[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]


.                                   
                         [H.A.S.C. No. 118-40]

                   INDUSTRY PERSPECTIVES ON DEFENSE 
                       INNOVATION AND DETERRENCE

                               __________

                                HEARING

                               BEFORE THE

                   SUBCOMMITTEE ON CYBER, INFORMATION 
                      TECHNOLOGIES, AND INNOVATION

                                 OF THE

                      COMMITTEE ON ARMED SERVICES

                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED EIGHTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD

                           SEPTEMBER 20, 2023

                                     
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                              __________

                   U.S. GOVERNMENT PUBLISHING OFFICE                    
55-484                    WASHINGTON : 2024                    
          
----------------------------------------------------------------------------------- 
 
    SUBCOMMITTEE ON CYBER, INFORMATION TECHNOLOGIES, AND INNOVATION

                  MIKE GALLAGHER, Wisconsin, Chairman

MATT GAETZ, Florida                  RO KHANNA, California
LISA C. McCLAIN, Michigan            SETH MOULTON, Massachusetts
PAT FALLON, Texas                    WILLIAM R. KEATING, Massachusetts
DALE W. STRONG, Alabama              ANDY KIM, New Jersey
MORGAN LUTTRELL, Texas               ELISSA SLOTKIN, Michigan
JENNIFER A. KIGGANS, Virginia        JARED F. GOLDEN, Maine
NICK LaLOTA, New York                PATRICK RYAN, New York
RICHARD McCORMICK, Georgia           CHRISTOPHER R. DELUZIO, 
                                         Pennsylvania

                Sarah Moxley, Professional Staff Member
               Michael Hermann, Professional Staff Member
                    Brooke Alred, Research Assistant
                            
                            C O N T E N T S

                              ----------                              
                                                                   Page

              STATEMENTS PRESENTED BY MEMBERS OF CONGRESS

Gallagher, Hon. Mike, a Representative from Wisconsin, Chairman, 
  Subcommittee on Cyber, Information Technologies, and Innovation     1
Khanna, Hon. Ro, a Representative from California, Ranking 
  Member, Subcommittee on Cyber, Information Technologies, and 
  Innovation.....................................................     4

                               WITNESSES

Jenkins, Richard, Founder and Chief Executive Officer, Saildrone, 
  Inc............................................................     7
Schimpf, Brian, Co-Founder and Chief Executive Officer, Anduril 
  Industries.....................................................     5
Taiclet, James D., Chairman, President, and Chief Executive 
  Officer, Lockheed Martin Corporation...........................     3

                                APPENDIX

Prepared Statements:

    Jenkins, Richard.............................................    63
    Schimpf, Brian...............................................    53
    Taiclet, James D.............................................    37

Documents Submitted for the Record:

    [There were no Documents submitted.]

Witness Responses to Questions Asked During the Hearing:

    Mr. Khanna...................................................    81

Questions Submitted by Members Post Hearing:

    [There were no Questions submitted post hearing.]
       INDUSTRY PERSPECTIVES ON DEFENSE INNOVATION AND DETERRENCE

                              ----------                              

                  House of Representatives,
                       Committee on Armed Services,
      Subcommittee on Cyber, Information Technologies, and 
                                                Innovation,
                     Washington, DC, Wednesday, September 20, 2023.

OPENING STATEMENT OF HON. MIKE GALLAGHER, A REPRESENTATIVE FROM 
    WISCONSIN, CHAIRMAN, SUBCOMMITTEE ON CYBER, INFORMATION 
                  TECHNOLOGIES, AND INNOVATION

    Mr. Gallagher. The subcommittee will come to order.
    Last week the Secretary of the Air Force Frank Kendall 
stated ``the intelligence couldn't be clearer . . . China is 
preparing for a war and specifically for a war with the United 
States.''
    So if we took this warning from the Secretary of the Air 
Force seriously and thereby got serious about preventing a war 
with China, preventing World War III, a war that has the 
potential to make previous world wars look restrained in 
comparison, we would immediately shift the Pentagon away from a 
posture optimized for peacetime efficiency and onto a war 
footing.
    We would embrace that basic paradox that to avoid a war we 
have to adopt a war footing. Obviously, this is very hard to do 
in a free society like that in America. Once we get moving, 
once the crisis occurs, America has a special talent for 
mobilizing and beating totalitarian regimes that struggle to 
deal with friction.
    But the abiding weakness of free peoples is that our 
governments cannot or will not make us prepare or sacrifice 
before we are aroused, to quote a famous statement from the 
Korean war. Thus, even as the horrors of war ravage Europe, in 
my opinion we have not mobilized to prevent a war in the 
Pacific.
    We have not moved to maximum production rates of long-range 
precision fires and in 1 week $11 billion of previously 
appropriated defense money from previous years, money we have 
already given to the Defense Department, is going to evaporate. 
It will turn into a pumpkin on midnight on September 30th if we 
do not act.
    We have hundreds of Pentagon innovation projects that sound 
great and are well intentioned but seem for whatever reason not 
to solve the basic problem. And I know this because every year 
I attend the Reagan National Defense Forum and I listen to 
different Secretaries of Defense giving the exact same speech 
about the valley of death and all the problems with the 
acquisition bureaucracy and, yet, the problem persists.
    And then I attend the exact same innovation dinners with 
the exact same innovation people and we all sit there 
inveighing against the primes and the broken acquisition 
culture.
    To quote Bill Murray's character in ``Groundhog Day,'' ``I 
wake up every day right here, right in Punxsutawney, and it's 
always February 2nd and there's nothing I can do about it.''
    So today we're lucky to have three defense leaders to help 
us make sense of this and help us escape ``Groundhog Day.'' 
They represent three companies at different stages of defense 
development.
    Jim Taiclet is the CEO [chief executive officer] of 
Lockheed Martin, Brian Schimpf is the CEO of Anduril 
Industries, and Richard Jenkins is the CEO of Saildrone. I 
sincerely thank you all for being here. We know how busy you 
are.
    We had originally conceived of this as a hearing where we 
would have two sort of big defense primes and two nonprime 
companies. It may shock you to learn this, Mr. Taiclet, that 
not all of your peers were eager to testify before Congress. 
Some, in fact, told us that none of the dates we offered could 
work.
    We then asked them to name whatever date worked for them 
and they said, just kidding--we'll only testify before the full 
committee but had refused previously to do just that.
    I'm not going to name names but you know who you are. And 
others are just nervous about having a discussion with 
Congress. So I think it speaks well of all of you and your 
companies and the culture you've built that you're willing to 
engage with us in a dialogue today and I promise you we're all 
very nice on this committee.
    All I ask today is for your candor. Tell us in simple and 
direct language that an ordinary American can understand, 
meaning no acronyms, what we need to do to fix this problem, 
what we need to do to turbo charge our innovation enterprise in 
defense, what we need to do to defibrillate a sclerotic defense 
industrial base and thereby prevent war, which is the business 
we are all in. We cannot keep wasting time.
    And before I turn it over to the ranking member, I'd like 
to take this opportunity to invite Deputy Secretary Hicks to 
headline our next CITI [Subcommittee on Cyber, Information 
Technologies, and Innovation] hearing on her newly announced 
Replicator Initiative and how that can turbo charge innovation 
and enhance deterrence.
    I want Replicator to work. I want to understand it better. 
And though we are just a humble subcommittee I would submit 
that this is the best forum to have a serious, sober 
conversation about how to make it work.
    This is when I would turn it over to the ranking member. 
He's not here. Okay. I guess Mr. Ryan could just extemporize 
for--if he wants to. I yield to--okay, good. All right.
    We will go right to testimony and then we will allow Mr. 
Khanna to say what he wants to say when he gets back.
    We will start with you, Mr. Taiclet.

 STATEMENT OF JAMES D. TAICLET, CHAIRMAN, PRESIDENT, AND CHIEF 
         EXECUTIVE OFFICER, LOCKHEED MARTIN CORPORATION

    Mr. Taiclet. Chairman Gallagher, Ranking Member Khanna in 
absentia, distinguished members of the subcommittee, thank you 
for the opportunity to testify today [on] the potential for 
innovation to bolster deterrence and advance 21st century 
security for the United States and our allies.
    It's an honor to represent our company's 116,000 employees 
who are focused on delivering innovative solutions that help 
deter armed conflict and keep our country safe. I take this 
responsibility personally.
    After graduating from the Air Force Academy I began my 
career as a pilot, logging more than 5,000 flight hours in a 
variety of aircraft including the Lockheed Martin C-141B 
Starlifter, and I flew the first units of the 82nd Airborne 
into Saudi Arabia the first night of Desert Storm, among other 
missions.
    So my experience is a constant reminder of our 
responsibility to provide the most advanced technologies, both 
physical and digital, for our service members on the front 
lines of defending freedom.
    After the Gulf war I entered the private sector and during 
my 20 years in the telecommunications industry as a CEO of 
American Tower Corporation we helped lead the transformative 
advancements in mobile networks from 2G through 5G.
    In 2018 I returned to the aerospace industry as a Lockheed 
Martin board member, bringing that firsthand experience of tech 
capabilities that had the potential to advance the National 
Defense Strategy.
    I felt that our company could serve as a catalyst to bring 
the best of aerospace and defense industry and commercial 
technology and telecom industry together to serve the national 
interest.
    Now as CEO of the company we're leveraging our position as 
the largest aerospace and defense business in the world to be a 
pathfinder for what we call 21st century security.
    This initiative is about harnessing digital technologies 
like 5G, AI [artificial intelligence], and distributed cloud 
computing into the national defense enterprise to deliver more 
advanced capabilities faster and with greater value for 
integrated deterrence.
    Civil and military leaders agree that the U.S. is facing 
increasing aggressive peer threats, as you said, Mr. Chairman, 
perennial budget constraints, too, and an acceleration of 
commercially driven technology, all of which call for new 
approaches to acquisition and military operations.
    Together the Department of Defense, Congress, the defense 
industry, and the commercial technology sector can push the 
boundaries of innovation, technology, and interoperability in 
ways our adversaries can't match, with the ultimate goal of 
deterring great power conflict. I strongly advocate three 
priorities to achieve this goal.
    First, it's critical that we apply anti-fragility measures 
to increase industry's ability to quickly ramp production of 
key systems. Impacts from the COVID-19 pandemic coinciding with 
Russia's invasion of Ukraine revealed fragility within the 
defense industrial base.
    Upfront investment designed to ramp emergency or wartime 
production rates to two standard deviations above the mean of 
peacetime production will ensure the defense industrial base 
can withstand shocks, stressors, and outside factors.
    Second, we must aggressively adopt and insert 21st century 
digital technologies into the defense industry. To jumpstart 
this effort, Lockheed Martin has been partnering with some of 
the most prominent commercial technology companies like 
Microsoft, Nvidia, Verizon, and Intel.
    We also work with small startups through our Lockheed 
Martin Ventures organization and now with mid-sized companies 
through our Lockheed Martin Evolve team to bring nontraditional 
partners into the defense industry.
    Our partnerships have already developed cutting-edge 
solutions for the Department of Defense and I look forward to 
sharing details on our progress today.
    But this must be a larger team effort, which is why we will 
continue to advance a standards-based open architecture 
approach to this similar to what the telecom industry 
established.
    This approach will enable the U.S., our allies, defense 
companies, suppliers and startups alike, to work from a common 
framework to develop this technology.
    Lastly, throughout history the U.S. military has been made 
stronger through its constellation of trusted allies and 
partners. The defense industrial base is no different and so 
we're committed to supporting international security 
cooperation objectives by streamlining foreign military sales, 
direct commercial sales, et cetera.
    But I believe these three lines of effort will set the 
defense industrial base on a path to maintain Western 
technology superiority well into the 21st century and beyond.
    Thank you again for the opportunity to testify on behalf of 
Lockheed Martin and our team and thank you for your many years 
of support for our workforce and our programs.
    The increasingly sophisticated threats we face provide a 
stark reminder of the urgent need for action and we stand ready 
to partner with you.
    I welcome any questions you may have.
    [The prepared statement of Mr. Taiclet can be found in the 
Appendix on page 37.]
    Mr. Gallagher. Thank you.
    Mr. Khanna, do you have a comment you'd like to offer now 
before I move to the next witness?

