[House Hearing, 119 Congress]
[From the U.S. Government Publishing Office]
[H.A.S.C. No. 119-3]
STRENGTHENING AMERICA'S
DEFENSE INDUSTRIAL BASE,
WORKFORCE AND PRODUCTION LINES
TO DETER WAR
__________
COMMITTEE ON ARMED SERVICES
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINETEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
FEBRUARY 26, 2025
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
__________
U.S. GOVERNMENT PUBLISHING OFFICE
62-496 WASHINGTON : 2026
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COMMITTEE ON ARMED SERVICES
One Hundred Nineteenth Congress
MIKE ROGERS, Alabama, Chairman
JOE WILSON, South Carolina ADAM SMITH, Washington
MICHAEL R. TURNER, Ohio JOE COURTNEY, Connecticut
ROBERT J. WITTMAN, Virginia, Vice JOHN GARAMENDI, California
Chair DONALD NORCROSS, New Jersey
AUSTIN SCOTT, Georgia SETH MOULTON, Massachusetts
SAM GRAVES, Missouri SALUD O. CARBAJAL, California
ELISE M. STEFANIK, New York RO KHANNA, California
SCOTT DesJARLAIS, Tennessee WILLIAM R. KEATING, Massachusetts
TRENT KELLY, Mississippi CHRISSY HOULAHAN, Pennsylvania
DON BACON, Nebraska JASON CROW, Colorado
JACK BERGMAN, Michigan MIKIE SHERRILL, New Jersey
RONNY JACKSON, Texas JARED F. GOLDEN, Maine
PAT FALLON, Texas SARA JACOBS, California
CARLOS A. GIMENEZ, Florida MARILYN STRICKLAND, Washington
NANCY MACE, South Carolina PATRICK RYAN, New York
BRAD FINSTAD, Minnesota GABE VASQUEZ, New Mexico
MORGAN LUTTRELL, Texas CHRISTOPHER R. DELUZIO,
JENNIFER A. KIGGANS, Virginia Pennsylvania
JAMES C. MOYLAN, Guam JILL N. TOKUDA, Hawaii
CORY MILLS, Florida DONALD G. DAVIS, North Carolina
RICHARD McCORMICK, Georgia GILBERT RAY CISNEROS JR.,
LANCE GOODEN, Texas California
CLAY HIGGINS, Louisiana ERIC SORENSEN, Illinois
DERRICK VAN ORDEN, Wisconsin MAGGIE GOODLANDER, New Hampshire
JOHN J. McGUIRE III, Virginia SARAH ELFRETH, Maryland
PAT HARRIGAN, North Carolina GEORGE WHITESIDES, California
MARK B. MESSMER, Indiana DEREK TRAN, California
DEREK SCHMIDT, Kansas EUGENE SIMON VINDMAN, Virginia
JEFF CRANK, Colorado WESLEY BELL, Missouri
ABRAHAM J. HAMADEH, Arizona
Chris Vieson, Staff Director
Lynn Williams, Professional Staff Member
Phil MacNaughton, Professional Staff Member
Ethan Pelissier, Research Assistant
C O N T E N T S
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Page
STATEMENTS PRESENTED BY MEMBERS OF CONGRESS
Rogers, Hon. Mike, a Representative from Alabama, Chairman,
Committee on Armed Services.................................... 1
Smith, Hon. Adam, a Representative from Washington, Ranking
Member, Committee on Armed Services............................ 2
WITNESSES
Fanning, Eric, President and Chief Executive Officer of the
Aerospace Industries Association............................... 4
Paxton, Matthew, President, Shipbuilders Council of America...... 7
Norquist, David L., President and Chief Executive Officer of the
National Defense Industrial Association........................ 6
APPENDIX
Prepared Statements:
Fanning, Eric................................................ 71
Paxton, Matthew.............................................. 94
Norquist, David L............................................ 84
Documents Submitted for the Record:
Letter from Representative Higgins........................... 113
Witness Responses to Questions Asked During the Hearing:
[There were no Questions submitted during the hearing.]
Questions Submitted by Members Post Hearing:
Mr. Wilson................................................... 117
Mr. Carbajal................................................. 118
Mr. Golden................................................... 118
.
STRENGTHENING AMERICA'S DEFENSE INDUSTRIAL BASE, WORKFORCE AND
PRODUCTION LINES TO DETER WAR
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House of Representatives,
Committee on Armed Services,
Washington, DC, Wednesday, February 26, 2025.
The committee met, pursuant to call, at 10:00 a.m., in room
2118, Rayburn House Office Building, Hon. Mike Rogers [Chairman
of the Committee] presiding.
OPENING STATEMENT OF HON. MIKE ROGERS, A REPRESENTATIVE FROM
ALABAMA, CHAIRMAN, COMMITTEE ON ARMED SERVICES
The Chairman. In our first hearing this Congress, we
examined the complex and growing threats facing our nation.
Today we are going to review the state of the defense
industrial base and how we can best position it to fully
support our military if conflict breaks out.
For over 200 years we have relied on the skills of the men
and women working in shipyards and factories throughout America
to build the tools of warfighters that warfighters need to
succeed in battle. We cannot prevail in any conflict without a
ready, strong, and adaptable industrial base. But over the last
30 years we have watched the industrial base atrophy.
