States' 
emergency response to COVID-19.
    Operation Warp Speed (OWS) is a partnership between HHS and DOD to 
accelerate development, production, and distribution of COVID-19 
vaccines, therapeutics, and diagnostics to produce and deliver 300 
million doses of safe and effective vaccines. OWS is harnessing the 
strength of existing vaccine distribution infrastructure through 
execution of an existing Center for Disease Control and Prevention 
(CDC) contract option with McKesson Corporation. Utilizing McKesson 
Corporation as a central distributor and partner carriers provide the 
ability to distribute vaccines and ancillary kits safely and quickly. 
Currently, OWS does not plan to utilize DOD to distribute vaccines.

    7. Senator Sullivan. Secretary Lord, does DOD have any concerns 
that having only one distributor that covers one-third of the supply 
network could lead to a single point of failure? In your personal 
opinion, should we use more than one distributor?
    Secretary Lord. The central distributor, McKesson Corporation is a 
reliable partner who has distributed tens of millions of vaccines 
annually on behalf of the federal government as part of the Vaccines 
for Children program. Not only are they making preparations to ensure 
the success of vaccine distribution by eliminating single points of 
failure, their partner carriers provide the capabilities and capacities 
necessary to accomplish our goals.
                            microelectronics
    8. Senator Sullivan. Secretary Lord, the Senate and House-passed 
National Defense Authorization Act (NDAA) for Fiscal Year 2021 included 
language that would establish a DOD industry consortium and a Commerce 
Department grant program to incentivize advanced semiconductor and 
microelectronics manufacturing in the United States. Would you support 
a condition for participation in a DOD consortium that companies not 
only be based in the United States, but also be able to produce 
microelectronics with manufacturing process technology developed in the 
U.S.? How might such a condition help drive more comprehensive U.S. 
supply chain security?
    Secretary Lord. The extremely high fixed costs of modern 
microelectronics manufacturing mean that maximizing efficiency and 
producing at high volume are critical for facilities to be commercially 
viable. Semiconductor foundries can manufacture products using designs 
and process technology from a variety of sources. Restricting industry 
consortium participants to manufacturing using only U.S.-developed 
processes technology would limit the number and types of products they 
could manufacture. In turn, these restrictions could reduce revenue and 
market share, employment opportunities, and the amount of financial 
resources available for research and development and reinvestment to 
keep domestic firms competitive.
    A robust and sustainable domestic microelectronics manufacturing 
industry is critical for the United States to supply products for 
military and commercial applications. As such, any efforts that hinder 
American firms' or potential consortium participants' business are not 
in the strategic interests of a healthy domestic microelectronics 
industrial base.

    9. Senator Sullivan. Secretary Lord, the National Defense 
Authorization Act for fiscal year 2020 required DOD, starting in 
January 2023, to purchase only microelectronic products that comply 
with trusted supply chain and operation security standards. This past 
summer, DOD released a Request for Information (RFI) soliciting outside 
organizations to develop this set of standards, which must be 
established by January 2021. What has the Department done to develop 
these standards, including which organizations have been selected to 
carry out the work, what existing standards are being considered and 
what gaps may need to be filled, and what will need to be done to meet 
the upcoming legislative deadline of January 2021?
    Secretary Lord. In July 2020, USD(R&E) issued a Request for 
Information (RFI) to Standards Developing Organizations (SDOs) to 
solicit interest and inputs on a path forward to address section 224. 
Positive feedback and follow-up by DOD is ongoing with several of these 
organizations. To facilitate development of the path forward, internal 
departmental efforts are providing the starting point for developing 
microelectronics supply chain and operational security standards. 
Several efforts are underway within the DOD to define Quantifiable 
Assurance criteria for acquisition programs to determine their 
microelectronics assurance requirements. For example, the Militarized 
Global Positioning System User Equipment program is piloting the 
development of the Quantifiable Assurance method for DOD custom 
integrated circuits and the National Security Agency is developing 
Quantifiable Assurance criteria for field programmable gate arrays. 
Both of these efforts will form the basis for guiding discussions and 
actions between government, industry, and academia to identify and 
mitigate supply chain risks where significant assurance capability gaps 
exist. The USD(R&E) continues to work with commercial industry and key 
government experts to develop commercial standards that are aligned 
with the overall intent of the section 244 legislation. This effort is 
being led by a team of cross organizational government experts in 
microelectronics supply chain security and policy. The work in this 
area will continue to evolve and respond to emerging threats and 
countermeasures.

    10. Senator Sullivan. Secretary Lord, section 807 of the Senate-
passed National Defense Authorization Act for fiscal year 2021 directed 
the DOD to create a strategy to manufacture state-of-the art integrated 
circuits in the United States within 3 to 5 years, including a plan to 
evaluate options for re-establishing microelectronics foundry services 
and associated industrial capabilities. How important do you think it 
is to incorporate private sector feedback into such a strategy, and 
would you consider establishing a formal advisory committee of U.S. 
company representatives to provide recommendations for the strategy?
    Secretary Lord. The Department welcomes open and robust industry 
participation, to include consideration of a formal advisory committee 
to assist DOD in developing strategies to sustain access to secure 
microelectronics. These activities will enable combat readiness of 
current and future systems. Over the last 18 months, my office has been 
working diligently to characterize the state of the global 
microelectronics industry, document threats to the DOD microelectronics 
supply chain, and develop solutions to these challenges. Industry 
cooperation has been enthusiastic and will continue to be crucial.
    Private sector-government cooperation is crucial to ensuring that 
the United States maintains a robust and innovative microelectronics 
industrial base for DOD and commercial applications. Over the last 50 
years, the federal aerospace and defense share of domestic demand for 
microelectronics has fallen from approximately 60 percent to 
approximately 1.3 percent of the market. As such, any solution that DOD 
enacts to secure and sustain access to state-of-the art secure 
microelectronics will have to leverage solutions that primarily address 
commercial needs, but also provide for DOD requirements.
                         printed circuit boards
    11. Senator Sullivan. Secretary Lord, in section 808 of the fiscal 
year 2021 Senate-passed NDAA, the Senate proposes to place supply chain 
restrictions on Printed Circuit Boards from various countries, to 
include China, North Korea, Russia, and Iran. The restrictions will 
apply to commercial off the shelf technology (COTS) products that DOD 
acquires in the market place (e.g. computers, cell phones, displays). 
Can you provide any initial thoughts on how this will affect the 
Department's future microelectronics acquisitions?
    Secretary Lord. The Department acknowledges that expanding domestic 
microelectronics fabrication capacity reduces the reliance on foreign 
sources for some of the most critical components used in DOD systems, 
and ensures a much higher level of component security assurance by 
reducing the likelihood of malicious tampering. However, the United 
States does not currently have the capacity to ensure the DOD can 
obtain the required percentages of printed circuit boards (PCBs) from 
the mandated sources by the dates outlined in the proposed language. 
The Department has recommended removing specified dates and allowing 
the DOD one year to work with industry and assess how to expand 
domestic capacity. The inclusion of one year will also be used to work 
with prime contractors to understand the ability to certify at the sub-
tier supply chain level and outline acceptable phase-in percentages and 
dates based on annual volume.
    Time and resources will be required for DOD to support increased 
U.S. capacity. There may be greater national security risk in 
restricting some products before a domestic capability or acceptable 
non-U.S. source is established. The DOD Executive Agent for PCBs will 
support the PCB industrial base assessment and development of a phased 
implementation approach based on their existing PCB roadmap. The 
assessment approach will be effective in understanding domestic 
capabilities and moving towards a full understanding of the 
requirements to achieve domestic PCB industrial base goals without 
imposing undue burden, specifically on DOD programs, with waiver 
requests, and limiting designs around legacy area technologies in 
microelectronics that would reduce system capabilities and increase 
cost.

    12. Senator Sullivan. Secretary Lord, how would section 808 affect 
small and disadvantaged businesses, like Alaska Native Corporations and 
other Alaska companies, which may not have the systems in place to 
monitor supply chains at the component level?
    Secretary Lord. Small businesses are crucial to a strong economy 
and a strong defense industrial base. Aiding small businesses is 
critical for job creation and investing in our communities; this is 
especially true for disadvantaged businesses. It is also crucial that 
DOD improves supply chain visibility. An inability to understand the 
source and pedigree of the microelectronics products in DOD systems 
poses two distinct threats to the nation. First, an inability to 
understand product source prevents DOD from understanding where parts 
are manufactured and to gauge the risk and impact of supply chains 
being disrupted, with a concomitant drop in combat readiness. Second, 
being unable to understand microelectronics part sourcing prevents DOD 
from verifying the pedigree of the part and the quality assurance of 
the manufacturing practice. This in turn opens up a variety of hardware 
and software threats that can have catastrophic consequences on the 
function of military systems.
    As such, DOD must act to balance the need to secure its supply 
chains and maintain combat readiness with the cost of doing so. Supply 
chain tracking requires financial and administrative resources. DOD is 
working to define improved methods of supply chain illumination to 
improve the ability to verify pedigree of parts while preventing 
onerous impact on industry partners, especially small and disadvantaged 
businesses.
                     adaptive acquisition framework
    13. Senator Sullivan. Secretary Lord, you have repeatedly stressed 
that one of your office's primary goals is to reform defense 
acquisition so that it delivers capabilities at the speed of relevance 
to our warfighters. You recently released the Adaptive Acquisition 
Framework (AAF), DOD's rewrite to the 5000 series. How is this new 
directive changing the department's acquisitions? Please expand on how 
this framework is empowering innovation and decision-making.
    Secretary Lord. Over the last two years the Department of Defense 
(DOD) has conducted a comprehensive review and rewrite of our DOD 5000 
series policies. The new policies, titled the Adaptive Acquisition 
Framework (AAF), includes 6 pathways, each designed for the unique 
characteristics of the capability being acquired (Figure 1). It is the 
most transformational change to acquisition policy in decades. The new 
pathways reflect the department's intent to change the acquisition 
culture by simplifying policy, encouraging innovation and providing 
program managers and decision authorities with greater authority to 
design and manage their programs. Let me provide a few examples of how 
our new policies support innovation
    The policies applicable to Major Capability Acquisition (MCA), our 
largest investments, facilitate innovation and effective decision 
making by providing program managers and decision authorities with the 
authority to ``tailor-in'' and consequently shape the regulatory 
environment that best suits their programs and to structure the phases 
and decision points in a manner that eliminates non-value added 
bureaucracy while promoting effective management. They also have the 
authority to capitalize on the characteristics of other AAF pathways 
that, in combination with the MCA pathway, facilitate more rapid and 
less risky program outcomes.
    The Middle-Tier of Acquisition (MTA) pathway is comprised of two 
acquisition approaches that program managers can employ to quickly 
assess new capability. The Rapid Prototyping policy facilitates speedy 
development and assessment of new technologies. The Rapid Fielding 
policy supports rapid fielding of mature technology and facilitates 
early user assessment. Both policies provide a more agile approach than 
traditional programs and encourage innovative management by design.
    Our new Software Acquisition Pathway (SWP) is equally innovative. 
SWP programs are delegated to the lowest management level commensurate 
with the size and risk. This pathway is built on commercial principles, 
such as Lean Startup, which enable rapid learning, innovation, and 
delivery of new Minimum Viable Products (MVP) in response to conditions 
of uncertainty. Software is developed in close collaboration with 
Warfighters and other users to ensure human-centered design, 
responsiveness to operational changes, and maximize mission impact. 
These commercial-world concepts are needed to give the United States a 
competitive advantage in an era of rapid learning, innovation, and 
disruption.
    In summary, the new policies documented in the Adaptive Acquisition 
Framework enable innovative management and facilitate the delivery of 
warfighting capability at the speed of relevance.
      