STATEMENT OF HON. RO KHANNA, A REPRESENTATIVE FROM CALIFORNIA, 
      RANKING MEMBER, SUBCOMMITTEE ON CYBER, INFORMATION 
                  TECHNOLOGIES, AND INNOVATION

    Mr. Khanna. Thank you, Mr. Chairman. I apologize for having 
to take that call. I appreciate your leadership and your 
convening this hearing, and thank you to our witnesses for 
appearing before the committee this morning.
    We appreciate your time to help provide this committee with 
your insights on the state of the Department's innovation 
ecosystem. This committee has a long history of pushing and 
providing new authorities in order to support a more agile and 
innovative Department.
    Our committee needs to help ensure our Department has the 
ability to keep up with the rapidly advancing pace of 
innovation in the private sector. Many legacy structures are 
not equipped to handle these challenges and the committee hopes 
to hear from each member about areas where Congress may need to 
reconsider past action.
    This committee including the chairman is deeply concerned 
about the state and resources of our test range and facilities, 
especially as we intensify our focus on areas like hypersonics, 
AI, and energy and automation.
    Given your company's involvement, your insights are 
invaluable. I would like to say that I share the chairman's 
disappointment about Raytheon not showing up to the hearing. I 
have questions about Raytheon's involvement in China that I 
want to get answered, what they're manufacturing there, if 
anything, and I also have concerns about any of our reliance on 
China or overseas defense production that I hope we can get 
into in this committee.
    Thank you, Mr. Chairman, for your leadership and thank you 
for the witnesses who did have the courtesy to appear before 
the United States Congress.
    Mr. Gallagher. I thank the ranking member and I now 
recognize Mr. Schimpf for 5 minutes.

  STATEMENT OF BRIAN SCHIMPF, CO-FOUNDER AND CHIEF EXECUTIVE 
                  OFFICER, ANDURIL INDUSTRIES

    Mr. Schimpf. Chairman Gallagher, Ranking Member Khanna, 
members of the subcommittee, thank you for your opportunity to 
testify.
    I'm honored to represent Anduril and our team. Anduril was 
founded in 2017 to deliver software-defined technology to the 
military. Thanks to your leadership, the policies and 
authorities needed to deliver innovative solutions have 
improved significantly. We no longer debate whether innovation 
is needed. Instead, the issue now is how to accomplish it.
    The key to success is incentivizing production of large 
quantities of the right capabilities across all domains. Our 
ability to project military power is overly reliant on a small 
number of exquisite systems that our industrial base struggles 
to build at relevant scale and speed.
    Anduril is building software-defined and hardware-enabled 
platforms to field an arsenal of smaller, lower cost, 
autonomous systems that can be produced at scale, field rapidly 
to U.S. forces, and transferred to allies and partners.
    At Anduril we call this approach rebooting the arsenal of 
democracy. The United States cannot build the arsenal the same 
way we did in the 1940s nor can the country succeed through 
incremental changes to a legacy system.
    Instead, the government must use market principles to 
leverage the power of software, the talent of the American 
workforce, and the ingenuity of public servants to change the 
way we deliver and deploy defense technologies.
    Tinkering with the existing acquisition system will not 
succeed. We must reboot it. This approach should inform defense 
policy in the following ways.
    The government can innovate through acts of buying at 
scale. Exquisite assets certainly play an important role in 
defense. However, the United States must augment those assets 
with new items responsive to market forces the Department can 
effect.
    We will never see a true marketplace for aircraft carriers 
but the Department can absolutely have one for sensors, 
satellite constellations, autonomous undersea vehicles, air 
defense systems, or precision strike munitions.
    Acquiring these autonomous consumable capabilities now 
should be a priority. They will enable the Department to deter 
competitors who may be tempted to attack before we can mobilize 
the industrial base to respond.
    Incentivizing competition is the core of this approach. By 
competition I mean genuine, ruthless competition amongst 
serious bidders providing mature capabilities, not paper 
submissions.
    These competitions should be product-driven bake-offs and 
they should end in meaningful production awards. Markets arise 
in response to production opportunities. Fair and frequent 
competitions for large contracts force companies to earn the 
government's business and to deliver high value at low cost.
    New and innovative companies will compete, including on 
price. By developing capabilities on our own dime and not 
relying on cost-type contracts, our capabilities shift the risk 
off the government and the taxpayer.
    Congress has done yeoman's work to make this new framework 
a reality. It has never been easier for a new company to get 
research or prototype funding. The policies I've discussed 
today focus on the next phase, how to scale capabilities from 
prototype to production.
    The APFIT [Accelerate the Procurement and Fielding of 
Innovative Technologies] program and the software acquisition 
pilots are great steps. So are the provisions in this year's 
NDAA [National Defense Authorization Act] including ones 
focused on rapid competitions and the nontraditional innovation 
fielding exercise.
    By building on this work Congress can encourage more 
companies to work on defense technology by stimulating real 
performance-based awards. You can drive innovation with these 
principles.
    First, focus on the bottom line. Competitions must test the 
ability to solve a pressing operational problem.
    Second, empower decision makers to manage competitions and 
reward success. Always have a meaningful contract at the end 
and issue it quickly.
    Third, re-compete key programs frequently. Companies will 
invest if there's an opportunity to succeed.
    And finally, measure outputs, not inputs. Ask how many 
competitions led to meaningful solutions and how quickly they 
delivered. With the right incentives and with your continued 
leadership the Department can reap the benefits of this model.
    U.S. and allied warfighters will be equipped for overmatch 
and the United States can maintain the leadership position that 
has ensured prosperity and peace.
    Thank you once again, and I look forward to your questions.
    [The prepared statement of Mr. Schimpf can be found in the 
Appendix on page 53.]
    Mr. Gallagher. Thank you, Mr. Schimpf.
    Mr. Jenkins, you are recognized for 5 minutes.

   STATEMENT OF RICHARD JENKINS, FOUNDER AND CHIEF EXECUTIVE 
                    OFFICER, SAILDRONE, INC.