Defense firms have consolidated, supply chains have
narrowed, regulatory burdens have grown out of control, and
recruitment and retention of the skilled workforce have become
much more difficult. The consequences are readily apparent.
Critical acquisition programs are years behind schedule and way
over budget. Thousands of small businesses are choosing not to
do business with the Pentagon and we are losing wargame after
wargame because we can't resupply critical munitions and weapon
systems in a timely manner.
While recent NDAAs [National Defense Authorization Act]
have made great strides in tackling this issue, much more needs
to be done. We need to expand multi-year contracts and fully
fund them to provide industry with more certainty, we need to
bulldoze the labyrinth of regulatory burdens that hamstring the
acquisition process, we need to end our dependency on China for
critical minerals and materials, and we need to reform the arms
export process to help industry work with our allies and
partners to unlock greater burden sharing. Ultimately, however,
we need to invest much more in workforce development,
automation, and infrastructure improvements.
While our adversaries increase investments and subsidies in
their defense industrial bases we have let our languish. A
strong resilient and diverse industrial base is needed to
restore peace through strength. Our adversaries will only be
deterred if they know that the United States along with its
allies can produce and sustain military forces in a protracted
conflict.
I look forward to hearing from our witnesses about what
resources and authorities your member companies need to
revitalize the industrial base and restore American deterrence.
With that, I yield to my friend, the ranking member, for
any comments he may have.
OPENING STATEMENT OF HON. ADAM SMITH, A REPRESENTATIVE FROM
WASHINGTON, RANKING MEMBER, COMMITTEE ON ARMED SERVICES
Mr. Smith. Thank you, Mr. Chairman. Thanks for holding this
hearing. I think this is an important topic that we should all
discuss as we get ready to see what the budget is going to look
like.
Yes, our ability to get to scale and produce what we need
to produce in the quantity it needs to be produced is seriously
in question. Whether you are talking about shipbuilding,
munitions, across the board there are considerable concerns
about our ability to build what we need to build. I completely
agree with your comments about the workforce. We need to do a
better job of developing that workforce as we go forward and to
get to that scale of production on critical items.
Another big part of it, which I know this committee has
done a lot of work on, is how quickly we make decisions and are
able to adapt to new technologies and buy new equipment. The
process is too slow. We all know that. We have talked about
that repeatedly. The Pentagon is more focused on process; less
focused on results. The defense industrial base is focused on
sort of gaming the requirement system to make sure that they
win. And we don't make decisions quickly, and Congress of
course limits the flexibility of the Pentagon to get there.
The other aspect of this though that I hope we will
consider is choices. When you look at all of the areas within
DOD [Department of Defense] where we want to spend more money--
and you can pick a member here who has a particular interest.
If you are from a shipbuilding area, you will complain that we
don't have enough ships. We talk about our jet fighters. We
don't have the F-35 fast enough.
And then when you look at all of the adversaries that we
face and what are concerns are with China, with Russia--I think
that is still a concern--with the Middle East, with various
terrorist groups, and then you say well, what do we need to
meet those threats? The one thing I hope everyone considers
here, we cannot possibly spend the amount of money and build
what is needed to meet all of the threats that we keep talking
about. It is simply not possible.
So part of this needs to be thinking about what is your
strategy? How do we manage the challenges that we face instead
of imagining that we are somehow going to be dominant in the
world and be able to deter everybody? We are not making choices
in terms of what is a realist defense strategy. We are not
going to be able to dominate and overcome every single
perceived adversary out there.
So I hope we have some conversation this year about how we
can restructure that and make different choices. And one key
part of that is something that the chairman mentioned: allies
and partners. They are going to be absolutely crucial.
Now in this particular context they are crucial in terms of
the industrial base. Allies and partners have capabilities.
That is why I am such a huge fan of AUKUS [Australia-United
Kingdom-United States], building that greater partnership with
the U.K. and Australia. Yes, we will build submarines, but also
the technology sharing that goes in that--into that enables us
to rely on other parts of the world, other partners and allies.
Now, it is important to have partners and allies who are
willing to do that so we can't go around defending all of them
all the time, but we are going to need those partners and
allies to do that.
The last thing that I would like to hear from our witnesses
about is the impact of the DOGE [Department of Government
Efficiency] approach to the Pentagon. I am concerned about
that. To begin with, we need skilled workers. And now we are
apparently going to add the Pentagon to the list of Federal
Agencies where we are simply going to randomly fire people.
Okay? Now we are not going in there and saying who is good at
their job? We need this particular talent, we need that
particular talent. At the moment we are just saying that we are
going to fire the people who have been there for less than two
years. I mean, that is not quality control. That can enter
chaos into the process in a very unhelpful way.
It has also become apparent that a lot of people are going
to be fired based on their loyalty to the President as opposed
to their ability. And trust me, that lesson will be learned by
people at the Pentagon. And they will learn, okay, I don't have
to be good at my job; I just have to suck up to the boss. And
they will make that choice. That is not going to make us
better, it is not going to make us more efficient or more
effective.
And lastly, any insights anyone might have on the proposed
eight percent cuts. Supposedly it is going to be cut from
certain areas; I don't know where, and then added back in to,
quote, "Presidential priorities." But the clarity on that
process just isn't there. I mean, nobody seems to know exactly
what the point of that is and yet we are talking about eight
percent of the budget that is going to be moved around. A
little bit of clarity on this is what we are looking for, this
is where it needs to go would help. So chaos is not going to
help this process.