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                    new private sector technologies
    14. Senator Sullivan. Secretary Lord, what efforts is DOD taking to 
find and incorporate new technologies developed commercially by the 
private sector?
    Secretary Lord. The Department has implemented the Adaptive 
Acquisition Framework (AAF), which incorporates a number of best 
practices from industry, to enable DOD to deliver capability to our 
Warfighters faster. The AAF overhauls how the Department procures 
weapons and services and places emphasis on speed from initial concept 
and design to fielding, as well as on sustainment to reduce operations 
and maintenance costs across the lifecycle. The AAF gives DOD program 
managers more flexibility to address urgent operational needs, acquire 
major capabilities, and procure defense business systems and services.
    The Middle Tier of Acquisition (MTA) pathway is intended to fill a 
gap in the Defense Acquisition System for those capabilities that have 
a level of maturity to allow them to be either rapidly prototyped 
within an acquisition program or fielded within five years of program 
start. The rapid prototyping path provides for the use of innovative 
technologies to rapidly develop fieldable prototypes to demonstrate new 
capabilities and meet emerging military needs. The rapid fielding path 
provides for the use of proven technologies to field production 
quantities of new or upgraded systems with minimal development 
required.
    Michael Kratsios, Acting Under Secretary of Defense for Research 
and Engineering (USD(R&E)) committed to working more closely with non-
traditional commercial suppliers, most notably startup companies, to 
help the DOD strengthen and maintain the nation's position as the 
global leader in emerging technologies. The DOD also uses Other 
Transaction Authorities to support the development and maturation of 
technologies from small businesses and non-traditional suppliers that 
fit into the priority research and development technology areas 
identified by the USD(R&E). This allows the Department to make sole-
source awards to the same vendor who conducted the prototype work, as 
long as the initial prototype was competitively awarded.
    Additionally, ``Trusted Capital,'' a program under the Office of 
the Under Secretary of Defense for Acquisition and Sustainment, 
provides opportunities for trusted financial institutions and 
qualifying companies to explore mutually beneficial partnerships in 
support of national security goals. Trusted Capital promotes and 
protects the integrity of the U.S. Defense Industrial Base by reducing 
adverse private sector investment, financing, and theft of intellectual 
property by countries of special concern. The Trusted Capital program 
accomplishes this by performing national security due diligence at 
least annually on capital and capability providers that opt into the 
program via an open enrollment GovCloud IL4 online platform called the 
``Trusted Capital Marketplace''.

    15. Senator Sullivan. Secretary Lord, how is the current DOD 
acquisition process slowing down the development and implementation of 
new commercial technologies?
    Secretary Lord. The perception of the Defense Acquisition System is 
that of an overly complex and rigid system that fails to provide 
Program Managers and teams with the flexibility they need to take 
advantage of commercial advances and embrace emerging technologies. 
Although in reality DOD acquisition policies and processes provided 
flexibility, it was rarely exercised because of the numerous 
bureaucratic approvals required. With the implementation of the 
Adaptive Acquisition Framework, Program Managers are empowered and 
encouraged to be innovative by tailoring and adapting to more actively 
manage risk. Program Managers are encouraged to seek out and use new 
technologies especially those that have shown promise in similar 
applications. The AAF is meant to enhance flexibility and innovation. 
Our newest Pathway for Software Acquisition typifies this, and with 
assistance from Congress we are making real progress adopting modern 
software methods to develop and field software defined capabilities, 
which are prevalent in nearly every system.

    16. Senator Sullivan. Secretary Lord, it is often said that that 
our Nation's small businesses are the true strength of the U.S. 
economy. In my state, we have several small businesses that contract 
with DOD for critical supplies and services. In your personal opinion, 
what more do you think Congress can do to help incentivize DOD in 
diversifying its contract awards to a spectrum of small, medium, and 
large companies?
    Secretary Lord. The Department is keenly cognizant of the 
challenges faced by defense contractors in supporting critical National 
Security goals in support of the Defense Industrial Base. Specifically, 
the Department recognizes small businesses as crucial components in our 
Nation's effort to meet increased challenges from competitors and 
adversaries that threaten U.S. technological and industrial dominance. 
In that vein, last December the Department released a Small Business 
Strategy which outlined efforts to reducing barriers of entry for Small 
Business participation, identified strategies to better leverage small 
businesses as a means to enhance and support mission execution, and 
served as the framework of the Departments' commitment to integrating 
small businesses into our broader mission.
    More specifically, the DPA Title III Program relies on 
congressional appropriations and transfers from stakeholders to fund 
projects. Sustaining enhanced funding for the Title III program will be 
necessary to ensure adequate resourcing to leverage the authorities to 
strengthen essential domestic industrial base capabilities over the 
long term.
    The Department appreciates the continued congressional support in 
recognizing small businesses as the engine of our economy that provides 
critical goods, services, and technologies which actively contribute to 
the health of the manufacturing and Defense Industrial Base.
                               __________

               Questions Submitted by Senator Joni Ernst
                            dod supply chain
    17. Senator Ernst. Secretary Lord, what consideration is there that 
foreign states like China or Russia, acting through shell corporations 
or through anonymous investors, might try and invest in these companies 
in order to pilfer their intellectual property and gain access to our 
national security advantages?
    Secretary Lord. DOD recognizes the threat that shell companies, 
anonymous investors, and other opaque ownership structures pose to U.S. 
national security. Adversarial capital in opaque ownership structures 
has a larger attack surface and more delivery methods than most other 
deceptive actions or nefarious activities, making it difficult to 
identify, prevent, or counter effectively and in a timely manner. This 
threat is heightened when driven by states whose laws tighten 
government controls over companies and limit transparency.
    DOD works through several channels to address this threat. DOD is 
an active Member of the Committee on Foreign Investment in the United 
States which reviews foreign investments within the United States. DOD 
also works to improve transparency by updating the Defense Federal 
Acquisition Regulation Supplement with requirements for both DOD prime 
and subcontractors to identify and disclose foreign investment, and 
implement improved due diligence procedures across DOD investment and 
procurement activities. DOD must continue to identify, mitigate and 
when necessary, prevent foreign adversarial capital with all tools at 
our disposal to protect our defense industrial base and critical 
emerging industries.

    18. Senator Ernst. Secretary Lord, I am very concerned that after 
this crisis subsides, that we will lose the focus and whole-of-
government effort to attack this problem of supply chain security. I 
worry that DOD will pursue efforts for reshoring and sourcing here in 
America but will do so in isolation from the rest of the Federal 
government and the private sector. If so, we will have a bifurcated 
supply system where DOD buys limited volume from one or two suppliers 
at much higher prices while the rest of the Federal government and the 
economy goes back to the old habits of buying from China and other. The 
costs then will be borne by DOD alone and will cut deeply into DOD's 
budget authority, and when the next crisis hits, the rest of the 
economy will suffer again. How can we prevent this from happening?
    Secretary Lord. Bifurcation is a major concern for multiple supply 
chains such as personal protective equipment, rare earth elements, and 
microelectronics. DOD would like to work with other Federal Agencies, 
the Congress, and industry partners on long-term polices to increase 
demand for materials and goods from domestic and secure foreign 
sources. Commercial industry participation is key to driving sufficient 
demand to sustain robust and resilient supply chains.
    The DOD is currently using automated capabilities like Advana and 
Exiger to illuminate our supply chain dependencies and highlight where 
adversarial influence in our supply chain poses a higher level of risk 
to the production of defense capabilities. We use the information 
gained from these supply chain illumination tools to develop 
opportunities where we can identify or create additional sources of 
supply domestically or with allies and partners.
                      supply security with allies
    19. Senator Ernst. Secretary Lord, as you stated in your opening 
statement, your plan of action is nested with the Nation Defense 
Strategy. You discussed the importance of building alliances between 
trusted nations and private industry. Achieving this will require 
engagement across the whole government and complete support from 
Congress. I am fully prepared to support DOD's effort in moving toward 
that goal. Can you describe how you how assess allies and private 
industry when building or hardening supply chains?
    Secretary Lord. To the extent practicable, the Department strives 
to incorporate trusted allies and industry partners into U.S. supply 
chains by engaging in cooperative programs to leverage research, 
development, production, and support efforts related to national 
security requirements.
    The National Technology and Industrial Base (NTIB), (which includes 
the people and organizations of the United States, U.K., Australia, and 
Canada) supports increased cooperation between the United States and 
its allies to strengthen and secure defense supply chains. The NTIB, as 
established by 10 U.S.C. Sec. 2500, is intended to support national 
security objectives of the United States, including supplying military 
operations; conducting advanced R&D and systems development to ensure 
technological superiority of the U.S. Armed Forces; securing reliable 
sources of critical materials; and developing industrial preparedness 
to support operations in wartime or during a national emergency. The 
Fiscal Year 2017 NDAA charged the Department with the ``seamless 
integration between the persons and organizations that comprise the 
NTIB'' and the development of coordinated technology and defense 
industrial base policies and programs between these countries. DOD 
continues to coordinate efforts towards the seamless integration of the 
``transfer of knowledge, goods, and services'' of NTIB countries. 
Expansion of existing Buy American legislation could inhibit greater 
integration and cooperation between the U.S. and some of our closest 
allies and partners.
    The National Defense Strategy, Line of Effort #2 focuses on 
strengthening our international partnerships--largely to check China's 
economic and national security ambitions. International participation 
in our defense base promotes shared national security and prosperity. 
It also encourages standardization and interoperability of conventional 
defense equipment between the United States and its allies. The 
Department maintains that a diverse supply chains in partnered and 
allied countries is critical to combat reliance on adversarial 
countries for certain key goods.
                  semiconductors--invention and design
    20. Senator Ernst. Secretary Lord, technical leadership in the 
research and development of the semiconductor industry, including in 
the international standards setting, has been a cornerstone of U.S. 
national security and economic power, and it is central to sustaining 
U.S. global leadership in both semiconductor design and manufacturing. 
We want to make the semiconductors here but we also want to have them 
invented, designed, engineered, and tested here. What consideration is 
being given to the inventors and designers here in America as part of 
DOD's broader microelectronics efforts?
    Secretary Lord. The United States leads the world in design and 
intellectual property (IP) for microelectronics and our educational and 
research systems are the envy of the world. Maintaining this advantage 
is crucial not only to providing advanced systems to our warfighters, 
but also to providing a commercial advantage to domestic firms and 
supporting a strong economy.
    The Department is committed to sustaining a robust innovation 
ecosystem in the United States. We are also focused on ensuring that 
entrepreneurs can secure financial resources to help bring products to 
market without having to expose their technology to malign foreign 
influence. To that end, DOD is expanding our Trusted Capital program, 
which seeks to match verified investors with growing startups in need 
of venture capital or growth equity. This ensures that DOD can access 
the next generation technologies it needs, that foreign powers cannot 
gain control over critical technology and IP, and that entrepreneurs 
and startups have access to the capital they need to bring the next 
generation of technology to market.
                               __________