    Mr. Jenkins. Thank you, Chairman Gallagher, Ranking Member 
Khanna, and members of the subcommittee for providing me the 
opportunity to testify today and discuss how the U.S. 
commercial sector is working with DOD [Department of Defense] 
with new technologies.
    I'm the founder and chief executive of Saildrone, a U.S. 
company based in Alameda, California. Saildrone is a world 
leader in long endurance autonomous unmanned surface vehicles.
    Our fleet has sailed over 1 million nautical miles during 
more than 30,000 days at sea from the Arctic to the Southern 
Ocean. Our vehicles carry sophisticated sensors that collect 
data that support a wide range of U.S. Government agencies such 
as NOAA [National Oceanic and Atmospheric Administration], NASA 
[National Aeronautics and Space Administration], DOE 
[Department of Energy], Coast Guard, CBP [Customs and Border 
Protection], and the DOD.
    Large volumes of data are collected on our vehicles and 
processed aboard our vehicles using machine learning and AI 
algorithms. Intelligence is then transmitted off the vehicles 
in near real time using satellite connections.
    Rapidly increasing illegal fishing, narcotics trafficking, 
and migrant crossings combined with our growing adversarial 
threats means there has never been a greater need for 
distributed maritime domain awareness, a need that unmanned 
autonomous systems in large numbers will likely play a major 
role in filling.
    We traditionally operate in the COCO model, contractor 
owned and operated, providing data as a service to our 
government customers. The COCO model enables rapid prototyping 
and testing and does not require a large budget for up front 
procurement. I believe the COCO model is a perfect solution for 
the rapid fielding of new technologies.
    However, we're absolutely open to procurement models such 
as GOCO, government owned and contractor operated, which may 
make sense for some long-term applications.
    Saildrone has had a close relationship with DIU [Defense 
Innovation Unit] since the beginning. In fact, it was the first 
recipient of one of the first contracts issued by DIUx [Defense 
Innovation Unit Experimental] back in 2015. DIU has been 
transformational in enabling rapid contracting and 
experimentation, and I'm very grateful for the assistance of 
bringing commercial technology to bear in the DOD space.
    I'm excited to see the next generation of DIU under Doug 
Beck. More recently we have worked with the Unmanned Task 
Force. The UTF has taken a nontraditional approach to sourcing 
new vendors and facilitating projects with Task Force 59, which 
has done a fantastic job in rapidly evaluating commercial 
technologies in real operating conditions with real 
adversaries.
    I'd also like to acknowledge Admiral Gilday and Secretary 
Del Toro's significant recent announcements to accelerate 
transition of mission-ready unmanned systems such as Saildrone 
into operational fleet use.
    Under their path maker framework the next-gen team PMS 
[Program Manager, Ships] 420 delivered a contract in just 29 
days. Forty-five days after contract awards Saildrone deployed 
a fleet of 10 Voyager USVs [unmanned surface vessels] in Naval 
Air Station Key West.
    Just 10 weeks of initiation to deployment for a new fleet 
is a phenomenally fast timeline. Ten Saildrones will be 
performing counternarcotics and maritime domain awareness for 
4th Fleet over the next year in the SOUTHCOM [U.S. Southern 
Command] AOR [area of responsibility]. I have high confidence 
that momentum will continue under Admiral Franchetti's 
leadership.
    These are just a few examples of successful initiatives 
advancing commercial, unmanned, and AI systems in DOD 
operations. I'm also very excited by the recent announcement of 
the DCO--Disruptive Capabilities Office--and the Replicator 
program.
    However, what is not clear to me is how these and other 
efforts will get funded and at what scale. While commercial 
companies like Saildrone can scale quickly and have tremendous 
utility to bring the warfighter in the near term, there is 
still no clear path for transitioning proven technologies into 
scaled recurring operations other than the traditional POM 
[Program Objective Memorandum] process, which is a 2- to 3-year 
effort.
    Given the speed and direction of our adversaries, I'd argue 
we don't have 2 to 3 years to make these decisions. We need to 
move faster, get new technologies into the hands of our 
combatant commands at a meaningful scale and a meaningful 
length of time. Only after 1 to 2 years of continuous 
operational experience would we likely have a rugged concert of 
operations to be ready to engage an adversary if required.
    Thank you.
    [The prepared statement of Mr. Jenkins can be found in the 
Appendix on page 63.]
    Mr. Gallagher. Thank you very much. We'll now move to 
questions. I'll start with myself.
    Recently a major defense CEO stated that it's important to 
understand that we have to find a way to get along with China 
and that we cannot decouple from China.
    I understand we have a very complex economic relationship 
with China. Everyone's supply chain, you know, isn't--you know, 
runs through China in some--in some sense. Well, not 
everybody's but a lot of major companies.
    But I'd be curious, since you all are in the business of 
building weapons systems designed to sink Chinese ships and 
aircraft, how you think about that--how you think about that 
statement and then how you think about your own supply chains 
and ensuring that they can withstand economic coercion from the 
Chinese Communist Party.
    Maybe, Mr. Taiclet, we'll start with you.
    Mr. Taiclet. Certainly, Mr. Chairman. I'm in the camp that 
believes that China is competing aggressively against the 
United States and our allies. They have a different system than 
we do.
    They drive a dual circulation economy, which intends to 
make us more dependent on them and them less dependent on us, 
and they practice civil-military fusion, which basically 
demands and commands the commercial industries in China to 
devote their technologies and pipeline their capabilities into 
their PLA--People's Liberation Army.
    That's who we're competing with and they're using all the 
means they can to drive that competition. I think we want to 
use and preserve our system but also to basically marshal all 
of American industry from startups to the biggest aerospace 
companies in the world and the biggest technology companies in 
the world that are on our side, so to speak, to get together 
and face this soberly and face it together in a way that 
government can lead but it can't create all the solutions.
    So we want to work with all of industry in our system to be 
able to compete effectively with what's going on in China and 
Russia and other countries.
    Mr. Gallagher. Mr. Schimpf, your thoughts on getting along 
with China and defense decoupling from China?
    Mr. Schimpf. The challenge with the U.S. supply base is 
that it's often very fractured and when you look at where a lot 
of the components and pieces come from they're frequently made 
by small-sized companies, many of whom are entering--the owners 
are entering the age of retirement.
    So the U.S. industrial base needs active development, 
active investment, and there are significant capabilities that 
do exist frequently in more of the commercial manufacturing 
world but those have often not been what's supplying technology 
to the defense base.
    Our view has been to go above and beyond on removing China 
from the supply chain. We have, you know, basically eliminated 
nearly every part possible that we can get away from, gone 
above and beyond to source everything we can from U.S. and 
allied manufacturing sources.
    But it's a significant challenge and often the capacity 
within the U.S. does not exist. And this has taken significant 
investment on our part to either bring things in house or find 
and invest in those partners that can scale with what is 
needed.
    This is an area where I think the Department and Congress 
can have a significant positive impact. They can take advantage 
of things like DPA [Defense Production Act] to invest in 
technologies, invest in capacity that needs to exist to support 
what we need to do.
    They can take advantage of, you know, just buying and 
supporting the industrial base through production to stimulate 
and activate what needs to exist. But it's not something that 
will happen on its own.
    It will require active investment and active steering to 
get the U.S. to the point that we have restored the industrial 
capacity that we have essentially outsourced over the last 
several decades.
    Mr. Gallagher. Thank you.
    Same question, Mr. Jenkins. Is your microphone on? Sorry.
    Mr. Jenkins. Sorry. I'd agree with that.
    I would like to call out China's very successful use of 
leveraging commercial, civilian, and transport technologies in 
military applications.
    I think the U.S. needs to do a much better job of enhancing 
and embracing civilian and commercial technologies in the 
defense realm. I'll also point out you mentioned weapons. I 
think it's a lot more than just weapons. It's an information 
war as well.
    Saildrone doesn't weaponize platforms at this stage but we 
do collect critical ISR [intelligence, surveillance, and 
reconnaissance] data. So I think people often overlook the need 
for precision, accurate, truthful data in order to inform 
decisions we make with weapons.
    Mr. Gallagher. I appreciate that. I have more questions I 
hope to get to in a second round. I just want to comment--
having just done a war game exercise in New York with major 
asset managers and CEOs of various banks in the other committee 
I work on, the Select Committee on China.
    The big takeaway--we examined a 2028 Taiwan scenario--was 
that as difficult as these questions of how to selectively 
decouple, and reasonable people can argue about where to draw 
the line for decoupling--as difficult as those decisions are 
right now politically, practically, financially, if we don't do 
some version of that our options are extremely limited if we 
find ourselves in a war with China in 5 years and they dominate 
the production of the processing of critical minerals, the 
production of lifesaving drugs.
    Take your pick of things they could threaten to cut off and 
bring us to our knees as they have threatened to cut off the 
export of APIs [active pharmaceutical ingredients] in the early 
part of the pandemic.
    So figuring out how to decouple in a smart and selective 
way I would argue is essential for the health of our defense 
industrial base as well as our country by extension.
    I've gone over my time. I recognize Mr. Khanna.
    Mr. Khanna. Thank you, Mr. Chairman.
    Mr. Taiclet, I've been trying to get an understanding from 
the Pentagon about how much our defense supply is coming from 
China, if at all. Is any part that Lockheed Martin makes do you 
rely on something coming from China?
    Mr. Taiclet. Ranking Member Khanna, our approach to the 
supply chain is similar to Mr. Schimpf, which is we try to 
eliminate any and all parts, components, and materials even 
from China sources. So we are in compliance with the Federal 
Acquisition Regulation.
    There are some waivers to that regulation based on, as 
Chairman Gallagher pointed out, the unavailability of certain 
materials.
    Mr. Khanna. And what are those materials?
    Mr. Taiclet. Some of them are rare earth elements, as was 
pointed out prior. Those rare earth elements are in the 
material stage generally. In other words, they cannot be 
spoofed, hacked, used for cyber.
    Mr. Khanna. Anything else other than rare earth?
    Mr. Taiclet. There's been a few small part components, 
again, very kind of--the type of things that you find almost at 
a hardware store, so to speak, that are sold through 
distributors.
    So once we get supply chain illumination into the second, 
third, fourth, fifth levels of our supply chain we can find 
some of these components and, again, sort of dumb devices, I'll 
call them.
    Mr. Khanna. Is there a reason that small components we 
can't do in the United States? I mean, do you think we should 
have an initiative to have that made here?
    Mr. Taiclet. Yes. I totally agree with my colleague here 
that we should attempt to eliminate every dependency on any 
defense production for a component, subcomponent, material out 
of China. Absolutely yes.
    Mr. Khanna. I'd love to work with you on that. I think 
that's a bipartisan issue and I know the chairman has shown 
leadership. I know you may be reluctant to comment on Raytheon 
but all the articles I read I can't make sense of whether they 
do have things they're manufacturing in China, whether they 
don't, what is it they're manufacturing in China. And, of 
course, we don't have Raytheon here to answer.
    Do you have a sense of what--or and I'll ask Mr. Schimpf 
and Mr. Jenkins, too--what their dependency is on China. Is it 
just civilian things they're making there? Are there military 
components?
    Mr. Taiclet. We only have visibility to components that 
Raytheon or its subsidiaries would supply to us and I don't 
have visibility at my level on anything that is China sourced.
    But I cannot speak for Raytheon and I'll actually, for the 
record, ask my team to specify any exposures that we're aware 
of, Congressman, and we'll put that in the record.
    [The information referred to can be found in the Appendix 
on page 81.]
    Mr. Khanna. Thank you.
    Mr. Jenkins or Mr. Schimpf, do you have any sense of these 
articles we read about Raytheon? I mean, it's been so public 
that they still have supply in China, whether they're talking 
about civilian, military components.
    Mr. Jenkins. I do not, no. Saildrone only exclusively uses 
materials from the U.S.
    Mr. Schimpf. I don't have any specific knowledge of 
Raytheon but one good example I'll point out on where I think 
congressional action has substantially helped the U.S. supply 
chain is in battery technologies.
    So the--you know, the recent Acts that have provided 
subsidized support to U.S. battery manufacturing capacity have 
changed the economics so substantially that where China had a 
decisive advantage in this now it is uneconomic to not produce 
in the U.S.
    So companies are making massive investments into the U.S. 
industrial capacity to support battery production. These are 
the types of areas where I think Congress can substantially 
improve U.S. competitive position and identify key supply chain 
gaps that we need to eliminate that are very strategic.
    Mr. Khanna. Mr. Schimpf, what would be your top 