I think we have three very, very highly-qualified witnesses
here today. Look forward to hearing from you about how we can
be more efficient and more effective and build what we need to
meet our national security objectives. And with that, I yield
back. Thank you.
The Chairman. I thank the ranking member.
Before we continue with the introduction of witnesses I
want to remind those in the audience that this hearing is open
to the public, but that actions to disrupt or distract will not
be tolerated. The chair reserves the right to remove disruptive
persons from the hearing. U.S. Capitol Police are on hand to
assist with that task and I thank them for their presence.
Let me start by introducing the Honorable Eric Fanning. He
is the president and CEO [Chief Executive Officer] of the
Aerospace Industries Association, former HASC [House Committee
on Armed Services] staffer. He served--which is what qualified
him, by the way. He served as 22nd Secretary of the Army and
various other senior roles for his--in his 25 years of
government service.
The Honorable David Norquist is the president and CEO of
the National Defense Industrial Association. Mr. Norquist
previously served as the 34th Deputy Secretary of Defense from
2019 to 2021.
And Matt Paxton is the president of the Shipbuilders
Council of America, a role he assumed in 2007 after a very
distinguished career as a senior advisor in the Senate.
With that, Mr. Fanning, we will start with you. You are
recognized for five minutes.
STATEMENT OF ERIC FANNING, PRESIDENT AND CEO, AEROSPACE
INDUSTRIES ASSOCIATION
Mr. Fanning. Thank you, Mr. Chairman, and my time--
The Chairman. You need to turn your microphone on.
Mr. Fanning. Thank you, Mr. Chair. My time on the HASC
staff was--
The Chairman. I don't think your microphone is working.
Maybe pull it closer to you, Eric.
Mr. Fanning. Thank you, Mr. Chair.
The Chairman. There you go.
Mr. Fanning. My time on the HASC staff was well before
anybody on the committee was on the committee.
Chairman Rogers, Ranking Member Smith, and members of the
committee, thank you for the opportunity to testify on the
importance of strengthening the United States industrial base.
Every morning more than 2 million Americans employed by the
aerospace and defense industry go to work with one mission in
mind: to enhance deterrence by increasing the lethality,
survivability, and chance of victory for the warfighter. This
is our industry's primary driver, to make our country safer,
more secure, and more prosperous.
To do this the companies that make up the defense
industrial base rely on clear demand signals from Congress and
the Executive Branch, sufficient federal investment, a healthy
and resilient supply chain, and a regulatory environment that
promotes both innovation and adoption.
The last three years have exposed how many years of policy
and funding have shaped the contours of our industry. We invest
for peace rather than the deterrence necessary to sustain that
peace. We optimize for efficiency rather than capacity. This
was true when I testified two years ago before this committee
and it remains true today. Despite an incredible amount of
attention to the matter, including from this committee, and
industry working against enormous economic head winds to change
this, we still have a system that increasingly can't keep pace.
However we proceed we must take an all-of-the-above approach to
defense acquisition recognizing that the defense industrial
base is a diverse ecosystem of companies that each have an
important to play.We must ensure the system positions the whole
industrial base; primes, new entrants, suppliers, and
commercial companies of all sizes, to meet the warfighters'
needs and the nation's expectations.
We can start with the complex maze of well-meaning but
burdensome statutes and government policies which drive up the
cost and complexities of doing business with the Federal
Government. Bureaucracies are additive. We create a process to
prevent the last bad thing from happening again, well-
intentioned and important, but the cumulative effect of this
risk mitigation has become a greater risk than the combined
mitigation because it is keeping new equipment from getting to
the warfighter.
Today it takes nearly 300 days on average to award prime
contracts with estimated sales of more than $100 million. For
commercial companies used to working quickly the delays in
awarding contracts and executing agreements are a strong
disincentive to contracting with the DOD and small businesses
struggle to maintain the cash flow over such a long horizon.
Congress should focus on right-sizing the regulatory regime
to encourage new entrants and support companies of all sizes
within the DIB [defense industrial base]. The removal of
regulatory burdens also applies to strengthening domestic
manufacturing and supply chains as well as for allowing closer
cooperation with allies and trusted partners. These global
alliances are a competitive advantage for the United States and
we make it took hard for them to work with us and buy the
equipment they want: ours.
Increasing domestic manufacturing and supply chain
resiliency, easing technology sharing requirements, and growing
our defense exports are key to a U.S. posture that effectively
deters our adversaries. Rationalizing the process for arms
sales has the added benefit of creating additional funding
streams for the DIB.
In the 2024 fiscal year total foreign arms sales exceeded
all DoD procurement and RD&T--RDT&E [research, development,
testing, and evaluation] accounts combined, a necessary
lifeline amid an uncertain funding environment, and federal
investment must keep pace with the threats we face. While we
all recognize the growing instability around the world,
particularly growing threats from China, our actions have not
matched our words.
Insufficient funding levels, the annual reliance on short-
term funding measures, and the constant specter of government
shutdowns have created deep-seated and disrupting instability
for companies. This in turn jeopardizes our ability to maintain
production lines, support a skilled workforce, and develop
innovative new technologies that ensure our asymmetric
advantage.