             Questions Submitted by Senator Martha McSally
  national defense authorization semiconductor incentives--chips for 
                       america act/asu questions
    In an effort to rebuild and return key industries such as 
semiconductors back to the United States, I have worked with my 
colleague, Senator Cornyn, for the inclusion of Creating Helpful 
Incentives to Produce Semiconductors (CHIPS) for America Act into this 
year's NDAA. CHIPS would establish Federal incentives to stimulate 
advanced chip manufacturing, increase U.S. supply chain security and 
competitiveness in the microelectronics ecosystem, and help ensure 
long-term national security. While I am thrilled a modified and 
bipartisan version passed on the Senator floor and similar language was 
included in the House version, I feel that there is so much more that 
needs to be done to support this key industry.
    As you know, the U.S. has been a global leader in semiconductor 
materials and device research and in semiconductor chip design. 
However, because the U.S. has lost the capability to translate 
innovations from the laboratory to the market (``lab-to-fab''), we are 
now falling behind in semiconductor manufacturing. I believe that this 
technology translation gap has created a manufacturing deficit and 
endangered our supply security for microelectronics. In my opinion, to 
fix this we will need to use every tool in the toolbox to cover that 
gap.

    21. Senator McSally. Secretary Lord in your opinion, do you agree 
that the semiconductor research and development pipeline--including 
technology translation from the innovators from our universities, 
National Labs, and companies--is key to maintaining a secure 
semiconductor supply chain?
    Secretary Lord. The United States invented the semiconductor and 
the microelectronics industry and developed the world's most effective 
research and development ecosystem. This ecosystem consists of our 
universities, National Labs, industry partners, and academia. 
Sustaining this ecosystem is critical to developing the technologies 
and products (such as artificial intelligence and machine learning) 
that the DOD needs for next generation weapons and platforms, and for 
developing the commercial systems needed for a strong and competitive 
economy.

    22. Senator McSally. Secretary Lord, as a follow up, do you believe 
that investing in capabilities or ideas, such as public-private 
partnerships, designed to bridge the lab-to-fab gap will build a 
pathway for future semiconductor technologies and robust manufacturing 
opportunities?
    Secretary Lord. Yes. Past public-private partnerships have been 
some of the best investments that the United States has ever made. 
Investments that help cross the ``valley of death'' from low technology 
readiness level (TRL) to high TRL are crucial to developing the systems 
that will help deliver solutions for DOD and for commercial 
applications in the coming decades. DOD supports the innovative 
concepts that can help bridge the lab-to-fab and ensure that the United 
States leads the world in advanced microelectronics technology.
                    state of the art semiconductors
    23. Senator McSally. Secretary Lord, DOD has traditionally 
supported semiconductors for its existing and legacy national security 
systems through programs like the Trusted Foundry program. There have 
been challenges, however, in retaining access through this program to 
the most leading edge, custom chips. More recently, DOD has established 
new efforts like the State-of-the-Art Heterogeneous Integrated 
Packaging (SHIP) Prototype Project and the Rapid Assured 
Microelectronics Prototypes using Advanced Commercial Capabilities 
(RAMP) to create a trusted microelectronics supply chain, including the 
design, fabrication, and assembly of microelectronics.
    Secretary Lord, how important are programs like SHIP and RAMP to 
ensure access to state of the art semiconductors for the future 
competitiveness of DOD systems?
    Secretary Lord. Programs such as SHIP and RAMP are critically 
important to ensuring DOD has secure access to State of the Art (SOTA) 
microelectronics technologies and to advance the capabilities of its 
warfighters and the weapon and computer systems they rely upon. These 
programs leverage SOTA on-shore commercial technologies and 
infrastructure while at the same time measurably assuring the DOD 
supply chain.

    24. Senator McSally. Secretary Lord, should availability of state 
of the art microelectronics products be a top priority for the 
Department, and if so how will it be accomplished in a cost effective 
manner?
    Secretary Lord. The Department needs access to the full spectrum of 
microelectronics--including state of the art, state of the present, and 
legacy parts to develop, acquire and sustain our systems. OUSD A&S is 
partnering with our R&E colleagues to ensure access to state of the art 
microelectronics cost effectively through efforts that leverage 
commercial technology and capability.
                     chinese military-civil fusion
    25. Senator McSally. Secretary Lord, can you describe to the 
Committee the kinds of real-world threats China's Military-Civil Fusion 
approach poses to the U.S. defense strategy?
    Secretary Lord. As the term ``fusion'' suggests, the People's 
Republic of China's (PRC) objective for its Military-Civil Fusion (MCF) 
Development Strategy is to remove any distinction between military and 
civilian capacity within key strategic sectors of Chinese economy and 
society. MCF seeks to maximize the strategic benefit of dual-use 
investments in all domains, including the maritime, space, and 
cyberspace domains, and it seeks to advance military-civil sharing 
across nascent technology areas such as biotechnology, new energy, 
quantum information sciences, artificial intelligence, and advanced 
materials and manufacturing.
    The MCF threat manifests itself in the prospect of improved and 
more responsive Chinese capabilities across all warfare domains and 
especially in emerging technology areas, challenging our own 
capabilities. Second, we must contend with the asymmetry inherent in 
systemic competition between our two countries. There are legal and 
ethical limitations on the degree to which the United States could 
replicate the PRC's whole of society mobilization it has pursued 
vigorously since around 2008, when the current form of MCF was first 
promulgated.
    From a technology security perspective, the PRC's MCF strategy is a 
very real threat to America's technological edge. One of the key tenets 
of the U.S. export control system is the expectation that the 
applicant, the foreign end-user, and their affidavits on how the 
technology will be used are truthful and genuine. Under the MCF 
strategy, DOD acknowledges risk when we export technologies of military 
utility to a PRC that openly professes a willingness to take that 
technology from a professed peaceful civil end-user and divert it to 
its military or state security apparatus. DOD, however, also recognizes 
that the United States still has a robust trade relationship with 
China, to include collaborations in science and technology, global 
communications, transportation, etc. These relationships require the 
exchange of goods and technology, some of which are dual-use. For these 
reasons, DOD provides technical, policy and regulatory expertise in the 
adjudication of export licenses to minimize the risks to national 
security in support of U.S. global trade.
                               __________

            Questions Submitted by Senator Marsha Blackburn
                         advanced manufacturing
    26. Senator Blackburn. Secretary Lord, what specifically do you see 
as the future role of Department of Energy (DOE) national laboratories 
in helping reinvigorate the defense industrial base?
    Secretary Lord. The Department of Energy's National Laboratories 
have served as the leading institutions for scientific innovation in 
the United States for over seventy years.
    As noted in the 2017 Annual Report on the State of the DOE National 
Laboratories, National Laboratories have a particular capability to 
tackle multidisciplinary problems with long time horizons, often 
coupling fundamental discovery research, technology development, and 
demonstration projects. In addition, the National Laboratories conduct 
R&D in areas that are not pursued by either universities or companies, 
such as helping to safeguard and manage the Nation's nuclear stockpile.
    The National Laboratories are also charged with a technology 
transfer mission to ensure that the Nation's R&D investment is 
exploited to the fullest extent. Developing technologies that can 
effectively be transitioned to the marketplace (e.g., 
manufacturability, aimed at a market need) typically involves 
engagement with industry. The cutting-edge experimental and 
computational capabilities at the National Laboratories provide unique 
opportunities for partners from the commercial sector to develop and 
test new technologies.
    National Laboratories also contribute to the development of 
advanced manufacturing technologies, which will provide benefits across 
the defense industrial base. In March 2020, the Industrial Base 
Analysis and Sustainment Program and the Manufacturing Demonstration 
Facility at the Department of Energy's Oak Ridge National Laboratory 
jointly launched ``America's Cutting Edge'' (ACE). ACE is the first in 
a nationwide network of regionally focused machine tool hubs. ACE has 
already made notable progress on three initial strategic research 
thrusts: developing technologies to increase productivity and 
efficiency of current machine tools; developing novel processes and 
control algorithms to enable hybrid manufacturing; and establishing new 
machine tool metrology, designs, and controls for large components.