recommendations for this committee in terms of making it easier 
for the Department of Defense to develop innovative 
technologies?
    I know the chairman has worked on eliminating a lot of the 
roadblocks. But if you had to say one or two more things we 
could do what would you recommend?
    Mr. Schimpf. The number-one limitation right now is very 
simple, which is actually buying and fielding these 
technologies. Often, it takes a very measured, slow approach to 
how we actually get these technologies out and does not hit a 
point of scale where the system is able to respond.
    We have seen fantastic progress from the Air Force where 
Secretary Kendall is doing a phenomenal job thinking about how 
would we operate with a thousand or 2,000 collaborative combat 
aircraft--loyal wingman aircraft. That type of framing 
substantially changes where the industry invests, gives an 
opportunity for venture investors to see why and where they 
should allocate their money to get return, and get efficient 
capital allocation.
    So I think these areas where there's actual adoption at 
scale is absolutely the single most critical thing and that is 
what is lacking the most right now.
    Mr. Khanna. Thank you. Thank you, Mr. Chair.
    Mr. Gallagher. We got to come back to that too because--and 
I expose my ignorance on this. I always feel like we get to 
this point where that's the solution. We just need DOD to, 
like, make bigger bets on a smaller number of technologies.
    But why can't they do that? We have given them the 
authorities. Is it that they don't have the appropriation? Is 
it that they're risk averse? Like, what do we need to do? Like, 
do we need to legislate?
    Do we need to force them to do this thing? Otherwise, we're 
just giving out SBIRs [Small Business Innovation Research] 
participation trophies. We always get to this point.
    So I'm going to plant a flag there and come back to it, 
hopefully, in a second round.
    Mr. Strong is recognized for 5 minutes.
    Mr. Strong. Thank you, Chairman Gallagher.
    I appreciate all the witnesses for being here today and 
your company's investment in the greater State of Alabama and 
what you do for our country.
    Mr. Taiclet, back in 2019 the Army tasked its Rapid 
Capabilities and Critical Technologies Office, more 
affectionately known as RCCTO, with fielding a combat-capable 
long-range hypersonic weapon before the end of year 2023.
    This was an important announcement for north Alabama since 
RCCTO is headquartered there at Redstone Arsenal. Then Lockheed 
Martin Courtland and Dynetics of Huntsville, a homegrown 
company from the ``Rocket City,'' were named the program's 
prime contractors.
    I know that the latest tests for Dark Eagle were scrubbed 
but the collection of hardware and software performance was 
successful. I've said it before and I'll say it again. It's 
okay to fail, just fail fast and as cheaply as possible.
    This being said, Mr. Taiclet, I have two questions for you. 
How was RCCTO approach to Dark Eagles different than your 
standard state-of-the-art technology?
    Mr. Taiclet. The Army has been innovative along with the 
Navy, I should add, in hypersonic strike and for the first time 
in this particular realm they've gotten together and were using 
the same--Congressman, were using the same vehicle, if you 
will, for the Army and the Navy.
    The launch systems are different. The Navy's will come from 
a destroyer and/or submarine as we roll that system out. The 
Army's will come from a land vehicle.
    The first that will be deployed will be the land vehicle 
system and we hope to have it operational in collaboration with 
the Army, again, by the end of calendar year 2023.
    Mr. Strong. Thank you. Can you speak to the importance of 
testing as early and often as possible when it comes to highly 
advanced systems like this?
    Mr. Taiclet. Yes. And so I think one lesson learned from 
the last 20 years of hypersonic development which we have been 
involved with as a company is that there's been stops, starts, 
funding, defunding of hypersonic test capacity and test 
activities while China--and Russia to a lesser extent but China 
certainly has kept a rapid pace of testing, to your point, over 
many decades and they've actually got some fielded capabilities 
we have seen.
    Now, we're back to remedying that, I believe, over the last 
5 years or so. The industry is investing in hypersonics. I've 
been to Courtland twice myself.
    We stood up a brand new facility for that with the support 
of the government, and so I think we're on pace now to be very 
competitive in hypersonic strike.
    Mr. Strong. Thank you.
    Mr. Schimpf, I was proud to see you hire my neighbor, 
longtime friend, and the first RCCTO director, Lieutenant 
General Neil Thurgood as Anduril's senior vice president 
earlier this year. He's a true patriot and he mashed the gas 
pedal when it came to hypersonics as a three-star general.
    This coupled with many companies' acquisitions of 
[Andranos] is great news for both the Rocket City and the solid 
rocket motor industry. This seems like a great example of 
defense innovation. Can you tell us more about the acquisition 
and the innovation involved?
    Mr. Schimpf. Thank you, Congressman. Absolutely.
    So we have--we looked at the industrial base and one of the 
most critical gaps that we saw was production of solid rocket 
motors. We have heard it from the primes, we have heard it from 
the government, where this is a major gap in our ability to 
produce and scale weapons that we critically need.
    When we looked across the industry we found one company 
that had the ability to produce at scale, had the facilities 
necessary, and had novel technology to actually do that. We're 
investing heavily to get that technology as ramped as possible 
to add as much capacity to the industrial base as possible, and 
additionally we're looking to the government to help facilitate 
that investment as well.
    So anywhere we can create leverage to accelerate the 
capacity we can bring to market, that's absolutely critical and 
it's an area where I think Congress can add very specific 
emphasis into the U.S. industrial base and grow it very, very 
quickly.
    Mr. Strong. Thank you.
    Mr. Jenkins, Saildrone might not be in Huntsville but it is 
in Alabama and we stick together. I had a chance to see some of 
the company's work with Austal USA in Mobile and it seems to be 
quite an impressive partnership.
    Since 2021 Saildrone has operated as part of the Navy's 5th 
Fleet Task Force 59, demonstrating the ability of uncrewed 
systems to augment traditional manned assets and provide a 
fuller, calmer operation picture for all sea services.
    When it comes to AI and leveraging uncrewed systems in 
contested environments, I have time for one question. What 
lesson has Saildrone learned over the past few years that could 
be applied across the joint forces?
    Mr. Jenkins. Thank you. So we have learned that the amount 
of data we collect the data is now overwhelming our customers. 
There's so much information to be gleaned from the ocean be it 
above the water, below the water, acoustics, et cetera.
    We're using AI extensively on the vehicles and in the cloud 
to produce real intelligence for the warfighter.
    So the real learning here is that the government does not 
have--the customer does not have the ability to absorb the 
volume of raw data we're giving and AI will be a critical 
component in delivering real intelligence which is actionable 
to the services.
    Mr. Strong. Thank you. Mr. Chairman, I yield back.
    Mr. Gallagher. I love that your questions are always like 
this shameless commercial for Alabama. It's----
    Mr. Strong. I have no shame. I appreciate what you all do 
for our State.
    Mr. Gallagher. Hey, well, if you can't root for good 
football teams you got to root for other stuff.
    Mr. Strong. I'm an Auburn guy. I'm not for Alabama.
    Mr. Gallagher. Mr. Ryan.
    Mr. Ryan. Thank you, Mr. Chair. Thank you all for being 
here and all the work that you're doing in our collective 
defense--towards our collective defense.
    I want to build actually on what--sort of where Chairman 
Gallagher was going, where Mr. Schimpf was going, specifically 
focused on the Replicator program. In late August, as we all 
know, Deputy Secretary Hicks announced this new initiative to 
field all-domain attritable autonomous systems at large scale 
across multiple domains within 2 years--very exciting--in 
theory.
    It seems--and you hit specifically on this in your opening 
testimony as well, Mr. Jenkins--sounds great but you--what you 
said really stuck with me. We don't really understand where is 
the money, where are the programs, where are the resources?
    How do we allocate and decide internally to really go all 
in on this if there's not clear demand signal with clear 
returns for you all.
    So I want to ask everybody to sort of weigh in there 
starting with you, Mr. Schimpf, because you sort of brought 
this up last. What needs to be done? And let's just use 
Replicator--I know it's just one program--but as an example of 
the broader focus.
    I'll follow up where Mr. Gallagher was. What do we need to 
push them to do? Because I think everybody on this subcommittee 
certainly wants to see that succeed, wants to see that timeline 
hit or faster but share concerns that unless we're very 
specific we won't get there.
    Mr. Schimpf. Yes. So I--thank you, Congressman. The base--
the funding key--funding is kind of the key lever of this, 
which is, you know, with the traditional defense acquisition 
system everything is sort of very allocated years in advance.
    So the ability for the DOD to even respond and reallocate 
funding very quickly against these at the scale that is 
necessary is very, very limited. I think, you know, language 
that is put in on the nontraditional innovation fielding 
enterprise is one of the--the funding that has been 
appropriated on that in HAC-D [House Appropriations Committee, 
Subcommittee on Defense] is a very compelling way to start to 
solve this problem.
    In particular, they're looking at commercial solutions that 
can be deployed in, you know, 12 to 24 months, having that as a 
criteria of how these things are actually deployed, where the 
money is spent.
    And I think another area that is very critical is sort of 
concentration of that bet. So the typical pattern we have seen 
is often spreading those pools of money across 40 different 
investments, leading to small-scale experimentation.
    There are many good ideas within the DOD. There are many 
good technologies that could be scaled. But hard choices will 
have to be made on what is the most effective.
    So areas where Congress can push on both providing flexible 
funding, tying it to quick turn results, and focusing the 
Department on concentrated bets and making that clear, I think, 
can lead to some of the biggest impacts possible rather than 
seeing what we have seen, which is kind of a continued 
spreading of, you know, all of the investment across a very, 
very wide base, leading to no scale and no impact.
    Mr. Ryan. Thank you. Thank you.
    Anything to add, Mr. Jenkins?
    Mr. Jenkins. I would agree with that, and we're seeing 
large sums of money being divided through a large number of 
programs that doesn't lead to a meaningful outcome. I will say 
that if you want to act in the next 12 to 18, 24 months you've 
got to start building now.
    If we can go build functions in a year, what the government 
often does is deliberate for 8 to 12 months and then says, can 
you give them tomorrow, and the answer is no.
    It takes time to scale up manufacturing plants, operations, 
hire people, supply chain. You got to buy components. You know, 
we need to start building today. So I would argue or ask, you 
know, what is the size of that budget? What is the plan and how 
soon can we know?
    Mr. Ryan. And just to follow up for anyone, to your--to 
your point, Mr. Schimpf, from your estimation, what you're 
seeing in the field, what you're sort of brainstorming and 
thinking about contingencies to the topic of deterrence in this 
subcommittee, is Replicator that right bet?
    I mean, is that--in your opinions is that one of those 
places we should go sort of strong and heavy?
    Mr. Schimpf. I absolutely believe that there is--mass is 
going to be the determining quality that really matters on 
this. You know, the number of systems we can field, the rate we 
can replenish them, the volume we can get, you know, kind of 
prepositioned and ready and demonstrate that we have that 
capacity is absolutely critical to creating deterrence. And I 
think there's a number of technologies that can provide a huge 
amount of uncertainty and, you know, kind of hesitation on the 
part of the CCP [Chinese Communist Party].
    I think--you know, we have invested heavily in undersea 
capabilities, for example, which I think is a great example of 
exactly where this needs to go, where that is a domain that the 
U.S. has huge advantage and, you know, while the U.S. must 
continue to invest in shipbuilding capacity we are unlikely to 
see the returns of those investments for the next few years.
    Mr. Ryan. Thank you. I yield back, Mr. Chair.
    Mr. Gallagher. Thank you.
    Mr. Luttrell.
    Mr. Luttrell. Thank you, Mr. Chairman.
    Let's fast forward the clock a little bit and talk 
actuality and let's just say something happens that we hope 
does not happen.
    Mr. Taiclet, on the F-35 or just the aircraft series that 
we're producing right now, to piggyback off my colleague, if 
there are materials that are needed for that aircraft--and I 
wish we could get it at a hardware store. That would be great.
    But what are we looking at if this goes full scale 
Armageddon? Mr. DeLuzio, sir, you're in my way.
    [Laughter.]
    Mr. Gallagher. He did that on purpose.
    Mr. Luttrell. I know he did it on purpose.
    Mr. Gallagher. Sabotage.
    Mr. Taiclet. So Congressman Luttrell, I can assure you the 
F-35 production line will not be interrupted in any near-term 
sense if there was a complete embargo of goods coming from 
China.
    Part of the safety net here is that these basic materials 
and basic components are themselves distributed through three 
or four layers of distribution system. In other words, a 
Chinese company will sell 10,000 capacitors into the market. 
Those will go to automotive. They'll go to commercial 
aerospace. They'll go to distributors that serve the defense 
industry.
    Those are almost impossible to track from either the 
supplier, assuming one would come from China, and the buyer. 
What we're trying to do now from the buyer side as an 
industry--and government is involved in this and DOD--is 