Lastly, guaranteeing the DIB has access to the talent
pipeline to sustain its work is foundational to these efforts.
Investing in STEM [science, technology, engineering, and
mathematics] education, re-skilling current industry employees
for new technologies, and enhancing our country's training
efforts, including apprenticeship programs, on-the-job training
and certification and credentialing programs, are vital to
ensuring a highly-skilled dynamic future workforce.
The administration and this Congress are pursuing a policy
of peace through strength. The United States defense industrial
base delivers that strength. The nation needs and deserves the
entire defense industrial base running full-steam.
On behalf of the Aerospace Industries Association thank you
again for the opportunity to testify.
[The prepared statement of Mr. Fanning can be found in the
Appendix on page 71.]
The Chairman. Thank you, Mr. Fanning.
Mr. Norquist, you are recognized.
STATEMENT OF DAVID L. NORQUIST, PRESIDENT AND CEO, THE NATIONAL
DEFENSE INDUSTRIAL ASSOCIATION
Mr. Norquist. Thank you, Chairman Rogers, Ranking Member
Smith, and--oh, bring it up closer? There we go?
Chairman Rogers, Ranking Members Smith, and distinguished
members of the committee, thank you for the opportunity to
speak with you today on strengthening America's defense
industrial base, which is essential for our national security.
I will limit myself to brief opening remarks. For a more
detailed analysis the National Defense Industrial Association
has just completed a report on the resilience of the U.S.
defense industrial base titled, ``Vital Signs 2025.'' And with
the chair's permission I submit that report for the record.
The Chairman. [Inaudible.]
[The information referred to is retained in committee files
and is available upon request.]
Mr. Norquist. For over 100 years NDIA [National Defense
Industrial Association] has provided a forum for government and
industry leaders to collaborate and address complex defense
issues so that our nation maintains a strong and resilient
defense industrial base. NDIA and its affiliates represent over
1,700 defense companies of all sizes and sectors and the
majority are small businesses. These companies, design,
manufacture, and maintain the cutting-edge technologies and
systems that our Armed Forces rely upon to defend our nation.
During the last 35 years government policy and funding
decisions have resourced the U.S. defense industrial base for
low-intensity conflict. Critical elements of the industrial
base including the manufacturing sector, skilled trade
workforce, have atrophied. Industry behavior reflected the
funding levels and the rules set by its customers, the Federal
Government. But now the threat has changed. If we want
increased capacity, speed, resilience, and innovation, then we
must prioritize them in the budget, acquisition, and
requirements process.
At a high level many of the issues facing the U.S. defense
industrial base are well-known: sclerotic acquisition process,
brittle supply chains, insufficient procurement funding,
unstable budgets, increased regulation, and barriers to
modernizing defense trade. The committee has been a leader in
addressing these challenges.
What makes change hard is that the system is so complex
that changes at one level is often offset by counter-pressures
at another level. For example, we must be aware of how
statutes, regulations, and policies driving compliance
decisions at the program manager and contracting officer level
can create incentives counter to the intent of reforms from
Congress or senior department leaders. One concrete example is
how current policies and regulations deter industry ramping up
munitions product, and I look forward to engaging with you on
this topic. Likewise, new restrictions and barriers to entry
are rising, including specific challenges around intellectual
property and data rights as well as the Cybersecurity Maturity
Model Certification requirements. While well-intentioned and in
many cases very important, both of these are clear areas that
discourage attracting new entrants, suppress innovation, and
increase compliance costs.
In addition, as the Congress moves forward to reduce
regulatory burdens and incentivize novel contracting approaches
to attract and retain new companies, it is important to give
traditional company--contractors access to the same streamlined
system. Otherwise, we are signaling to the non-traditionals
that as they succeed they will eventually graduate into the
current slow, burdensome, and costly system.
This Congress and the new administration have inherited the
political conditions conducive to breaking up and reforming an
acquisition system that prioritizes reducing risk over speed
and innovation. The good news: our nation has a defense sector
that is innovative and dynamic. What is required is to shape
the conditions that will allow it perform in the way we want.
NDIA appreciates the committee's leadership and focus on
this strategic topic. We look forward to working with you to
rebuild our defense industrial base in order to strengthen our
national security. Thank you for the opportunity to testify
today, and happy to answer any questions you may have.
[The prepared statement of Mr. Norquist can be found in the
Appendix on page 84.]
The Chairman. Thank you, Mr. Norquist.
Mr. Paxton, you are recognized for five minutes.
STATEMENT OF MATTHEW PAXTON, PRESIDENT, SHIPBUILDERS COUNCIL OF
AMERICA
Mr. Paxton. [Inaudible.]
The Chairman. Your microphone is not on.
Mr. Paxton. [Inaudible.]
The Chairman. See if the staff can get that working.
Mr. Paxton. Thank you.
The Chairman. There you go.
Mr. Paxton. On behalf of the Shipbuilders Council of
America I would like to thank Chairman Rogers and Ranking
Member Smith, and members of the committee for the opportunity
to provide testimony on strengthening the U.S. defense
industrial base.
Since I last testified before this committee there have
been questions from senior Navy leaders and others as to
whether the U.S. shipyard industrial base has the capacity and
capability to build and maintain our Navy and Coast Guard
fleets. I want to state very clearly that the physical capacity
of our shipyards is not a constraint to building and
maintaining the fleet. In fact, industry capacity is a
reflection of the demand signal of our government and
commercial customers. And in ship counts that demand signal for
several decades was on the lower end.