    27. Senator Blackburn. Secretary Lord, in what priority areas 
should the Federal government invest to enhance joint collaboration 
between DOD and DOE national laboratories to advance high-precision 
machine tool systems?
    Secretary Lord. An innovative machine tool sector is fundamental to 
U.S. competitiveness. Using the Industrial Base Analysis and 
Sustainment (IBAS) program $20 million fiscal year 2020 congressional 
funding increase, the DOD and DOE partnered to establish a machine tool 
center of excellence called the America's Cutting Edge (ACE), with the 
goal of restoring U.S. machine tool prominence. The ACE is working in 
three key areas.
    First, easing and maximizing U.S. small and medium manufacturers' 
(SMM) use of today's machines. The ACE converts academic and 
engineering machining data into digestible, easy-to-apply formats for 
accelerated use and is prototyping tooling requirements needed to 
assist and accelerate new market entrants. These capabilities were in 
place to support new manufacturers entering the PPE market in response 
to COVID-19.
    Second, restoring innovation in the U.S. machine tool sector. The 
ACE is addressing some of the commercial and defense industrial base's 
unique machine tool challenges. Examples of current work include 
developing and proving new processes for using ``hybrid manufacturing'' 
to reliably make machined parts in less time and at lower costs and to 
simplify the machining of very large parts such as aircraft struts.
    Third, transitioning knowledge to workforce development programs. 
The ACE has developed a close partnership with a non-profit to ensure 
that our community colleges and technical schools have the latest 
information to ensure the next generation is prepared to take advantage 
of these cutting edge capabilities.
                       people's republic of china
    28. Senator Blackburn. Secretary Lord, which specific policies is 
DOD implementing to keep pace with the People's Republic of China's 
evolving strategy of Military-Civil Fusion?
    Secretary Lord. DOD`s efforts to keep pace with China's Military-
Civil Fusion (MCF) Development Strategy, in concert with other United 
States Government department and agencies, include: strengthening 
export controls so U.S. advanced technology is not diverted to PRC 
military end uses; enhancing visa screening to ensure that university 
and research institute collaboration is not being used to advance 
military programs in the PRC; identifying and recommending supply chain 
risk mitigation strategies; and bolstering foreign direct investment 
screening to ensure advanced R&D taking place in start-ups and other 
emerging industries is not being exploited to advance PRC military 
programs.
    DOD is also increasing transparency by shedding light on 
``Communist Chinese military companies'' who aide MCF under the guise 
of research or private industry activities in accordance with the 
statutory requirement of section 1237 of the National Defense 
Authorization Act for Fiscal Year 1999 (section 1237).
    In coordination with the inter-agency, to include State, Commerce, 
Energy and the Intelligence Community, DOD has been actively engaged in 
developing rules and best practices to identify items and technologies 
of greatest concern to national security and limit the PRC's access to 
those items. More specifically, DOD has identified critical 
technologies that would make a significant contribution to the PRC's 
military capabilities. DOD has also increased our visibility on dual-
use items being exported to the PRC by broadening license requirements 
and tightening rules around the most critical technologies. Most 
visibly, DOD has identified Chinese parties that pose the greatest 
risks, such as Huawei and SMIC, and placed significant restrictions on 
exports to them.

    29. Senator Blackburn. Secretary Lord, in your experience, how is 
the defense industrial base responding to the challenge of non-Chinese 
foreign investors with investment linkages to Chinese entities?
    Secretary Lord. The defense industrial base (DIB) and the more than 
300,000 companies it encompasses are increasingly vulnerable to 
indirect adversarial capital. In recent years, the DIB has seen China 
and similarly unscrupulous governments attempt to circumvent legal 
protections and scrutiny by using shell companies, fund vehicles, and 
other mechanisms domiciled in proxy jurisdictions to obfuscate the 
origin of their investment. COVID-19 meanwhile has only increased 
analytic gaps and exacerbated regulatory vulnerabilities, enabling 
adversaries to potentially exploit small businesses struggling to stay 
afloat in an uncertain environment. The DOD and the DIB community have 
taken multiple steps to respond to these threats.
    On the defensive side, DOD is a dynamic Member of the Committee on 
Foreign Investment in the United States (CFIUS) which identifies, 
mitigates, and, if necessary, blocks foreign investments that threaten 
U.S. national security. Congress' passage of the Foreign Investment 
Risk Review Modernization Acts in 2018 expanded the types of foreign 
investments that can be reviewed and broadened the Committee's 
authorities. On the offensive side, DOD has been developing a Trusted 
Capital program to connect struggling U.S. companies to clean capital. 
Ultimately, DOD wants to alleviate uncertainty and ensure companies 
critical to the DIB can stay in business without losing their 
technology to foreign adversaries.

    30. Senator Blackburn. Secretary Lord, how does DOD collaborate 
with allies and partners to guarantee that inputs from third party 
sources are not influenced--or invested in--by Chinese sources?
    Secretary Lord. The DOD recognizes the threat of Chinese influence 
and investment in materials and components acquired for DOD or for use 
within the defense industrial base (DIB). The DOD collaborates with 
allies and partners to remove undue Chinese influence from these 
materials and components, as well as from within our DIB partners. To 
achieve this goal, DOD leverages multiple engagements with allies and 
partners to discuss investment trends and flag problematic investments 
that affect the DIB.
    Also, multilateral forums, such as the multilateral National 
Technology and Industrial Base (NTIB) Investment Security Working 
Group, and bilateral engagements through the DOD-Ministries of Defense 
(MOD) outreach focus on sharing best practices, improving the national 
security focus of investment review, and outreach on problematic 
investments with DOD's access to the global DIB. Additionally, DOD 
works with other Departments and U.S. government agencies through 
larger multilateral meetings such as the Department of State's 
Multilateral Action on Sensitive Technologies (MAST) to examine broader 
multilateral issues.
    In cases of Chinese investments that affect DOD and allies, DOD 
uses all available authorities to coordinate and engage with these 
allies and partners to share information and assessments. Furthermore, 
DOD internally monitors foreign investments that may impact shared 
supply chains throughout the DIB and takes appropriate action on these 
cases. Through all of these engagements, DOD coordinates its efforts 
with allies and partners to ensure materials and components acquired 
from third-parties are not unduly influenced by Chinese sources.
                                   5g
    31. Senator Blackburn. Secretary Lord, do you identify any areas 
for improvement within DOD's plans for using trusted suppliers within a 
5G network?
    Secretary Lord. First, I should point out that we are focused on 5G 
within DOD, and specifically establishing prototyping and 
experimentation sites at DOD bases. We have just announced our first 
set of vendors for 5G equipment at these bases, and they do not include 
untrusted manufacturers - so there are none to remove. At the same 
time, the DOD 5G to Next G Initiative is investing in technologies to 
mitigate the impact of non-secure equipment to ensure security for our 
expeditionary forces when using foreign, untrusted networks.
    Second, as we move forward with future deployments, the impact of 
untrusted manufacturers depends on how deeply untrusted technology is 
embedded in the 5G network:
    If the level of granularity is entire manufactured network 
equipment solutions, the DOD, by statute, will not be deploying 
untrusted (e.g., Huawei or ZTE) equipment.
    If we are looking at systems/subsystems, then the answer is again 
that DOD will not be using Huawei or ZTE subsystems.
    For any technology components or software that is deeply integrated 
and embedded in systems, then the impact could be moderate to high 
because of the challenges in recognizing and excising these systems.
    DOD is working to determine the possible impact of untrusted 
manufactured systems versus untrusted subsystems versus untrusted 
embedded and integrated technologies. A secure supply chain needs to 
address all of these aspects.

    32. Senator Blackburn. Secretary Lord, do you observe or anticipate 
any issues in removing untrusted manufacturers from our 5G networks?
    Secretary Lord. First, I should point out that we are focused on 5G 
within DOD, and specifically establishing prototyping and 
experimentation sites at DOD bases. We have just announced our first 
set of vendors for 5G equipment at these bases, and they do not include 
untrusted manufacturers - so there are none to remove. At the same 
time, the DOD 5G to Next G Initiative is investing in technologies to 
mitigate the impact of non-secure equipment to ensure security for our 
expeditionary forces when using foreign, untrusted networks.
    Second, as we move forward with future deployments, the impact of 
untrusted manufacturers depends on how deeply untrusted technology is 
embedded in the 5G network:
    If the level of granularity is entire manufactured network 
equipment solutions, the DOD, by statute, will not be deploying 
untrusted (e.g., Huawei or ZTE) equipment.
    If we are looking at systems/subsystems, then the answer is again 
that DOD will not be using Huawei or ZTE subsystems.
    For any technology components or software that is deeply integrated 
and embedded in systems, then the impact could be moderate to high 
because of the challenges in recognizing and excising these systems.
    DOD is working to determine the possible impact of untrusted 
manufactured systems versus untrusted subsystems versus untrusted 
embedded and integrated technologies. A secure supply chain needs to 
address all of these aspects.
                               __________

                Questions Submitted by Senator Jack Reed
        defense logistics agency support for aerospace industry
    33. Senator Reed. Secretary Lord, COVID is having a devastating 
impact on many tier 1, 2 and 3 suppliers, particularly in the aerospace 
industry.
    Secretary Lord, what measures is DOD taking to ensure the near term 
and long term viability of the industrial base supply chain?
    Secretary Lord. The DOD is taking two-pronged approach to ensure 
the near and long term viability of the industrial base supply chain. 
The first is to address the near term impacts to the defense industrial 
base. The aircraft industry identified the liquidity or cash flow issue 
as the number one issue since the outbreak of COVID-19. In order to 
mitigate the cash flow issues, the DOD increased the progress payment 
rate from 80 percent to 90 percent for large businesses, and from 90 
percent to 95 percent for small businesses, which infused approximately 
$3 billion in cash to all levels of the defense industrial base. The 
DOD also pulled several program contracts forward, augmented the 
existing contracts and exercised contract options to increase the cash 
flow within the supply chain and mitigate the risks to fleet readiness.
    The DOD also leveraged the DPA Title III authority to award 
approximately $252 million of the CARES Act funds to maintain and 
sustain the aircraft industrial base and protect the workforce that are 
critical to the national security.
    In order to address the long-term viability of the defense 
industrial base, the DOD is focusing on modernizing, expanding, and re-
shoring of critical and emerging technologies to maintain a 
technological edge over the adversary countries. The DOD has identified 
the list of critical and emerging technologies for future DPA Title III 
investments including, but not limited to, propulsion enhancements, 
automation, and additive manufacturing, that will enhance the DOD's 
capabilities and capacities. The Department is also using Supply Chain 
Risk Management tools to monitor the health of the defense industrial 
base.