illuminate as much of that supply chain as we can see and make 
sure there is just no stone left unturned where there's 
anything that could be used against our defense production 
system.
    Mr. Luttrell. And with hypersonic capabilities I know we're 
third tier maybe. I'd hate to think we're any lower than that. 
But one of my biggest concerns is their ability and capability 
to reach out and touch us without us having any preventive 
maintenance--or measures in place.
    And I know that--from what I've been able to be a part of I 
know we're not there yet. Do you see any--and I agree with the 
money. The money seems to be everything that's holding industry 
back to bringing those capabilities to the--to the front line.
    Are you comfortable in any way saying that if something was 
to go off any--in the near future do we have any capabilities 
in the hypersonic space to keep up with our--the nefarious 
actors across the pond?
    Mr. Taiclet. We do in the realm of hypersonic defense. So a 
lot of the existing systems, which is something I would like to 
come back to later, is how do you leverage existing systems, in 
this case, the Patriot missile system, to be able to deal with 
a more advanced threat using software and advanced networking 
technologies before you can build a new hardware system in 6, 
8, 10 years.
    So we have done that with Patriot and the Patriot missiles 
that have been deployed in Ukraine have actually shot down 
hypersonic weapons fired from--by and from Russia. There will 
be a cat and mouse game that will continue here because the 
more sophisticated the maneuvering in the final terminal stage 
that the missile can go, the tougher it's going to be to hit 
it.
    But we're actually in the cat and mouse game on hypersonic 
defense already and I would say that is--that is a significant 
deterrent. But we need the offensive side of the deterrent as 
well, which has been spoken to earlier, and to accelerate the 
hypersonic development and accept test failures--they are going 
to happen because we're rapidly developing these programs--and 
continue to make sure that they're going to get fielded, in 
which in the case of the Army and Navy we're well on our way.
    Mr. Luttrell. Okay.
    Mr. Jenkins, with data collection and data aggregation, 
computational analytics from your--from everything that you 
have forward deployed mostly--is it all or mostly just rare 
earth mineral battery powered or is there a variation.
    Mr. Jenkins. On propulsion?
    Mr. Luttrell. Yes, sir.
    Mr. Jenkins. We use wind and solar for main propulsion and 
also have onboard engines with diesel. So we have very long 
endurance due to the wind power, harnessing renewables. That 
gets us 12 months in the open ocean.
    For the high-power devices that we run--we run sonars, we 
run mapping, we run multibeams--they require an engine 
onboard--a generator. So we have fuel in the form of diesel to 
supplement that.
    Mr. Luttrell. This may or may not be a question you can 
answer in this setting but given the vastness of just the open 
waters across the globe and those that we're probably most 
likely going to be engaged in, one of the trickiest parts, in 
my opinion--and I used to be an undersea guy, so--is mapping 
and channelizing everything that's happening underneath the 
waters that we can't see.
    My question is do we--do you all have the capabilities, I 
guess, to cast a proverbial net in order to help the United 
States if, and, or when something goes off?
    Mr. Jenkins. We do. So Saildrone is a very flexible 
platform where you can apply any sensor. So we have large-scale 
multibeam systems that can map the seabed to the same accuracy 
or better than the Navy's best ships. We have sensors that 
carry multibeam [inaudible] ships.
    So we believe in not displacing ships but freeing up ship 
time. So if you can free up the more remedial jobs--the 
mapping, the [inaudible] for the ship--you can actually buy 
yourself considerably more ship time with the existing fleet.
    So yes, we operate multibeams. We operate acoustics, eyes 
and ears above and below the surface to significantly give us 
intel when they are forward deployed.
    You mentioned range. I'd also mention that the challenge we 
face in the Western Pacific, you know, it is 3,000, 4,000, 
5,000 miles away. You need very long endurance vehicles to do 
that and that's going to be a key part of the technology, going 
forward.
    Mr. Luttrell. Yes sir. Thank you.
    Mr. Gallagher. Thank you. Mr. Deluzio is recognized for 5 
minutes.
    Mr. Deluzio. Mr. Chairman, thank you, and, gentlemen, thank 
you for being here.
    Mr. Schimpf, I want to come back to something you had 
mentioned with Mr. Khanna earlier about batteries and what the 
market domestically now looks like.
    Tell me a bit more. What can we learn from this kind of 
Federal action, how you're seeing it play out in the defense 
industrial base?
    Mr. Schimpf. Thank you, Congressman. One of the areas we 
have seen is, you know--and this is even beyond the defense 
industrial base, talking with a number of colleagues who have 
started different companies--the access to, you know, low-cost 
loans that are guaranteed to facilitize some scale production; 
the ability to, you know, kind of get grants to develop and 
mature up technologies. That has changed the cost basis in a 
way that now production inside the U.S. is offset in a way that 
historically it was so much cheaper to do it in China because 
of their incentives and their, you know, sort of industrial 
policy that they had in place.
    So that's an area where I think the economic incentives 
were very straightforward. They were--you know, were able to 
offset a lot of the very large costs involved in scaling up 
production capacity as well as investing in research and 
development technology for next-generation capabilities.
    I think in the defense base the same analog applies. 
There's a number of areas where, because of straightforward 
economic reasons, production has moved overseas. It has 
atrophied. The volume is not there to sustain the U.S. 
industrial base on the types of components that we really need 
to be successful here.
    So I think some of the actions that Mr. Taiclet referenced, 
being able to identify those key supply chain areas and have a 
proactive approach to industrial policy in the defense space, 
is absolutely critical to having the resilience and scalability 
that we need and be able to be as responsive as the U.S. 
demands.
    Mr. Deluzio. Thank you.
    Gentlemen, anything you'd like to add to that question? 
Okay.
    Mr. Jenkins, we come to you. So in your testimony I think 
you said it as well. Being able to assemble and ship 10 of your 
Voyager vessels to the Navy within 5 weeks of being placed in a 
contract that's pretty fast.
    Now, I understand not every weapon system is--that's 
realistic but what can we learn from what you are doing that we 
can scale up for bigger, more complex systems or systems like 
yours?
    Mr. Jenkins. Yeah, thanks for the question.
    So repeatability is key. Our systems are modular, they're 
scalable, easy to service, and they're light to deploy. So 
having small attritable systems rather than very large ships it 
generally gives you more mobility and agility. So small, light, 
relatively cheap, high-utility systems is where we focus.
    Mr. Deluzio. Are there procurement lessons we can glean, 
though, for our larger systems based on what you are doing and 
those like you, right, who are relying on smaller, more nimble 
modular systems?
    Mr. Jenkins. Yes. I mean, again, the procurement system 
needs significant work to make it faster across the board. 
There is a term ``the frozen middle.'' It's a real thing.
    You might get someone to request a service but getting the 
contract through the building to the other side is still a 
heavy lift. So I think significant work. While we do see 
glimmers of hope out of NAVSEA [Naval Sea Systems Command] I 
think there's work to be done there.
    Mr. Deluzio. Thank you. And then, Mr. Taiclet, I'll come to 
you last. You had a note in your--or a line in your testimony 
that caught my eye about the need for multiple reliable sources 
for things from semiconductor, solid rocket motors, rare earth 
elements. I agree.
    You know, you have some suggestions. Use as much time as 
you'd like. What can we be doing to grow competition within all 
of those components, sectors, you name it?
    Mr. Taiclet. Certainly, Congressman.
    What we have tried to take is an approach called the 
concept of anti-fragility in our defense industrial base. 
Fragility is the risk or the disruption or even the failure of 
a system when it is affected by an outside shock.
    So COVID-19, tripling ramping production, those kinds of 
things. Nassim Taleb created this concept called anti-
fragility. He wrote ``The Black Swan'' and then a second book 
called ``Anti-Fragility.''
    That concept basically says you can design into a system a 
relatively low-cost set of parameters that will allow that 
system to if not be strengthened by being shocked it will be 
resilient when it gets shocked.
    And so some of the things that would apply to your question 
would be having multiple sources for supplies. So when we have 
a component that will go into, say, an aircraft, F-35, we have 
to qualify that supplier.
    We want to make sure that component is going to work, that 
it's going to be cyber secure, et cetera. It's going to cost 
money to get that second supplier.
    And so, therefore, there's a cost to anti-fragility that 
should be taken----
    Mr. Deluzio. Can I ask a quick follow-up?
    Mr. Taiclet. Sure.
    Mr. Deluzio. And do you tend to pay less when there are 
competing bids than if you have a single supplier?
    Mr. Taiclet. Well, yes. Right. And so the more suppliers we 
have the more optionality we are going to get in negotiation. 
That's true. But there is some upfront cost to this.
    A second way to go about reducing fragility is if there are 
10,000 capacitors you're going to need over 10 years, file 
10,000 of them in the first lot because you know you're going 
to need them. Because if then supply is interrupted or there's 
another pandemic or whatever--you can't get those capacitors--
the DOD or the industry itself has the supply base already in 
inventory to not stop production.
    So there's a number of approaches like that but the whole 
concept is this anti-fragility--how do we make things stronger 
when they get disrupted versus weakened or failing?
    Mr. Deluzio. Thank you. I yield back, Mr. Chairman.
    Mr. Gallagher. The pride of Long Island, Mr. LaLota.
    Mr. LaLota. Thank you, Mr. Chairman. I appreciate your 
leadership on this issue and for our witnesses for being here 
today.
    To me, what makes our Nation's military the most lethal 
fighting force our world has ever known is twofold. One, we 
have the best, most dedicated professional troops the world has 
ever known, and two, we have the best technology available.
    This enables the United States to deter conflict, 
hopefully, but to win it when we're engaged and to bring our 
troops home safely and this committee surely appreciates your 
work helping us achieve that mission.
    Gentlemen, with that in mind, I represent New York's First 
Congressional District, the east end of Long Island, and we are 
home to Hauppauge, the Nation's second largest industrial park 
after Silicon Valley.
    Hauppauge is home to many suppliers and contractors which 
provide our Nation's military with the resources they need to 
remain the most lethal in the world.
    Mr. Taiclet, thank you for your service in the Air Force. 
I'm sorry you went to the Air Force Academy and not the Naval 
Academy.
    Nevertheless, sir, you mentioned in your prior testimony 
that you want to work with all of industry to become more 
independent from China. I think that's a reasonable goal, and 
I've heard with respect to all of industry it is often said 
that large defense prime contractors are not as nimble and as 
innovative as the small startup companies.
    But, yet, the small startup companies are not as capable of 
producing military systems at scale. Would you, sir, agree with 
that characterization?
    Mr. Taiclet. My characterization would be there's a role 
for all types of companies and all segments of our society to 
contribute to national security and deterrence but there has to 
be a framework around it so that small companies, medium-sized 
companies, can be effective.
    And so that's why we're really pushing the notion similar 
to the telecom industry let's have a standards body that as we 
did in--it's called the 3GPP [Third Generation Partnership 
Project] in telecom business--what are the APIs [application 
programming interface] we're all going to use?
    What are the interface technologies we're going to use? 
What's the error correction code that we'll--everybody will 
share?
    And we'll cross-license those to each other so that our 
investments whether small, medium, or a large company, are 
compensated for and there's some return to our investors. This 
has been done in telecom already but it was not done right the 
first time.
    There were three standards back in the early 2000s for 
mobile telecom and now there's one. And by going to that one 
single set of standards that was built by the industry with the 
customers' involvement we were able to accelerate through 3G, 
4G, and 5G and get the--to get the network capability we have 
today in a 20-year span, which is what it takes to develop one 
defense system.
    We went through three generations of mobile technology in 
that span of time. I think we should apply the same approach 
here and get a big tent and essentially marshal all of U.S. 
industry on a common platform architecture to contribute what 
they can.
    Mr. LaLota. So is it safe to say that rather than 
characterizing the big guys and the little guys as competitors 
that you see it more as a complementary environment to help 
satisfy this committee's and the Nation's goals?
    Mr. Taiclet. Yes. Yes, that's correct, and we will compete 
in the right spaces in the right ways. But if we don't compete 
on a common architecture and there are three or four different 
approaches to command and control or AI or 5G we're not going 
to have an effective outcome.
    And so there will be a role for competition--a strong 
role--but there's also a role for industry collaboration with 
government to figure out how to make the most progress the 
fastest.
    Mr. LaLota. I appreciate that. I want to switch gears with 
my remaining 90 seconds. We as a nation have been investing in 
hypersonic technology for quite some time but we haven't 