On top of this, we went through sequestration, strategic
pauses in certain programs, and enduring the general volatility
resulting from ever-changing or non-existent shipbuilding
plans. Considering all of these factors it is no wonder the
private industry moves cautiously with capital expenditures and
investment in workforce.
I am here this morning to thank the work of this committee
and Congress for implementing policies and laws to assist the
defense industrial base, but certainly more will need to be
done to truly achieve the innovation and efficiencies needed to
deliver with speed critical defense programs for our men and
women in uniform.
In particular, to strengthen the shipyard industrial base
we must be committed to maximizing optimization of existing
private industry shipyard capacity, relentlessly seeking to
reduce excessive oversight and requirements and end the sole
focus on competition at the expense of partnership. It is
undeniable that there has been a reduction in fleet size since
the end of the Cold War. The government customer has gotten
more bureaucratic and risk-averse.
Navy got out of shipbuilding role in 1971 when they
determined private industry was producing ships 20 percent
cheaper. Over time Navy's oversight and bureaucratic reach
stymied innovation and has slowed the industry rather than sped
it up.
Anecdotally, I can see this on the ground. For example, I
was recently in a shipyard where the ratio of shipyard workers
to government oversight was 16 to 1. And in another smaller
shipyard had a 2 to 1 ratio. In any objective view this is
simply not efficient and overly burdensome resulting in
bureaucratic breakdowns impacting schedule and cost.
Shipyards invest significant efforts in preparing designs,
conducting extensive feasibility assessments, and shaping
workforce plans based on initial requirements. Even when a
company wins a contract, they are still dealing with shifting
requirements after contract award, pushing even most cost
burden onto shipbuilders while adding delays an inefficiencies.
Sailors deserve the best we can offer, however we are over-
designing platforms to the point that they are not able to be
manufactured, and thus sailors are asked to perform on older
vessels with less capabilities. There must be some level of
mission-sufficient when it comes to design.
Additionally, Navy ship repair has been scrutinized in the
headlines with some going as far as to suggest that we should
outsource our critical maintenance availabilities to
international counterparts. Outsourcing would only exacerbate
the decreasing workloads in the domestic private ship repair
market. Instead, we need to address the fundamental issues
impacting ship repair including increased complexity of work,
available materials, and how to facilitate a reduced regulatory
structure.
Lastly, I would note the current prospect that we are
facing a year-long continuing resolution is agonizing to
industry. It is paramount that Congress does its part and
returns to passing regular appropriate bills on time before the
end of each fiscal year. SCA [Shipbuilder's Council of America]
would encourage the Congress to continue to support stable,
realistic, and predictable budgets for the U.S. Navy and Coast
Guard and we appreciate the work this committee has done to see
these goals realized.
Ultimately, we need to change the behavior as we have
currently--as we are currently in an adversarial environment in
contracting and design, which is a lose-lose for industry and
Navy. We must return to partnering--to a partnering model where
the government customer and industry focus on continuous
process improvement and joint ownership of problem resolution.
We need to view industry and Navy and the Coast Guard as
partners and share equally in the risks with the common goal of
delivering quality ships on time and on budget.
Thank you, Chairman Rogers and Ranking Member Smith, for
allowing me to testify with such witnesses, and I look forward
to your questions.
[The prepared statement of Mr. Paxton can be found in the
Appendix on page 94.]
The Chairman. Thank you, Mr. Paxton.
I thank all the witnesses for their time they put in to
making those statements and preparing for this hearing. And I
do appreciate your attendance and participation.
I recognize myself first for five minutes.
Starting with you, Mr. Paxton, tell me what the
shipbuilding industry has done to strengthen its supply base. I
am hearing all kind of horror stories about supply chain
problems that have really been exacerbated since the COVID
pandemic, but tell me what you are doing to make sure that your
supply chain is not a problem.
Mr. Paxton. Thank you, Chairman Rogers. First, I will say
our shipyards are constantly taking the pulse of the health of
our supply chain. It is absolutely critical that we know our
sole source suppliers are and what the health of our industrial
base looks like.
We are investing in the supply chain. We have--we are
grateful for the work that this committee has done and that
Congress has appropriated money for the submarine industrial
base and the maritime industrial base. Those initiatives are
having a real positive impact on the supplier base.
But overall you are correct, chairman. Since COVID, and
before COVID, quite frankly, there was a consolidation in the
supplier base. And we need to maintain the resilience and
health of that supply chain.
The Chairman. Well, Mr. Norquist, you talked about how
current policies and regulations are making it harder for
industry to ramp up munitions production. We have seen as a
result of the conflict in Eastern Europe that our ability to
produce munitions has really atrophied. How can we fix this?
Mr. Norquist. So there is a number of challenges that
happen with munitions. The first is it swings more than the top
line in the budget. When the budget gets tight, often the
Department will ask for amounts only necessary to keep a
facility open and running. And so you see this unstable demand
signal that happens on the munitions. So that is one of the
challenges.
I think also if you look at certainly the unclassified war
games--but this committee may have access to classified ones--
to ask the question whether the floor that we are building to
in peace time is in fact the appropriate inventory of munitions
we should have versus the requirement. There is an assumption
that once the war starts all of a sudden things will be
available that weren't before. I think there is a risk to that,
certainly when the other team can attack.