    34. Senator Reed. Secretary Lord, what role is the Defense 
Logistics Agency's (DLA) scaled back procurement orders playing in 
this?
    Secretary Lord. During the second half of fiscal year 2020, DLA 
experienced significant decreases in demand from the Military Services 
due largely to coronavirus disease 2019 (COVID-19) impacts. In order to 
better align with the demand decreases, and to ensure a healthy 
operating cash posture, DLA significantly scaled back spending over the 
fourth quarter of fiscal year 2020. During the last quarter of fiscal 
year 2020, DLA's actions to scale back likely resulted in suppliers 
seeing a reduction in the amount of solicitations for stock buys in the 
DLA Internet Bid Board System (DIBBS).

    35. Senator Reed. Secretary Lord, will you direct DLA to increase 
their rate of spending to help support and stimulate the industrial 
base rather than waiting for a demand signal from DLA customers to 
increase such procurements?
    Secretary Lord. DLA makes purchases based on anticipated customer 
demands in a manner that sustains a healthy cash position. Under the 
working capital fund business model, DLA relies on cash generated by 
customer sales. DLA's investments over the past several years to 
improve readiness levels, combined with a leveling off in customer 
demand, strained its financial capability to procure additional 
material in fiscal year 2020.
    DLA has already initiated action to increase its rate of spending 
for fiscal year 2021 at a much higher level than 4th quarter fiscal 
year 2020 and anticipates being able to sustain that increased rate 
throughout fiscal year 2021. As there is still uncertainty as to how 
COVID-19 will impact demand in fiscal year 2021, DLA will continue to 
work closely with the Military Services to understand and respond to 
their demand expectations and priorities.
    Mitigating Risks Related to Foreign Ownership, Control, or 
Influence in Defense Industry
    In the fiscal year 2020 NDAA, Congress mandated a series of efforts 
to improve DOD's ability to understand and mitigate the risks of malign 
foreign influence and ownership over defense contractors.
mitigating risks related to foreign ownership, control, or influence in 
                            defense industry
    36. Senator Reed. Secretary Lord, in the fiscal year 2020 NDAA, 
Congress mandated a series of efforts to improve DOD's ability to 
understand and mitigate the risks of malign foreign influence and 
ownership over defense contractors.
    Secretary Lord, do you agree that we are seeing attempts by China 
to have undue influence, access, and even control over defense 
contractors, ranging from Silicon Valley software companies to 
university researchers to traditional prime contractors and 
subcontractors?
    Secretary Lord. Yes, DOD has seen attempts by China to have undue 
influence, access, and even control over defense contractors. One way 
China attempts to exert this influence and control is through indirect 
investments aimed at the defense industrial base (DIB). The DIB and the 
more than 300,000 companies it encompasses are increasingly vulnerable 
to indirect adversarial capital investments from China, and similarly 
unscrupulous governments, through shell companies, opaque ownership 
structures, and other investment vehicles domiciled in proxy countries 
jurisdictions, in an attempt to obfuscate the origin of their 
investments and thereby circumvent legal protections and scrutiny. 
Meanwhile, COVID-19 has only increased analytic gaps and exacerbated 
regulatory vulnerabilities, enabling adversaries to target and 
potentially exploit small businesses struggling to stay afloat in an 
uncertain environment. DOD and the DIB community have taken multiple 
steps to respond to these threats.
    On the offensive side, DOD has developed a Trusted Capital 
Marketplace to complement and supplement the Committee on Foreign 
Investment in the United States (CFIUS) process. The Trusted Capital 
Marketplace promotes and protects the integrity of the U.S. DIB by 
reducing adversarial investment, financing, and theft of intellectual 
property (IP) from countries of special concern (COSC). The Trusted 
Capital Marketplace accomplishes this by performing national security 
due diligence annually on those capital and capability providers that 
opt into the Marketplace via an open enrollment GovCloud IL4 online 
platform. Ultimately, DOD wants to alleviate uncertainty and ensure 
companies critical to the DIB can stay in business without losing their 
technology either through licit or illicit means, or becoming reliant 
on foreign capital. Additionally, DOD works to improve transparency by 
updating the Defense Federal Acquisition Regulation Supplement (DFARS) 
with new requirements.
    On the defensive side, DOD is an active member of CFIUS, which 
identifies, mitigates, and, if necessary, recommends to the President 
to prohibit foreign investments that threaten U.S. national security. 
Congress' enactment of the Foreign Investment Risk Review Modernization 
Acts of 2018 (FIRRMA) has both expanded the types of foreign 
investments that can be reviewed and broadened the Committee's 
authorities. DOD is implementing improved due diligence procedures 
across DOD investment and procurement activities for both prime and 
subcontractors to identify and disclose foreign investment. DOD 
continues to identify, mitigate and when necessary, recommend to the 
President to prohibit foreign adversarial capital with all tools at our 
disposal to protect the DIB and critical emerging industries. 
Furthermore, DOD actively monitors foreign investments that may impact 
shared supply chains throughout the DIB and takes appropriate action on 
these cases. DOD coordinates its efforts with allies and partners, as 
appropriate, to ensure inputs from third-party sources are not unduly 
influenced by Chinese sources.

    37. Senator Reed. Secretary Lord, do you believe that DOD should 
establish policies where we can know more about the ownership of 
companies, especially companies receiving foreign and VC funding, who 
are working with DOD?
    Secretary Lord. The Department has policies in place to understand 
the ownership of companies and to mitigate foreign ownership, control 
or influence (FOCI), particularly for classified contracts through the 
National Industrial Security Program (NISP). In addition, section 847 
of the National Defense Authorization Act for Fiscal Year 2020 
established FOCI analysis requirements for an additional subset of 
companies, prime and subcontractors, and requires the Department to 
consider other ways to mitigate risks posed by FOCI. However, an 
outstanding need is a methodology for determining risk tolerance 
thresholds for all types of risks posed by FOCI across all programs. 
This methodology would be an essential component of a more holistic 
risk management approach, instead of the NISP's historically more 
compliance-based approach, and would facilitate DOD's ability to 
address FOCI risks systematically in a scalable, predictable, and 
equitable manner.

    38. Senator Reed. Secretary Lord, what steps have you taken to 
implement section 847 of the fiscal year 2020 NDAA? What timeline and 
milestones have you established for its implementation?
    Secretary Lord. The Defense Counterintelligence and Security Agency 
(DCSA) recently submitted to the Office of the Under Secretary of 
Defense for Intelligence and Security (OUSD(I&S)), a request for the 
resources that would be necessary for the DCSA to conduct FOCI analysis 
and mitigation development and management for a population of uncleared 
DOD prime and subcontractors identified in section 847. That resourcing 
would allow DCSA to provide the same level of analysis for uncleared 
companies as DCSA currently performs for cleared companies under the 
NISP. In addition, the DCSA is developing an implementation schedule 
for the FOCI analysis provisions of section 847 for which it is 
responsible. However, various items need to be addressed to facilitate 
development of a comprehensive implementation plan, including (1) roles 
and responsibilities for negotiation, implementation, and oversight of 
mitigation efforts; (2) roles and responsibilities for making the 
national security determination determination(s); (3) the appropriate 
level of FOCI analysis; (4) the appropriate risk tolerance threshold 
for FOCI concerns; and (5) the initial and yearly numbers of uncleared 
DOD prime and subcontractors fitting the requirements of section 847 
for analysis, mitigation, and oversight.

    39. Senator Reed. Secretary Lord, do you believe that DOD should 
establish policies where can know what specific individuals are working 
on DOD acquisition programs, including academic research, commercial IT 
and cloud services, Silicon Valley software and other technology 
companies, and traditional prime contractors and subcontractors?
    Secretary Lord. The DOD has policies in place to understand which 
individuals are working on DOD acquisition programs. Individuals 
working on classified contracts must have personnel security clearances 
to have access to classified information. In that context, the DOD 
knows who they are and has a level of trust in those individuals in 
connection with access to and handling of classified information. For 
unclassified contracts and acquisition programs, DOD may conduct 
background checks on certain individuals, as appropriate. Certain 
unclassified programs may require background checks for key personnel 
and have personnel vetting requirements.
                               __________
             Questions Submitted by Senator Jeanne Shaheen
            national defense authorization act section 1655
    40. Senator Shaheen. Secretary Lord, what is DOD's timeline to 
implement section 1655 of the fiscal year 2019 NDAA, and why hasn't DOD 
been able to meet the timeline established in the bill?
    Secretary Lord. Section 1655 requires contractors to represent 
whether they have disclosed code to foreign governments, for certain 
non-commercial products, systems or services, or disclosed source code 
to foreign governments identified on the list required by section 1654 
of the Fiscal Year 2019 NDAA, for certain products, systems or 
services. In addition, section 1655 requires development of a third-
party testing standard, which is/was to be developed as per the 
requirements of the statute. DOD has recently completed the engagement 
with industry regarding that standard, and a DFARS case to implement 
section 1655 is in process. Given that timeline, bidders have not yet 
had a requirement or the means to report on these disclosures.

    41. Senator Shaheen. Secretary Lord, since the passage of the 
fiscal year 2019 NDAA, has DOD bought software or systems whose source 
code was reviewed by entities or countries of concern?
    Secretary Lord. DOD may have procured COTS software for which 
portions of source code may have been reviewed by foreign governments 
identified on the list required by section 1654 of the Fiscal Year 2019 
NDAA, as such review could conceivably be a requirement for commercial 
sales in other countries.
                               __________

             Questions Submitted by Senator Mazie K. Hirono
                         defense production act
    42. Senator Hirono. Secretary Lord, there is a reported shortage of 
personal protective equipment (PPE) across the nation while the COVID-
19 virus still rages. Protecting frontline workers is critical as they 
care for the patients with this highly transmissible disease and yet we 
are still experiencing shortages of essential protective equipment for 
frontline workers. This administration says that using the DPA will 
allow for increasing N95 respirator masks production 160 million 
starting in October. Even at that rate of production, we will still be 
producing 1.6 billion units below the requirement (Kadlec, HHS, Feb 
2020). Since May, has DOD been asked to use DPA to contract for 
increased numbers of N95 respirator masks?
    Secretary Lord. The Department of Defense (DOD) used Defense 
Production Act Title III funds to award a total of four contracts worth 
$134.5 million to companies producing N95 respirator masks. Since May, 
there have been no additional DPA Title III investments, but the DOD, 
on behalf of the Department of Health and Human Services, awarded 
contracts using the CARES Act funds worth $162 million so N95 
respirator mask producers could increase their domestic capacity.