delivered the desperately needed operational capability to our 
warfighters yet.
    The F-25 is a 12-plus-year development cycle before we 
deliver operational capability. Why does it take so long and so 
much money to develop these capabilities?
    Mr. Taiclet. The physical Newtonian technologies that go 
into some of these systems and platforms now are so advanced 
that they do require significant testing.
    When you look at hypersonic strike, for example, you're 
getting to speeds that generate 2,000 degrees of heat on the 
vehicle. So when we run a test, for example, under those 
conditions, we might find that the bonding inside the solid 
rocket motor that connects the propulsion to the fuel source is 
coming apart. We'll have to get a new chemistry together with 
our solid rocket motor provider to make sure that doesn't 
happen.
    So these are sophisticated technologies. They take a lot of 
effort and a lot of experimentation to----
    Mr. LaLota. Thank you.
    Just real quick, I want to ask you one more question while 
my time is about to expire.
    What lessons, if any, can you learn from private industry--
nondefense industry--on their ability to do something sometimes 
less expensively and in a shorter period of time, sir? And if 
you can answer that in 20 seconds so I'm not rude to my 
colleagues.
    Mr. Taiclet. Well, there's a--there's a big issue I think 
that's very, very important and that is making improvements in 
what we would call missions--commercial companies would call 
business outcomes or services--every 3 to 6 months instead of 
just every 10 to 12 years when the new vehicle comes out. 
That's a conversion we need to take and it's going to--it's 
going to require a lot more than 20 seconds to explain.
    But we need to take a mission lens through an entire 
national defense enterprise in addition to the product and 
platform lens that we have today to really make this happen.
    Mr. LaLota. If we gave you better buy signals, specifically 
ones with a longer duration, would your ability to deliver 
things be able to accommodate things to be less expensive and 
on a better timeline?
    Mr. Taiclet. Yes.
    Mr. LaLota. Thank you, sir. I yield.
    Mr. Gallagher. Dr. McCormick.
    Dr. McCormick. Thank you, Mr. Chair, and thank you to the 
witnesses for being here today.
    George Washington at one time said to be prepared for war 
is the most effectual way to preserve peace. Obviously, you 
guys are a big part of that and we appreciate that.
    One of the things that concerned me was, of course, the 
chips that are ending up in Iranian drones, which you've 
already addressed somewhat. I think we have some work to do on 
that--on our side, too.
    So I'll move on to the next question I had, which is the 
ebbs and flows of the military purchasing that create 
functional problems for you guys in production. Obviously, 
hiring and firing people is not an easy thing to do and we 
cause that through the ebb and flow of our purchasing.
    In relationships to Ukraine you can see, obviously, they're 
consuming a large portion of munitions and we may have other 
consequential force commitments around the world as well. Not 
only that, but we also can't predict what might happen 
tomorrow.
    Do you feel that we are preparing in a way that we can not 
only sustain our war efforts in support of what Ukraine is 
fighting against an invading third largest army in the world 
but also other support that we have to provide around the world 
as well as our own future needs? If something were to pop up do 
we have the ability to ramp up quickly?
    And I throw it out to the entire group.
    Mr. Schimpf. My belief on this is the challenge is, you 
know, often, to give some--shout out to Mr. Taiclet here--I 
think often the problem is blamed on the primes and their 
ability to produce these things. In reality, what I've seen is 
the supply chain below that is often the limiting factor.
    Often the challenge is how do we ramp everyone down two, 
three layers down the stack to be able to scale and provide the 
capabilities that are needed and that's an area where I think 
targeted investment from the Congress, from the DOD, can take a 
much more proactive approach. And I think it's key to work with 
and demand on contracts an understanding and visibility into 
that supply chain and write in the ability to ramp production.
    So I think there's a lot of very straightforward incentives 
that the DOD and Congress can put in place to ensure that that 
ability to scale is there. But as of today, I think the problem 
really does lie in that, you know, kind of robustness of the 
supply chain and how fast can they scale to support.
    Dr. McCormick. Anything to add? Okay. I'll move on to the 
next topic that's equally important.
    So you're talking about the flexibility of the model and 
the ability to supply the supply side of ramping up. Of course, 
that doesn't cover labor but I'll assume we all understand 
that's a problem no matter where we're at in the cycle.
    Furthermore, we see how we have gone with tax credits and 
spreading out the taxes over years and being able to--I'm not 
sure why we chose to do this but basically we spread out your 
ability to have flexibility in your financial model.
    How has that affected each one of you at your different 
levels as far as the way we give tax credits? Instead of doing 
it all at once we have to spread it out, which, of course, if 
you don't have a whole lot of flexible capital I could see how 
that would be a limiting factor to your flexibility, as you 
said, even on the supply side but also on the monetary side, 
which is a very real consequence of what we do on the Federal 
level.
    If you could talk to that, please.
    Mr. Taiclet. Certainly, Congressman.
    So at our company I was on the board directors from 2018 
and in 2020 I was asked to join the company as CEO. When I did 
that we increased our independent R&D [research and 
development] and our capital expenditures significantly to ramp 
up because we knew the need was there for us to invest more.
    When the amortization of R&D expenses then hit we decided 
not to scale back, but we couldn't--at that point, being 
financially responsible, add significantly more to the R&D 
budget because of the tax ramifications of doing that to the 
company.
    So we have held the line on increased research and 
development but I think it has limited our upside based on the 
requirement to take some of that cash that we were putting into 
R&D and could have increased potentially a little bit more into 
the tax line instead.
    Mr. McCormick. Okay. I always like to use small words. 
Amortization, you know, it's way more than Marines you 
typically--and but I want to summarize that for the lay people 
out there.
    Basically, when you spread out this model of tax credits 
over a long period of time it does have financial consequences 
in your R&D, our development of leading-edge technologies, our 
ability to have a flexible model, and even our purchasing power 
for supply side economics as a military model, and I just 
wanted to point that out with my last few minutes that we need 
to remain flexible and give the companies the ability to help 
us help them.
    Thank you.
    Mr. Gallagher. Thank you. We'll move to a second round. 
I'll recognize myself and want to pick up a little bit on the 
discussion on Replicator with what Mr. Schimpf said.
    Referencing mass, as I understand it, the theory behind 
Replicator is that the PRC's [People's Republic of China's] 
advantage is mass--more ships, more missiles, more people. They 
can just throw a lot of this at the problem.
    I would add a human dimension. I think if you study sort of 
the history of warfare, at least last time we fought the 
communists in the Korean war, you'll understand that these 
regimes are less sensitive to casualties than we are in a 
democracy. It just tends to work that way.
    So if you offered Xi Jinping a choice of you can have 
Taiwan but it'll cost you your whole Navy he might take that 
offer.
    And so we are going to use, if I get the acronyms right, 
all-domain attritable autonomous systems--ADA2--to counter 
China's A2AD [anti-access/area denial]. So we're going to put 
aside the ridiculousness of the acronym there.
    But I understand the concept, right. But we have existing 
systems that would help us overcome the mass problem, right? 
You make Long-Range Anti-Ship Missiles. It's my understanding 
you could make more of these Long-Range Anti-Ship Missiles 
[LRASMs].
    Now, Mr. Schimpf might say, well, we need cooler autonomous 
systems that Anduril builds, but this is something we know how 
to build. You build it. What would you need to expand the 
production of LRASM and other key long-range precision fires?
    Mr. Taiclet. There's a few beneficial actions the 
government could take. One is to really create a long-range 
production and procurement strategy over, you know, 5 to 10 
years.
    Mr. Gallagher. So a multiyear appropriation?
    Mr. Taiclet. A multiyear approach. Congress may need to 
adjust the ways that it allocates funding to that kind of 
approach so that the suppliers, as Mr. Schimpf said earlier, 
will have the confidence to ramp up and invest in that higher 
production level.
    So we will have confidence at our company that LRASM--Long-
Range Anti-Ship Missile--demand will increase because we 
understand the threat and the mission. But our suppliers who 
tend to be in the 80/20 rule, 80 percent of their business 
tends to be commercial and 20 percent of it tends to be 
military or defense related.
    They're going to react to both of those markets and if they 
see more certainty based on commercial airline business or 
other factors that have nothing to do with national defense 
they'll probably put more resources in their--in their company 
into that business.
    However, the way to get surety for them and for us and our 
investors is to have a longer range commitment by government to 
a production schedule that lasts more than 1 year.
    Mr. Gallagher. And I want Mr. Schimpf to comment but--and 
maybe in so doing clarify something for me.
    Would you be drawing on the same energetics necessary to 
put in these long-range precision fires? I recognize you're 
both making different things but are you reliant on the same 
energetics subcomponents in so doing?
    We'll start with Schimpf. Then I'll go back to you, Mr. 
Taiclet.
    Mr. Schimpf. One point I'll make is actually I'm a huge fan 
of LRASM and we need more of them and I completely agree with 
that, and there's a lot of other challenges that I think 
Replicator can solve in that of how do you target these, how do 
you get them at range, and I absolutely believe we need to ramp 
the production of existing capabilities. The----
    Mr. Gallagher. And, by the way, they need to be 
prepositioned in theater----
    Mr. Schimpf. One hundred percent.
    Mr. Gallagher [continuing]. Because you're not going to be 
able to surge them forward in the event of a conflict.
    Mr. Schimpf. That's right.
    The thing I will say on the supply side is in some cases, 
yes, we'll draw on similar constrained, you know, supply 
pieces. But I don't think that is inherently bad, right. The 
answer has to be we have to increase capacity, not to, you 
know, sort of hoard the existing capacity we do have.
    Mr. Gallagher. Do you own your own energetics or are you 
relying on other companies? You guys just bought something in 
Indiana, right?
    Mr. Schimpf. We have invested in this from a solid rocket 
motor production capacity, and I won't speak for Mr. Taiclet 
but I believe he tried to have the ability to support this in 
the defense space.
    Mr. Gallagher. Mr. Taiclet, do you want to comment?
    Mr. Taiclet. Sure. There's two aspects. One is the 
explosive ordnance in the front of the missile and the second 
is the--is the propulsion. They are different. We tend to rely 
on explosive materials from third parties including the 
government and the solid rocket motor and liquid rocket motor 
industry, which is, you know, again, mixed to commercial but 
mostly defense oriented, for the propulsion.
    The propulsion industry is--for solid rocket motors, as you 
know, now is really down to two meaningful players, one of 
which is now owned by Northrop Grumman, the other which is 
being proposed to be acquired by L3Harris. They're both in the 
other businesses as well.
    We are endeavoring, as Mr. Schimpf's company, to create 
another supplier. We're in late stage negotiations with a 
company that can actually pull this off, we believe, and so 
we'll be seeking the same diversity that you're hearing about 
from some of the other panelists here today.
    Mr. Gallagher. If Mr. Khanna will indulge me, I'm going a 
little bit over. But are you--if you pull that off or with what 
you've already pulled off in Indiana are you allowed to use 
advanced energetics like CL-20 as opposed to HMX [high melting 
explosive] suite of energetics? Or how does--how does that 
work?
    Mr. Taiclet. Well, we have got a full range of energetics 
available to us. As you note, Chairman, we built a Trident 
missile--the D3 missile--from the strategic end to the Javelin, 
the tactical end.
    So we have got access to all the energetics that are 
available for our products. So----
    Mr. Schimpf. Yeah, and I think there is a lot of 
opportunity to--you know, China has a substantial advantage in 
terms of range of many of their weapons, and looking and 
accelerating novel energetics is, I think, absolutely one of 
the most strategic things that the U.S. can do. That has been a 
challenge.
    There's a lot of questions around, you know, certification, 
shelf life, all these things. But there's a way to accelerate 
that timeline, get these fielded, and get substantial range 
increases to existing munitions by adoption of novel 
energetics. I think it is a huge opportunity for the 
Department.
    Mr. Gallagher. Mr. Khanna.
    Mr. Khanna. Thank you, Mr. Chairman.
    Mr. Taiclet, as you know, the Patriot missile defense 
system is one of the most effective and expensive that we are 
sending to Ukraine.
    ``Sixty Minutes'' had a report saying that for 7 years 
Lockheed Martin was making 40 percent profits on that system. 
Was the ``Sixty Minutes'' report accurate?
    Mr. Taiclet. I don't want to speak to their reporting, but 
there was a DCAA----
    Mr. Gallagher. Is your microphone on?
    Mr. Taiclet. I won't speak to the reporting and their 
sources but the Defense Contracting Audit Agency--DCAA--did an 
audit of that program during that period of time and they 
calculated that the margin earned by the company was 11 