There is also rules about when you have a profile for
munition that shows a drop-off at the end. It discourages
someone from opening a second production line because by the
time you bring in trained workers, by the time you get it up
and running, you will turn around and have the production drop.
And so trying to rationalize the quantities you are buying with
what you want the company to do in terms of factories. Those
would be sort of the three things I would start with.
The Chairman. Great. Mr. Fanning, you and I talked in my
office yesterday about the effect of CRs [continuing
resolutions] and cash flow and how that is effecting companies
in the supply chain. Would you share with the committee today
your thoughts on what these CRs are meaning in the--just the
actual operational abilities of supply chain companies?
Mr. Fanning. Well, it is--certainly we have lived with CRs
for many years, although we are much further into the fiscal
year now than we typically are with a CR. And it is happening
at a time when I think the supply chain, at least for our
companies and our supply chain members are stretched thin and
as fragile as we have seen in a very long time. And a lot of
that has to do with cash flow following and being in an
inflationary period.
There is a lag for inflation in the industrial base, and I
would argue that the Pentagon still hasn't seen the full
impacts of inflation. So you have companies in supply chain
with really stretched cash flow problems causing them to have
to move CapEx [capital expenditures] money into working account
funds just to keep payroll going.
And when there is a CR and payments are cut off or are
delayed, it creates that extra stress and burden for the
companies inside the supply chain. They may have already lined
up with their workforce, their material, their parts, and are
under obligation to those contracts, but aren't seeing their
work start on something new or continue on something they are
working on.
The Chairman. Yes, and I just want people to understand, if
you are a small business in these supply chains, it becomes
very unappealing to stay in this world and work for the Defense
Department and you decide instead just to go to the commercial
work area. So this something that we are creating with these
CRs and we have got to stop it.
With that, thank you, gentlemen. And I yield to the ranking
member for any questions he may have.
Mr. Smith. Thank you, Mr. Chairman.
Mr. Norquist, you were talking a little bit about our
capacity to grow quickly, and that is sort of a bit of the trap
we are in. It is the whole demand signal thing. Industry
obviously would like us say for the next 10 years we are going
to buy maximum amount of these things. But it is a rapidly-
changing environment so we don't know for sure. And the answer
to that would be build surge capacity so that you could--is
there any way to do that better than we have done it currently,
or is it just the case that given how complicated it is to make
systems these days that factoring in some of surge capacity in
your plan is just really, really difficult? Are there things we
could do better to get there?
Mr. Norquist. So the answer first is it is really difficult
because to bring in surge is to bring in the time you train and
equip people. But we also don't ask for it in our contracting.
So typically if you have two bidders and one builds excess
capacity, they will bid a higher price and lose. And so unless
you ask for that as part of the requirements--the same thing
with two suppliers: If you don't ask for two suppliers coming
into a supply chain for that final product, then you will get--
the bidder will be the one who does the single source.
The things you can do, for example, is typically these
are--unused capacity is frowned on in the pricing and audits
and in the allowable costs. So if you want somebody to have a
capacity to surge, then they need to have it priced into the
contract or treated as an allowable cost. But you want to be
careful when you do that. You only want to do that in the
things you are trying to allow because it is an extra--
Mr. Smith. Right.
Mr. Norquist. --cost for the system. So as you point out,
you can't have everything. You need to figure out which are the
systems, which are the items that when the war starts, or
before the war starts you will need to surge and how do you
provide the rules for those contracts and those items to allow
for surge capacity.
Mr. Smith. Well, and that is something I really think that
the DOD and this body needs to do, is make better choices about
that.
Mr. Norquist. Yes.
Mr. Smith. We are all in favor of everything. If everything
is a priority, then nothing is a priority. And I think we need
to really focus on that.
Mr. Norquist. Yes.
Mr. Smith. I mean, it seems to me that drones, missiles,
counter-drone, missile defense are high priorities.
Mr. Norquist. Yes.
Mr. Smith. And yet we are funding a whole bunch of other
things. So I think some choices need to be made.
Mr. Fanning, you were talking about the slow pace of
contracts. And I am with you. We could go through any number of
different stories. I mean, the JTRS [Joint Tactical Radio
System] radio, God help us, the tanker. I mean, that was when
it was--it was like 2004, I think, when we first said that,
maybe 2003. We still don't actually have the functional tanker.
What can we do to speed up contracting?
Mr. Fanning. Well, I don't think there is unfortunately any
silver bullet to this. The entire process--
Mr. Smith. Give me a brass bullet.
[Laughter.]
Mr. Fanning. Yes.
Mr. Smith. Just a little--
Mr. Fanning. The entire process from end to end needs to
be--
Mr. Smith. Yes.
Mr. Fanning. --needs to be rationalized. As I said before,
what we see in bureaucracies is sort of a steering-by-the-wake
attitude. And processes are important. And you want to prevent
bad things from happening. But it just adds to the slow nature
of the contracting. I think we are at a time where we need to
add some thoughtful risk back into the system in order to get
speed. And there are ways to do that. It requires careful
oversight to make sure that the risk was well-placed. But I
think it is a--that is a larger cultural issue of taking risk
to move faster, and I don't think that is what we reward in the
system. It is not what we train for in the system. Any time you
ask Congress for more authorities, you get the answer we just
gave you authorities, which is almost always true. There are
always authorities that aren't being utilized because we don't
incentivize the federal workforce to use that. We incentivize
them to find the problems, not necessarily get us past the
problems.