    43. Senator Hirono. Secretary Lord, you stated in Thursday's 
hearing that you receive requirements for PPE from Health and Human 
Services (HHS) and the Federal Emergency Management Agency (FEMA). Has 
DOD been told by either HHS or FEMA to no longer contract for personal 
protective equipment and if so, what was the reason provided?
    Secretary Lord. No. The Department of Health and Human Services and 
the Federal Emergency Management Agency continue to request DOD 
acquisition assistance to contract for PPE.

    44. Senator Hirono. Secretary Lord, are all of the N95 respirator 
masks produced by these contracts going to U.S. entities or are they 
being shipped overseas?
    Secretary Lord. The DPA Title III investments in N95 respirators 
will enable the awardees to (1) accelerate deliveries against current 
contracts, such as priority-rated purchase orders with the Strategic 
National Stockpile, and (2) meet the needs of other U.S. customers from 
their expanded production base. A minimum number of N95 respirator 
masks may be exported. The Department of Homeland Security administers 
authority under Title I of DPA, with respect to exports of PPE.

    45. Senator Hirono. Secretary Lord, how many of these contracts 
(total) went to small and medium business specifically for N95 
respirator masks?
    Secretary Lord. Three HHS CARES Act contracts for N95 respirator 
masks went to small businesses and no DPA Title III contracts for N95 
respirator mask went to small businesses

    46. Senator Hirono. Secretary Lord, has the DPA been used 
effectively to help with this shortage of PPE?
    Secretary Lord. The DPA Title III program has been used 
effectively. The program provided a tool to quickly conduct open 
competition and reach contract award faster than other potential 
procurement strategies.

    47. Senator Hirono. Secretary Lord, have there been any negative 
supply chain issues for DOD that could be potentially by remedied by 
expanding the use of the DPA?
    Secretary Lord. Yes. Executive Order 13806 (E.O. 13806) ``Assessing 
and Strengthening the Manufacturing and Defense Industrial Base and 
Supply Chain Resiliency of the United States'' (July 21, 2017) mandated 
an inter-agency assessment of the domestic industrial base. In the 
subsequent report delivered in response to E.O. 13806, DOD identified 
numerous high priority shortfalls within the industrial base, as well 
as their potential impacts.
    In response to E.O. 13806, the DPA Title III program has secured a 
record number of Presidential Determinations (15 issued in FY 2019-20) 
to address industrial base shortfalls in critical chemical production, 
rare earth elements supply chain, hypersonics, power storage, small 
unmanned aerial systems, integrally bladed rotors, and the sonobuoy 
industrial base. These Presidential Determinations allow for the use of 
Title III authorities against these critical industrial base 
shortfalls.
    However, these investments in the ``base'' function of the DPA 
Title III program--as opposed to efforts in response to COVID-19--are 
hampered by statutory constraints that did not exist until 2014.
    The Department has previously submitted legislative proposals to 
address the constraints, as well as a complementary proposal that would 
increase the aggregate funding authority for a positive list of high-
priority industrial resource shortfalls related to energetic materials, 
rare earth materials, and hypersonics. The Department would welcome 
your assistance in refining this proposal for appropriate consideration 
or implementation in forthcoming authorization legislation.
                          operation warp speed
    48. Senator Hirono. Secretary Lord, HHS has used DOD contracting 
authority Other Transaction Authority, 10 USC, 2371b, to rapidly 
prototype a vaccine. DOD has entered into $6.0 billion in contracts 
through Advanced Technologies International Incorporated (ATI). In 
order to provide increased transparency into the contracting effort, 
please provide specifics of what is required by each contract issued 
through ATI? What are the requirements, companies, and dollar amounts 
awarded?
    Secretary Lord. ``In an effort to answer the above question, JPEO 
reviewed the awarded contract list for OWS and found the following done 
through OTAs.
    COVID-19 vaccines:
    -  Pfizer: $1.95 billion award for manufacturing scale up and 
delivery of 100M doses of FDA Emergency Use Authorization (EUA) or 
licensure of BNT162
    -  Janssen Pharmaceuticals, Inc.: $1 billion award for 
manufacturing scale up and delivery of 100M doses of Ad26.COV2.S
    -  Sanofi and GlaxoSmithKline: $2.25 billion award for advanced 
development of Recombinant SARS-CoV-2 Protein Antigen and delivery of 
100M doses of vaccine and AS03 Adjuvant
    -  Novavax: $1.6 billion award for manufacturing scale up and 
delivery of 100M doses of NVX-CoV2373.
    COVID-19 therapeutics:
    -  Regeneron: $450 million award for manufacturing scale up and 
delivery of REGN10987 and REGN10933 as a cocktail
    -  AstraZeneca: $486 million award for EUA or licensure of AZD7442, 
and large scale manufacturing of up to 100,000 doses
    -  Partner Therapeutics; $34.9M; Advanced Development and Emergency 
Use of Leukine for COVID-19 Acute Hypoxemic Respiratory Failure
    -  SAB Biotherapeutics;$105M; Demonstrate of the ability to 
manufacture, at multiple scales, Coronavirus Disease 2019 (COVID-19) 
cGMP DP to support USG dose requirements for further clinical 
evaluation and/or EUA.
    -  The Ultran Group;$1M; Repurpose the Miniature Immunotherapy 
Neuromodulation Instrument (MINI) as a Medical Countermeasure (MCM) for 
COVID-19 treatment. The wearable device uses non-invasive low intensity 
focused ultrasound energy delivery to the spleen to suppress the 
production of inflammatory cytokines.
    DOD, in conjunction with OWS and HHS has also posted copies of the 
majority of the contracts above on the HHS FOIA Reading Room at: 
https://www.hhs.gov/foia/electronic-reading-room/index.html"
    Overall activity by performer and commodity can be found at:
https://www.medicalcountermeasures.gov/app/barda/coronavirus/
COVID19.aspx
                 defense industrial base consolidation
    49. Senator Hirono. Secretary Lord, like most other American 
industries, the defense industrial base continues to consolidate, which 
negatively impacts innovation, prices, and supply chain resiliency. The 
COVID-19 pandemic, which has been especially damaging to smaller 
businesses, will only exacerbate this trend. What actions are you 
taking to slow down this consolidation and encourage diversification so 
that the American taxpayer supports a defense industrial base that is 
able to meet future demands?
    Secretary Lord. The Department of Defense (DOD) has a role in the 
premerger review process set out in the Hart-Scott-Rodino Antitrust 
Improvements Act of 1976 (HSR). DOD's role in this process is governed 
by DOD Directive 5000.62. For any transaction involving Defense 
suppliers, OSD A&S works with the antitrust agencies, the Department of 
Justice (DOJ) and Federal Trade Commission (FTC) throughout the course 
of their premerger reviews. DOD advises FTC and DOJ on defense industry 
transactions but has limited authority. Each collaborative premerger 
investigation takes a number of factors into account for all 
transactions, examining potential effects on innovation, delivery 
times, prices, market entry, and supply chain impacts due to vertical 
or horizontal mergers between domestic suppliers.
    Additionally, the DOD routinely makes investments under the Defense 
Production Act Title III and the Industrial Base Analysis and 
Sustainment program in order to maintain competitive capabilities. For 
example, the Department of Defense made critical Defense Production Act 
Title III investments in the satellite photovoltaics industrial base in 
order to prevent the loss of qualified, domestic sources of supply. 
Furthermore, strong defense budgets are a key to sustaining diversity 
in the base. Cuts can cause consolidation.

    50. Senator Hirono. Secretary Lord, according to the Government 
Accountability Office (GAO), the rate of DOD competitive contracting 
has been decreasing for years. Sole source contracting introduces risk 
into the supply chain because it removes flexibility and choice from 
contracting. It is also frequently the result of monopoly or market 
consolidation, leaving the government stuck with whatever supply chain 
the monopoly company uses. Why is competition in DOD contracting 
decreasing, and what efforts is DOD making to reverse this trend?
    Secretary Lord. Several factors have contributed to a recent 
decrease in DOD's overall competition rate including the Department's 
product mix of contract requirements, sustainment of aging weapon 
systems, access to intellectual property and data rights that enable 
competition, and other market conditions. In FY20, the Department 
competitively obligated over $210 billion of the $420 billion in total 
contract obligations for a rate of 50.0 percent. However, as a 
percentage of contract actions awarded, DOD competed 99 percent of the 
over 48 million actions executed in FY20. DOD's overall obligated 
dollar rate is down from 53.8 percent in FY19. As a percentage of the 
DOD budget and of contract dollars obligated, the Department of the 
Navy realized the largest increase from FY19 to FY20--up from $121 
billion to $148 billion. A significant portion of this increase is 
related to follow-on procurements of major weapon systems and increases 
in foreign military sales contracts. The Department is also promoting 
innovation and competition by advancing policies to attract 
nontraditional defense contractors (NDCs) to break into the DOD market. 
Innovation tends to occur in businesses that are not currently DOD 
incumbents or primes. To enable innovation, the Department has taken 
steps to expand the use of the Other Transaction Authority to help 
attract NDCs. In addition, the Department is focusing efforts on 
incentivizing its prime contractors to improve competition for 
subcontracts involving major weapon systems.

    51. Senator Hirono. Secretary Lord, supply chain resiliency is not 
just about components, it is also about companies. One company, 
Northrup Grumman, is critical for all three legs of the nuclear triad: 
the B-21 bomber, the motors that launch ballistic submarine missiles, 
and intercontinental ballistic missiles. This type of dependency 
introduces significant risk into the system and creates a ``too big to 
fail'' type of situation. What safeguards are you putting in place to 
prevent this from happening in other defense spending domains?
    Secretary Lord. The DOD continues to evaluate and mitigate risks to 
industry, including industry consolidation. While the DOD generally 
desires at least two sources of supply for every component of the 
systems they use, this is not always feasible for logistical and 
financial reasons. The Department continually assesses the risk of 
single or sole source suppliers against the cost to maintain more than 
one supplier and the ability to identify or establish a second 
supplier.
    The Office of Industrial Policy helps prevent dependency on single 
companies by promoting competition in the defense industrial base. 
Industrial Policy supports the Department of Justice and the Federal 
Trade Commission as they conduct premerger reviews under the Hart-
Scott-Rodino Act. These premerger reviews are critical to limiting 
consolidation that has anticompetitive effects on the industrial base.