percent, which comported with what our financial analysis 
showed internally.
    Mr. Khanna. So you think that their reporting was 
inaccurate or--because they were implying that you and a number 
of other companies were making 40 percent profit.
    Mr. Taiclet. So all I can offer is what we have been 
provided by the government in response, not to that report but 
actually an audit that was done years ago.
    Mr. Khanna. But you would say that your profits they were 
10 to 12 percent, not 40 percent in that time?
    Mr. Taiclet. That's the--that's the company's view and from 
what we understand the U.S. Government's official view.
    Mr. Khanna. Is there any case of weapon systems that you're 
making more than 15 percent profit?
    Mr. Taiclet. I'd have to look back in detail for the 
record, Mr. Khanna.
    Mr. Khanna. Today.
    Mr. Taiclet. But I'm not aware of any that--well----
    Mr. Khanna. Would you be willing to commit today that you 
wouldn't sell any weapon system to the United States at over a 
15 percent profit margin?
    Mr. Taiclet. Again, I think we'll have to research that for 
the record. I can't make a commitment based on the contracts we 
already have with the Department----
    Mr. Khanna. Could you make a commitment at 20 percent? I 
mean, where would you make the commitment?
    Mr. Taiclet. We have to negotiate each of our programs with 
the U.S. Government and we would do that----
    Mr. Khanna. But, certainly, you'd say there's a reasonable 
level, right, I mean, which the profit shouldn't be over? Do we 
agree that--can we agree to 20 percent?
    Mr. Taiclet. I just can't speculate on what that would that 
be here. I don't think we do 100 percent, no.
    Mr. Khanna. Twenty percent--I'm sorry. Twenty-five percent?
    Mr. Taiclet. I think that perhaps we could meet offline on 
this. It's an answer I can't offer today.
    Mr. Khanna. I would like a commitment. I think it's a fair 
commitment after the ``Sixty Minutes'' report to the American 
people publicly that there is a reasonable profit, right.
    We live in a capitalist system. People are fine 10 percent, 
15 percent, probably even up to 20 percent. When you get beyond 
20 percent I think people are saying why are we paying all that 
money to defense contractors, which should be going to our 
troops and to our defense.
    Mr. Taiclet. All I can commit here, Congressman, is that we 
endeavor to and will continue to comply with the Federal 
Acquisition Regulation [FAR], which does limit the 
profitability of defense article sales.
    Mr. Khanna. But would you at a future point, if you don't 
want to make the commitment today, be willing to make a 
commitment to a 20 percent profit on systems?
    Mr. Taiclet. I would--I'll only be able to say what I've 
offered, which is we'll maintain compliance with the Federal 
Acquisition Regulation because that's the governing structure 
for our business.
    Mr. Khanna. And will you be willing to provide the 
committee with a report of where you're making over a 15 
percent profit today?
    Mr. Taiclet. I'll--yes, I'll ask my finance team to pull 
together any data that would show operating margins above 15 
percent. I can certainly give you the information and will for 
the record.
    [The information referred to can be found in the Appendix 
on page 81.]
    Mr. Khanna. I appreciate that.
    Mr. Taiclet. Yeah.
    Mr. Khanna. Thank you.
    Mr. Gallagher. I wonder if the challenge would be for 
across-the-board commitment. There could be systems in which 
you lose money and others in which you make a lot of money and 
those--it's sort of the whole ecosystem.
    But understanding that, you know, the limit we have put on 
through the FAR and how much money you're making would help us 
figure that out.
    I would like to--Mr. Fallon is supposed to come back. I got 
one more thing at least I want to get through, which is in--Mr. 
Taiclet, in your testimony in the last section about 
collaborating more closely with trusted allies and partners I 
think is quite good, and maybe just talk us through some of the 
barriers you've encountered--and, actually, I guess I'd open 
this up to the whole panel--in terms of ITAR regulations--
International Trafficking in Arms Regulation--particularly as 
it pertains to collaboration with our closest allies, the 
Aussies and the Brits.
    Mr. Taiclet. So we have a significant, and rightly so, 
regime of technology transfer regulation. However, again, it 
could be--we feel it could be adjusted based on the actual 
allies' circumstances.
    So, for example, the AUKUS [Australia, United Kingdom, 
United States] countries could have a different set of ITAR 
standards apply to them as a group. Individually, Canada 
already does. There are certain waivers to regulations with 
regards to Canada.
    So there's some models already out there that we could 
essentially not treat all foreign countries the same. That's 
not exactly how it happens today. But there could be more 
differentiation among countries to speed up technology release, 
and not just for research and development purposes but also for 
production and sustainment purposes.
    In other words, if we're going to be in a contested 
logistics situation in the future, which is likely to happen if 
there is a conflict, it will be extremely difficult to ship, as 
you've said, Chairman, resupply, spare parts, repaired parts 
back and forth across the oceans.
    And so, therefore, it's going to be more important to have 
production and repair and overhaul capability in the regions 
and theaters where the United States forces and our allies are 
going to be. So that's a part of this.
    We would like to explore regulatory opportunities for 
relief and actually putting production and sustainment outside 
the United States with trusted partners, too.
    Mr. Gallagher. All right. And Mr. Schimpf, I believe you 
have some innovative programs in Australia. I'm curious to have 
you comment on ITAR and----
    Mr. Schimpf. The ITAR restrictions do definitely present 
some real--what we have seen with allies and partners is the 
ITAR restrictions basically force them into taking a much less 
collaborative stance with the U.S.
    They essentially have to and we have built teams 
independently that operate in these other countries to build up 
similar technologies because they would be encumbered by a set 
of regulations that limit the ability of Australia to operate 
the way they need to operate.
    I share Mr. Taiclet's view that, you know, looking at this 
from the lens of AUKUS, having a close collaborative 
relationship with them, in the same way we do in intelligence 
sharing.
    We have already shared the most sensitive national security 
secrets with them. I believe we can do the same on defense 
articles very safely.
    So limiting it to that view, I think, is a very effective 
way to massively increase the ability for defense technology to 
collaborate internationally, build up much more compelling 
capabilities, and really enable our allies to truly partner 
with us instead of viewing it as something that is separate and 
apart in many cases.
    Mr. Gallagher. Mr. Jenkins, have you encountered this 
issue?
    Mr. Jenkins. Yeah. I think for us ITAR is much wider in 
terms of deployment of unmanned systems. By definition you 
can't protect an unmanned system.
    So we don't currently deploy any export control or ITAR 
hardware on our vehicles. But if you are going to deploy 
weapons or sophisticated targeting software or hardware on the 
vehicles we will need to find a way to be able to make that 
stuff attritable as well. So I think there needs to be some 
ITAR reform specifically relating to unmanned systems.
    Mr. Gallagher. I appreciate that. I have one more. Fallon's 
not going to make it so I'm going to force Mr. Khanna to listen 
to me drone on here for 5 more minutes.
    Well, I guess a dumb question or a diagnostic question, as 
it were. Okay. So if you were all king for a day--you are--you 
are capable of commanding DOD to do one thing in this fictional 
universe to fix the problem--the valley of death problem, all 
the problems we have been talking about--what is that--what is 
that one thing?
    Mr. Taiclet, we'll start with you.
    Mr. Taiclet. I think it's very important to have a 
wholesale reorientation towards missions in addition to the 
orientation, again, of vehicles, products, and programs, if you 
will.
    What we have done at our company is to try to path find 
this, Chairman, is we continue to have four large business 
units that build airplanes, AEGIS radar systems, PAC-3 
missiles, et cetera.
    But we have created institutional capability to map 
missions. So a mission would be air superiority. A mission 
would be----
    Mr. Gallagher. Wait. Just so I understand, DOD would say, 
Lockheed, we are paying you to do X--give us air superiority 
here--as opposed to produce this system.
    Mr. Taiclet. That's right.
    Mr. Gallagher. In the simplest terms.
    Mr. Taiclet. So the way to--the way to accomplish this, in 
our view, is to create this mission roadmap meaning what do 
the--what do the airplanes already have today? What are the 
radar systems I have? What are the satellite sensors that could 
be looped into a mission to shoot down enemy airplanes before 
they can shoot you down?
    And being an ex-pilot myself I know what goes into this. 
It's sensing the enemy aircraft first. It's getting that 
tracking data refined from, say, a satellite level to an F-35 
radar level.
    It's then having the command and control system make a 
decision to target that airplane quickly and then have a 
missile that will go farther than the other--the enemy plane's 
missile can go and a radar that can see farther than the enemy 
plane's radar can see.
    We can start accelerating digital technologies into that 
mission in a way that can move data flows faster so that we can 
make quicker decisions and be more effective and ultimately 
improve that mission without any new hardware and it would be 
tying a certain satellite that doesn't connect today to a 
command and control system in Hawaii to an F-35 in the South 
China Sea.
    That could all be done with digital technology in a way 
that would be much faster than waiting for the next-generation 
air dominance airplane to show up in 10 years.
    Mr. Gallagher. Mr. Schimpf, same question. You get the 
magic wand.
    Mr. Schimpf. I think there's a huge number of systems that 
you can take a very straightforward kind of free market 
capitalist approach to, like, how you actually would make these 
work.
    Basically looking at--you know, taking missile systems, for 
example, being able to have an opportunity to recompete and 
revisit these things periodically, have new entrants be able to 
invest and if they perform win.
    When these systems are locked up for 10, 20, 30 years it is 
very hard for a new entrant to have any incentive to try to go 
after improving these technologies.
    So I think the ability to, you know, rapidly recompete 
these award winners that are actually working and scale those 
into predictable production will substantially improve the 
competitiveness and speed that you will see innovation.
    Mr. Gallagher. But what needs to happen inside the Pentagon 
or here in Congress for that to happen? Like, what----
    Mr. Schimpf. I think we have to start on targeted, small 
activities where--you know, now I think we're starting to see 
more competitions and bake-offs where they're evaluating 
technology.
    But the next stage of this, of actually fielding at scale, 
goes back to a lot of what I was saying before where, 
essentially, these things go into then more experimentation and 
more tests.
    But actually getting these technologies to fielding very, 
very quickly is the most important thing and I think Congress 
can put language and tie appropriations to success of fielding, 
not just do you have a plan to field in 5 years.
    Mr. Gallagher. Got it. Got it. I think I got it.
    Mr. Jenkins.
    Mr. Jenkins. Yeah. In the same vein, for me the gap which 
has to get fixed is the gap between proven experimental 
products to operations, right. There's no current trajectory at 
all to do that. Replicator maybe. DIU maybe.
    But right now there's no funds apportioned to that. That is 
a considerable if not a terminal barrier for small business to 
get into large-scale replication.
    We need to see budget allocated to that and an authority to 
distribute that in a clever way. My concern about replicating 
those things is that when you buy a lot of hardware very 
quickly, is it truly proven? Will it be out of date or expired 
within 12 months?
    And I think you really have to--you know, we have done a 
million miles in the open ocean. We still learn new lessons 
every single day. Without doing that time in the ocean, if 
you'd asked to buy five new platforms 5 years ago we would have 
given you the wrong thing. It wasn't ready, wasn't mature. So 
as we run very fast I think we have to work out what technology 
is proven, is ready to scale, and then allocate budget to that.
    Mr. Gallagher. Did you make a comment earlier about a 
combatant command approach? So what did you mean by that?
    Mr. Jenkins. Yes. So, you know, right now it's a 
centralized process. Combatant commands have their own money. 
There's definitely a theory of giving spending power to 
combatant commands to buy their own hardware.
    I'm on the fence. I could do it either way. I think if you 
give combatant commands control you might end up duplicating 
services--contracting services, fueling services--and the same 
technology is probably useful to multiple fleets and commands.
    So Central Command is detached. You don't get good 
requirements through from the fleets right now. So I don't want 
to go into either camp. But either you give the combatant 
commands more money to make their own decisions or you 
centralize procurement in a central government body.
    Mr. Gallagher. Great. Any other questions? Anybody? Going 
once. Going twice. Bueller? Bueller?
    Thank you to our witnesses for your time. This was a not-
boring hearing, which is our primary objective, to not be 
boring. I learned a lot and I think we have a lot of items that 
we can action in next year's NDAA.
    Let's just hope we're not all sitting at a future Reagan 
National Defense Forum having the same trite conversations 
about valley of death this, valley of death that. The time is 
now to act.
    So very much appreciate your time. I appreciate your 
leadership and look forward to working with you in the future. 
And with that, the subcommittee hearing is adjourned.
    [Whereupon, at 10:28 a.m., the subcommittee was adjourned.]
     