Mr. Smith. Well, and that is--
Mr. Fanning. And it is not just DOD, by the way.
Mr. Smith. Oh--
Mr. Fanning. I mean, we see this in certification in FAA
[Federal Aviation Administration]. And it is not in my view the
workforce. I have worked with amazing people in the federal
workforce. They are rewarded when they catch the problems. And
we need to think about that. And we can target it to specific
sectors of what we are trying to produce in DOD, to experiment
with that and pilot it, but I think we really need to train
those workers, that workforce differently and incentivize them
for taking that risk and getting things to the warfighter
faster.
Mr. Smith. And I will take my last three seconds here just
to restate an editorial comment about the DOGE effort and how
we are going in there. What is so maddening about this is if
you were to go in there and say we want to make the changes in
the workforce that you just described, set the incentives
differently. The DOD workforce does a pretty good job of what
we are telling them to do. Okay? And we are telling them to go
through a lot of process and make sure you never make a
mistake. So rather than going in there and just randomly firing
people, set a different culture. Change the requirements
process. Free them up so they can do their job.
It is really frustrating because I know--I know what Elon
Musk did at SpaceX. I know he knows better than this. So I just
don't know what the hell is going on. Well, I have a suspicion,
which I am not going to get into at the moment. But it is a
huge missed opportunity to actually make the workforce at the
Pentagon better and more efficient.
And I know people who work at the Pentagon. They are as
frustrated as we are. Okay? They don't like the requirements
that we put on them. They don't like the process that we force
them to go through. They are smart capable people who shouldn't
be being treated like this. We should use them as the asset
they are and unleash that asset. So I hope we will change our
approach on that going forward.
Thank you for the indulgence, Mr. Chairman. I yield back.
The Chairman. The chair now recognizes the gentleman from
South Carolina, Mr. Wilson.
Mr. Wilson. Thank you very much, Mr. Chairman.
And indeed, Secretary Fanning, we are glad to have you
back. We appreciate your HASC heritage and we appreciate all of
you for being here today. It is so important that we have our
country prepared for peace through strength, and that is what
you are doing.
With that in mind, I am really grateful. I grew up in
Charleston, South Carolina, and so I particularly appreciate
the naval facilities that are located there and have been so
important. And to me--I was a sea cadet, but most important I
appreciate the Navy. My number two son, Ed, is an orthopedic
surgeon, Beaufort Naval Hospital, previously Naples, Italy. So
it is just--the Navy is just so important.
With that in mind, Mr. Paxton, you have mentioned that in
your written testimony the Navy's addition of last-minute
specification changes to parent designs. Along with the
unilateral design changes that the contract is awarded is
creating difficulty for shipbuilders to meet the government's
requirements without massive cost overruns. How can we
implement long-term contracts to provide predictability for
defense contractors while also having room for the Navy to make
changes to respond to constantly changing global threats as we
have seen with war criminal Putin invading Ukraine and the
puppets of Tehran invading Iran--Israel.
Mr. Paxton. Thank you, congressman, for the question. And
Detyens Shipyard which is--
The Chairman. You need to get your microphone on.
Mr. Paxton. I am sorry again.
The Chairman. There you go.
Mr. Paxton. I apologize. Detyens Shipyard is a member of
the Shipbuilders Council of America and they are right there in
Charleston, sir. What we have experienced with some of our
shipbuilding programs that are not in the tier one shipyards--
talking about surface combatants and aircraft carriers, nuclear
submarines. What we see on some of the lower programs, the
auxiliary programs, there is a constant churn on design.
We go out with an RFP [request for proposal]. It is one
price. And the shipyards bid on this. And what they bid on
ultimately is redesigned and added ship specifications and
requirements that by the time they ultimately are going to
build this thing there is a different price and the vessel
costs dramatically more. So we got to lock those designs in,
basic functional design, and go forward with the shipbuilder
and the government customer working together to get it right.
Mr. Wilson. Well, we look forward to everyone working
together on that.
Additionally, our surface ships are entering maintenance
and domestic shipyards are continually subject to delays
resulting in a negative impact on readiness in the Indo-
Pacific. Department of Defense partners are telling us it is a
result of workforce limitations and supply chain issues when
acquiring parts. Would you say that this is an accurate
representation, the reason for the delays in domestic shipyards
and would this be the same for foreign shipyards? But I am very
grateful that I visited of course the Guam shipyard and our
tremendous territory in the middle of the Pacific that is so
crucial. And in visiting I saw how dedicated they were. So what
is the status?
Mr. Paxton. Yes, sir. Workforce is the number one challenge
facing the shipyard industrial base at this point in time, both
in shipbuilding and in ship repair. So workforce is a
challenge. Coming out of COVID what we did see was kind of a
generational shift with the aging of our workforce, with a lot
of our experienced shipyard workers just retiring out of the
industry post-COVID. So whereas in the mid-1990s a supervisor
might have had 20 years' experience, sir, some of those
supervisors have four-and-a-half years. So there is a greening
of the workforce. But I can tell you this: Our shipyard
industry is investing the money and the resources to ramp that
workforce back up.