    52. Senator Hirono. Secretary Lord, you have publicly supported 
Qualcomm's monopoly position on communications chips and have alleged 
that our national security is tied directly to the health of Qualcomm's 
monopoly, particularly in our competition with China. However, Qualcomm 
has also offered to collaborate on chip production with the Chinese 
government and has contributed $150.0 million to China to receive 
preferential treatment. How are you ensuring that our defense 
industrial base does not rely on monopolistic companies that also 
collaborate with our adversaries, and how are you helping to develop 
robust and competitive markets at home?
    Secretary Lord. The Department of Defense (DOD) has a role in the 
premerger review process in the Hart-Scott-Rodino Antitrust 
Improvements Act of 1976 (HSR). DOD's role in this process is governed 
by DOD Directive 5000.62. For any transaction involving defense 
suppliers, the Office of the Under Secretary of Defense for Acquisition 
and Sustainment works with the antitrust agencies, the Department of 
Justice (DOJ) and Federal Trade Commission (FTC), throughout the course 
of their premerger reviews. DOD advises the FTC and the DOJ on defense 
industry transactions but has limited authority in HSR. Each 
collaborative premerger investigation takes a number of factors into 
account for all transactions, including an examination of the potential 
effects on innovation, delivery times, prices, market entry, and supply 
chain impacts due to vertical or horizontal mergers between domestic 
suppliers. HSR investigations focus on domestic firms and cannot be 
used in cases where a foreign acquirer may pose a national security 
threat. DOD does not review outbound investments by U.S. companies.

    53. Senator Hirono. Secretary Lord, please provide a list of all 
mergers and acquisitions your office has reviewed since the start of 
the Trump administration and the recommendation you have made on each 
merger or acquisition.
    Secretary Lord. Assessments are typically conducted at the request 
of the Hart-Scott-Rodino (HSR) Antitrust Improvements Act of 1976 (HSR, 
15 U.S.C. Sec. 18 a) which is led by the Federal Trade Commission (FTC) 
and the Department of Justice (DOJ), per DOD Directive 5000.62 
regarding DOD's purview over merger review and competition. All HSR 
investigations are nonpublic per section (h) of the Act, which states 
that ``[a]ny information or documentary material filed with the 
Assistant Attorney General or the Federal Trade Commission pursuant to 
this section shall be exempt from disclosure under section 552 of title 
5, and no such information or documentary material may be made public, 
except as may be relevant to any administrative or judicial action or 
proceeding. Additionally, DOD Directive 5000.62 states that all 
assessments must ``[b]e conducted under strict confidentiality with 
regard to proprietary information and in accordance with any 
confidentiality agreements.]'' (DOD Directive 5000.62 Sec. 1.2(c)). The 
Department of Justice (DOJ) and the Federal Trade Commission (FTC) as 
the HSR lead government antitrust agencies are best positioned to 
provide a detailed list of all mergers and acquisitions and their 
respective recommendations. DOD can also recommend that the antitrust 
agencies investigate a merger that falls under the HSR threshold if 
anticompetitive effects are identified. DOD does not make official 
recommendations, enforce antitrust laws, or take official action on 
mergers and acquisitions involving Defense suppliers. HSR, as with all 
antitrust laws, specifically mentions the Assistant Attorney General 
for Antitrust and the Federal Trade Commission as having the power to 
accept filings, extend waiting periods, issue second requests, and take 
action on pending mergers (15 U.S.C. Sec. 18a(a) -(i)). DOD Directive 
5000.62 allows DOD to make assessments at the request of the antitrust 
agencies and provide input to the official reviews completed by the 
antitrust agencies that involve Defense suppliers and subcontractors 
(DOD Directive 5000.62 Sec. 1.2(a) - (b)).
    Link to the Hart-Scott-Rodino Act (https://uscode.house.gov/
view.xhtml?req= granuleid:USC-prelim-title15-section18a&edition=prelim)
    Link to the DOD Directive 5000.62 (https://www.esd.whs.mil/Portals/
54/Documents/DD/issuances/dodd/500062p.pdf)

    54. Senator Hirono. Secretary Lord, please provide an executive 
summary with number of mergers and acquisitions reviewed, objections 
you have received, and any recommendations on structural modifications 
you have proposed to protect competition.
    Secretary Lord. The DOJ and the FTC are the statutory antitrust 
agencies for the HSR Antitrust Improvements Act of 1976. DOD works with 
these agencies and acts in an advisory capacity but the DOJ and the FTC 
are the final authorities for decisions regarding behavioral and 
structural modifications as a result of a merger that causes harm to 
competition. Under DOD Directive 5000.62, DOD does not enforce the 
antitrust laws or take official action on mergers and acquisitions 
involving Defense suppliers.
    For certain transactions, industry members have made complaints or 
raised concerns related to a merger. As the industry member complaints 
are part of the official investigation, they are subject to the same 
disclosure exemptions. All HSR investigations are nonpublic per 15 
U.S.C. Sec. 18 a section (h) of the Act, which states that ``[a]ny 
information or documentary material filed with the Assistant Attorney 
General or the FTC pursuant to this section shall be exempt from 
disclosure under section 552 of title 5, and no such information or 
documentary material may be made public, except as may be relevant to 
any administrative or judicial action or proceeding.'' Once an industry 
member complains, the antitrust agencies and DOD discuss the issue with 
the complainants as well as relevant stakeholders and industry members. 
DOD and the antitrust agencies also review any relevant documentation 
in the course of investigating the industry complaint. HSR reviews are 
nonpublic and DOD respectfully recommends posing these questions to the 
HSR statutory antitrust agencies.
    Link to the Hart-Scott-Rodino Act (https://uscode.house.gov/
view.xhtml?req= granuleid:USC-prelim-title15-section18a&edition=prelim)
    Link to the DOD Directive 5000.62 (https://www.esd.whs.mil/Portals/
54/Documents/DD/issuances/dodd/500062p.pdf)
                         dod progress payments
    55. Senator Hirono. Secretary Lord, Senator Elizabeth Warren wrote 
to you in April expressing concern that the temporary increase in 
progress payment rates for contracts may not lead to accelerated cash 
flow in the supply chain if prime contractors do not also accelerate 
payments to their subcontractors. In your response to her, you stated 
that ``each of the major prime contractors has committed to share with 
DOD its efforts to maintain and monitor its supplier base.'' How will 
DOD hold these prime contractors accountable if they fail to uphold 
their commitments to accelerate cash flow to subcontractors and share 
information about efforts to maintain and monitor their supplier bases?
    Secretary Lord. The Department worked with the major prime 
contractors to encourage identification of at-risk companies in their 
supply chains and flow down payments to those companies, as well as all 
companies doing work for the prime. DOD's major primes were flowing 
down payments, in some cases more than the payments received from DOD 
in the initial days of the pandemic. Although DOD does not have a 
database of amounts that primes pay their suppliers, it does conduct 
regular meetings with industry and industry associations--including 
associations representing small businesses. To date, there have been no 
issues regarding payment flow downs raised from these associations. 
Recently, twelve of the Department's largest prime contractors 
responded to our request to share methods they are using to accelerate 
subcontract payments and flow down increased financing. Examples 
include - allowing suppliers to ship-in-place to accelerate cash flow, 
increasing usage of early shipment authorization, increasing progress 
payments rates to eligible suppliers, and providing more favorable 
payment terms.
    There are a number of statutory and regulatory mechanisms available 
to the Government to ensure accelerated cash flow in the supply chain. 
DOD has implemented 10 U.S.C. 2307, which requires the Department to 
accelerate payments to prime contractors that subcontract with small 
business concerns, provided 1) a specific date is not established by 
contract and 2) the prime contractor agrees to make payments to the 
subcontractor in accordance with the accelerated payment date, to the 
maximum extent practicable. The Department is monitoring processing 
times for its prime contractor payments to ensure it achieves the 
accelerated payment goal of 15 days to the maximum extent practicable. 
The Department is expecting prime contractors to accelerate its small 
business subcontractor payments accordingly.
    Federal acquisition regulations stipulate that subcontractor 
progress payment terms are to be substantially the same as the prime 
contractor's. So, as the customary progress payment rate increased for 
eligible prime contractors, so, too, did the rate increase for 
subcontractors. Finally, contracting officers may reduce or suspend 
progress payments if prime contractors become delinquent in paying the 
costs of contract performance, to include suppliers.
                     employee stock ownership plans
    56. Senator Hirono. Secretary Lord, according to a June 2020 GAO 
report, DOD obligated almost half of all contracting dollars to 
companies that had Employee Stock Ownership Plans (ESOP) between 2014 
and 2017. However, not all ESOP plans are the same: some companies use 
a 100 percent ESOP structure to provide wage and retirement security to 
their employees and continuously reinvest in their employee-owners, 
while others merely allow employees to buy stock in the company as a 
retirement option or have a limited percentage of the company owned by 
an ESOP. Combining these two methods in reporting can be misleading. 
Please expand upon this report by providing more details including 
differences in the universe of ESOP companies you contract with, and 
percent of employee-ownership, corporation structure (C or S corp), and 
overall size of each company.
    Secretary Lord. As stated in the GAO-20-514 ``Defense Contracting: 
DOD Contracts with Companies Having Employee Stock Ownership Plans,'' 
dated June 18, 2020, there is no available Government data to determine 
whether a company is wholly or partially owned by an ESOP. GAO also 
determined an ESOP arrangement does not give rise to any meaningful 
barriers to doing business with the Department. The report also 
identified that a company may be held by more than one ESOP for 
different employee groups. Therefore, the Department has no additional 
details.
                               __________