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                           A P P E N D I X

                           September 20, 2023
     
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              PREPARED STATEMENTS SUBMITTED FOR THE RECORD

                           September 20, 2023

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              WITNESS RESPONSES TO QUESTIONS ASKED DURING

                              THE HEARING

                           September 20, 2023

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             RESPONSES TO QUESTIONS SUBMITTED BY MR. KHANNA

    Mr. Taiclet. Lockheed Martin does not currently directly source any 
defense articles for US defense systems from China. Numerous statutes 
and regulations restrict the sourcing of various items from China. The 
restrictions implemented as a Defense Federal Acquisition Regulation 
(FAR) Supplement clause are included in our contracts with the 
Department of Defense (DOD). In turn, we include them as a term and 
condition of contracts with our suppliers and vendors. LM is committed 
to complying with all U.S. export control laws and regulations.
    There are instances when a supplier discloses to LM that a part or 
item was inappropriately purchased from a Chinese source. In these 
instances, LM works closely with the supplier to find an alternative 
source. This year, Raytheon Technologies disclosed that it had 
improperly purchased low technology China-origin defense items, 
specifically printed wiring boards, brackets, cable assemblies, used in 
components for military aircraft. These parts do not represent a safety 
of flight risk or present a cyber risk. The matter has been reported to 
DOD and the Defense Committees, and a waiver for use has been granted.   
[See page 11.]
    Mr. Taiclet. Lockheed Martin is a publicly traded company that 
operates in accordance with all Federal laws and regulations. As a 
provider of advanced technology to the U.S. federal government, 
including the DOD, we are subject to strict compliance and audit 
requirements to be eligible to bid and perform Federal contracts. In 
addition to public disclosure of our financial performance to the 
Securities and Exchange Commission, the DOD imposes a statutory 
framework where it achieves detailed insight to cost at the contract 
level. In addition, under FAR Part 15 where proposals are subject to 
certification under the Truth in Negotiation Act (TINA), detailed cost 
and pricing data is provided to and reviewed by the appropriate 
agencies as part of the negotiation and review process. Overall 
profitability for those proposals is also subject to profit weighted 
guidelines, which focus on performance risk, contract type risk, 
facilities capital employed, and cost efficiency.
    In the past three years, LM has not negotiated any domestic 
contracts with the U.S. Government with a profit over 20%. For 
competitive reasons, we do not publicly disclose profit on a program-
by-program basis.
    As I agreed to provide at the hearing, below is additional 
information on our operating margins.
    We operate in four business segments: Aeronautics, Missiles and 
Fire Control (MFC), Rotary and Mission Systems (RMS) and Space. We 
organize our business segments based on the nature of products and 
services offered.
    Sales and segment operating margin are calculated and reported at 
the business area level. While our principal customers are agencies of 
the U.S. Government, our business area sales, profit, and margin 
figures include contracts and programs that serve U.S. and 
international customers with products and services that have defense, 
civil and commercial applications.
    As disclosed publicly, LM's segment operating margin is below 15% 
in aggregate. Our operating margin is in family with industry averages 
for U.S. Government contractors. There is also no business area with a 
consolidated operating margin that exceeds 15% in the actual results 
depicted below. In 2021, LM's operating margin was 11.4% and in 2022 it 
was 11.3%. The third table identifies our year-to-date 2023 operating 
margin. [See tables next page.]   [See page 27.]
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