               Questions Submitted by Senator Doug Jones
                              covid relief
    57. Senator Jones. Secretary Lord, you said in a press conference 
on September 9th that your department was examining the impact of 
COVID-19 for the period of March 15 to September 15 in order to better 
determine your need for assistance. While I'm sure you are still 
compiling all of that data, can you give us any preliminary analysis of 
what you found and what you will be asking Congress for in the next 
COVID relief package?
    Secretary Lord. Industry has and will incur COVID-related costs 
from the pandemic. Those costs include CARES Act, Section 3610 Paid 
Leave to keep contractors and subcontractor employees in a ready state 
pending ability to resume performance as well as Other COVID Related 
Costs (OCRCs) such as purchase of PPE, increased cleaning, health 
screening, and revising labor schedules/facility configurations for 
social distancing and supplier impacts. In the April/May 2020 
timeframe, the Department developed an initial ROM based on input from 
the Services and major primes and shared with Congress a ROM estimate 
of COVID impacts at $10.83B. To provide additional fidelity and confirm 
the cost impacts, at the end of October, I requested that the top 
defense suppliers representing 48 percent of DOD's annual obligations 
submit revised estimates including incurred costs and expectations from 
FY21 to FY23 for paid leave and OCRCs. Based on the ROMs received on 
December 1, 2020, the total estimated paid leave and OCRC impact to the 
DIB, representing both incurred and estimated costs, is $10.8B. DOD 
believes these ROMs provide significant confidence and provide a 
reliable basis for understanding the economic impact on the Defense 
industrial base.
                         continuing resolution
    58. Senator Jones. Secretary Lord, yesterday we passed a continuing 
resolution to fund the government through the middle of December. With 
a few exceptions, this continuing resolution (CR) prevents new spending 
and new programs. What is the impact of this CR specifically on the 
defense industrial base given the events of this past year?
    Secretary Lord. Continuing resolutions exacerbate uncertainty, both 
for DOD and across the supply chain. Combined with the adverse 
workforce impacts and production delays resulting from COVID-19, 
budget-induced instability challenges the viability of suppliers within 
the industrial base by diminishing their ability to hire and retain a 
skilled workforce, achieve production efficiencies, and in some cases, 
stay in business. The DOD will be increasingly challenged to ensure a 
secure and viable supply chain for the platforms critical to sustaining 
American military dominance. Continuing resolutions will work against 
CARES Act investments by delaying new work and contract awards in 
support of critical programs, and the workforces and suppliers that 
support them.
                             future budgets
    59. Senator Jones. Secretary Lord, historically, large budget 
deficits precede defense budget cuts. In the 1980s, a $500 billion (in 
today's dollars) deficit preceded a 19-percent decrease in defense 
spending over the course of six years and another 18 percent cut over 
the course of the 1990s. A $1.7 trillion deficit in 2009 saw a 22-
percent drop in defense spending over the course of 2010-2015. Through 
August, the Federal deficit was over $3 trillion. Can you explain what 
kind of negative or detrimental impacts the defense industrial base 
might experience if there are cuts to defense spending on a similar 
scale as in the past?
    Secretary Lord. As described in the Department's response to 
Executive Order 13806, Assessing and Strengthening the Manufacturing 
and Defense Industrial Base and Supply Chain Resiliency of the United 
States:
    ``[D]efense spending uncertainty makes predicting the overall 
market size difficult, impeding forecasting across every tier in the 
supply chain. Uncertainty in spending inhibits investment in 
capabilities even where the overall sector market size is increasing, 
impacting defense suppliers and leading to revenue fluctuation, capital 
investment shortfalls, and suboptimal investment in R&D. Over time, 
spending instability also creates peaks of surge and valleys of 
drought--a pernicious, ambiguous pattern in which suppliers who build 
for scale production are left with excess capacity when programs end, 
creating long-term market distortion.''
              covid impacts on the defense industrial base
    60. Senator Jones. Secretary Lord, as a state, Alabama receives the 
10th most dollars from defense spending and we also rank 3rd in defense 
spending as it compares to our state's gross domestic product. Alabama 
is very proud to be home to over 2,000 entities that have defense-
related contracts. I'm concerned that some of these companies may have 
to close their doors permanently as a result of economic impacts of the 
virus. How will DOD be impacted by the failure of small businesses in 
Alabama and throughout the country?
    Secretary Lord. The DOD relies on small businesses to procure the 
necessary items and systems to support the requirements of the 
Service's platforms, weapons, and equipment to meet our warfighters' 
near- and long-term mission needs. Failure of small businesses in 
Alabama and across the Nation will have a profound impact on the 
Departments' ability to accomplish the mission and affect the Services' 
operations.
    Before the challenge of COVID-19, the Department was working 
proactively to secure and strengthen the Defense Industrial Base (DIB), 
in line with the 2018 National Defense Strategy (NDS), and the 
recommendations of the October 2018 ``Assessing and Strengthening the 
Manufacturing and Defense Industrial Base and Supply Chain Resiliency 
of the United States'' Report to President Trump in Fulfillment of 
Executive Order 13806 (E.O. 13806 Report).
    The E.O. 13806 Report developed the foundational risk framework DOD 
uses to identify and address risks and issues in the DIB. The 
Department uses that framework to continually update the assessment, 
and to focus DOD's resources to address the industrial base's 
shortfalls.

    61. Senator Jones. Secretary Lord, what is DOD doing to prepare for 
or mitigate these impacts?
    Secretary Lord. The DOD remains committed to investing in the 
defense industrial base, while simultaneously mitigating the effects of 
COVID-19 on our suppliers. The DOD is continuously approving contracts 
and are ensuring increasing cash flow to the Defense Industrial Base 
(DIB).
    The Department is also dedicated to consistent communication and 
collaboration with the DIB, especially the defense industry trade 
associations. The pace of our outreach and engagement efforts have 
increased exponentially as a result. DOD officials, including myself, 
participate in a host of speaking platforms almost every week. Webinars 
intended for government and industry stakeholders are conducted 
monthly. One hundred fifty-one government and business representatives 
participated in our most recent event held in November. ``Calls with 
Industry'' are held on a bi-weekly basis and have proven to be highly 
effective.
    The Office of Industrial Policy's website where we list important 
information on how to do business with the DOD and the ways the 
interagency is working to mitigate the impacts of COVID-19 (https://
www.businessdefense.gov/coronavirus/).
Defense Logistics Agency and Personal Protective Equipment
    I appreciate all the work that DLA has done over the last few 
months to promote domestic manufacturing of gowns and other PPE during 
the COVID crisis. I have been a strong supporter of these efforts and 
others through my Build Health Care Equipment in America Act.
    We need to be sure, though, that the urgency of the need doesn't 
lead to a lack of attention to critical details in the contracting 
process, such as verifying the viability and capacity of the companies 
who get these contracts to actually fulfill the orders, ensuring that 
the contracts comply with the Buy American requirements of the Berry 
Amendment, and most importantly, ensuring that the products meet the 
technical standards for PPE and the like.
       defense logistics agency and personal protective equipment
    I appreciate all the work that DLA has done over the last few 
months to promote domestic manufacturing of gowns and other PPE during 
the COVID crisis. I have been a strong supporter of these efforts and 
others through my Build Health Care Equipment in America Act.
    We need to be sure, though, that the urgency of the need doesn't 
lead to a lack of attention to critical details in the contracting 
process, such as verifying the viability and capacity of the companies 
who get these contracts to actually fulfill the orders, ensuring that 
the contracts comply with the Buy American requirements of the Berry 
Amendment, and most importantly, ensuring that the products meet the 
technical standards for PPE and the like.

    62. Senator Jones. Secretary Lord, what can you tell us about DLA's 
verification process and procedures on the front end and any 
enforcement mechanisms on the back end?
    Secretary Lord. DLA has processes and procedures to ensure contract 
compliance, quality control, and contractor responsibility.

    1)  Ensuring Contract Compliance: DLA has established pre-award and 
post-award procedures to verify compliance with contractual 
requirements.

         In the pre-award process, each offeror is required to 
sign an acknowledgement confirming that its offer complies with the 
Berry Amendment.

         Post-award, DLA employs its robust contract 
administration core competency.

            A team solely dedicated to administration of 
contracts for personal protective equipment (PPE) gowns to ensure 
successful contract performance and strict compliance with technical 
requirements. Contract holders cannot change material suppliers during 
the life of the contract without approval from by the DLA Contracting 
Officer, via formal contract modification.

            Contract holders are required to submit supplier 
orders/invoices to the contract administration team to ensure material 
is being sourced from the suppliers identified in their contracts.

            Contract holders are advised in post-award 
conferences that they must maintain material Certificates of Compliance 
verifying Berry Amendment compliance and that they are subject to 
random reviews and audits of their records.

            DCMA personnel conduct site visits to all contract 
production facilities to confirm materials being utilized are Berry 
Amendment complaint.

    2)  Ensuring Quality Control

         Under DLA's contract solicitations to acquire PPE 
gowns, offerors submitted, and DLA evaluated, samples of gowns to be 
manufactured.

         As part of their proposals, offerors submitted, and 
DLA evaluated, test reports and other documentation to ensure material 
complies with contract requirements.

         The Defense Contract Management Agency (DCMA) and DLA 
conduct site visits to production facilities to confirm proper quality 
processes and procedures are in place to ensure end items meet 
contractual requirements.

         The Government retains the right to request and review 
test reports to validate that the contract holders' end item meets all 
material and technical requirements.

         Changes in manufacturing facilities and material 
suppliers are not allowed unless approved by the Contracting Officer, 
via contract modification.

         DLA has technical and quality specialists and a 
testing laboratory available to address quality concerns, if any arise.

    3)  Ensuring Contractor Responsibility

         All contract holders supplying PPE are determined 
responsible prior to award. A responsibility determination includes:

            Reviewing financial records through Dun & 
Bradstreet Reports and additional information.

            Reviewing Government Contract Performance 
repositories for past performance information.

            Calling references prior to contact award.

         As DLA works with firms during contract 
administration, contractors providing PPE have reported receiving 
loans, lines of credit, bringing on additional investors, and securing 
more favorable payment terms to ensure their continued cash flow.
                         foreign supply chains
    63. Senator Jones. Secretary Lord, this week I saw that DOD awarded 
a contract to a company that is working to develop machines that can 
literally print drugs at the point of care. How is DOD capitalizing 
upon technologies like these in order to decrease our reliance upon 
foreign supply chains?
    Secretary Lord. I defer to the Director of DARPA for this answer.

                               [all]