As for foreign shipyards, sir, they are facing similar
challenges with their workforces as well. And we are--it is our
number one priority to get it right.
Mr. Wilson. And indeed, foreign--the Republic of Korea to
me is so important, and what an opportunity, and with the
backup at the Guam shipyard.
Mr. Norquist, you have stated that--many issues about
defense industrial base are being faced. And we see with war
criminal Putin invading Ukraine and the attacks on Israel by
the regime in Tehran its puppets we have difficulty refilling
our stockpiles. What is the status of a defense contractor to
be able to increase production or shift from commercial
production to military production?
Mr. Norquist. [Inaudible] the number of--I apologize. So
you have two challenges there: The first one you--the second
one you mentioned is commercial moving towards working for the
Department of Defense. There the challenge is the number of
unusual requirements that DOD puts on a company as you enter
this, which really requires them to go all-in in order to be
able to make it work.
On the first one, which is ramping up, the key question is
access to capital to be able to invest in facilities. The
supply chain in some cases when we are ramping up one munition,
it uses the same solid rocket motor line that two other
munitions use. So they end up getting stuck.
And then the third one is--was mentioned before is the
training of the workforce. These are very skilled individuals
that are doing this work and this is not something you can pick
up overnight. So making sure that we have that pipeline of
capacity to be able to provide those skilled workers for those
functions.
Mr. Wilson. Thank you so much. I yield back.
The Chairman. The chair now recognizes the gentleman from
California, Mr. Garamendi.
Mr. Garamendi. Mr. Chairman and ranking member, thank you
for this very, very important first hearing of the full
committee. We are dealing with profoundly important issues
here.
I want to focus on the maritime industry writ large. I want
to thank our former member, Mike Walsh, who spent a lot of time
as chairman of the Readiness Committee addressing the issue of
the capacity of the United States to provide both naval vessels
as well as commercial vessels, and now Mr. Trent Kelly who is
picked up this issue.
The introduction last year of the SHIPS for America Act is
the most comprehensive piece of legislation in recent history,
perhaps in all history, about how we can address the maritime
challenges that face this nation, both in the naval issues as
well as the commercial.
I draw the attention of the committee to that. Mr.
Chairman, I thank you for raising this in your opening remarks.
And I want to basically ask the witnesses their view of the
SHIPS for America Act as it applies to those members of their
organizations.
So let's start with Mr. Paxton.
Mr. Paxton. Thank you, Congressman Garamendi.
Mr. Garamendi. Microphone, please.
Mr. Paxton. Thank you, Congressman Garamendi. And first of
all, thank you for your leadership, sir, on the Energizing
America Shipbuilding Act, which is part of the SHIPS Act, and
thank you for your sponsorship of the SHIPS Act. Not since the
1970s' 1970 Merchant Marine Act have we seen a peacetime build
up that the SHIPS Act would portend if we were to pass that
legislation.
Having a national maritime strategy is a failure. We should
have a national maritime strategy that stitches together the
commercial industrial base with our Navy, with our Coast Guard,
with our Merchant Marine, and the SHIPS Act does all of those
things. And again, it really begs the question of do we want to
be in international commerce? Do we want to have a global
logistics arm with our U.S. build, U.S. flags, U.S. crude
ships? And I think the answer is yes.
Mr. Garamendi. Thank you. So I think one of the important
things about the SHIPS Act is it creates a framework for
significantly enhancing the domestic shipbuilding and the
repair. And one of the important things is, as we look at these
challenges, many of them are industry-specific. The type of
changes you would make to increase and work through the
shipyard industry might be very different than some of the
others. So I think when you have such a complicated process,
putting that focus there is particularly valuable and I think
the benefits for the maritime workforce, which is an essential
part of the success of that industry, is key.
Mr. Fanning. Thank you. I don't have a whole lot to add
there other than maybe I can just foot stamp on the workforce
issue. It is a highly skilled issue. In the shipyards the
conditions are a lot harder than other parts of aerospace and
defense industry. And I think we have to address the labor
rates that are allowable, particularly in shipyards.
Mr. Garamendi. Thank you. This piece of legislation is
bicameral. Mark Kelly and Todd Young on the Senate side are the
authors of it. We intend to reintroduce the bill following the
chaos of March. And so we will pick it up probably in April and
reintroduce it. Between now and then any issues, concerns,
suggestions that any of your members would want to make to
improve or modify the bill, please let us know.
I want to pick up another subject which came up, and it is
the subject of investment. It has become increasingly clear
that the free cash flow from the major industrial--military
industrial companies is not being used for training workers.
Instead it is being used to buy back stock. I think this is a
major issue that we should pay attention to. And I would ask
all three of you to identify the three largest organizations
in--three largest companies in your organization and provide to
me and the committee if those companies are using free cash
flow within their company to buy back stocks or investing in
the training of workers.
With that, I yield back.
The Chairman. The gentleman yields back.
The chair now recognizes the gentleman from Virginia, Mr.
Wittman.
Mr. Wittman. Thank you, Mr. Chairman. I would like to thank
our witnesses for joining us today. We know how important our
shipbuilding capacity it is, both the industrial base and the
repair sector. That is going to be the key for us going
forward. We know that we have an advantage in the undersea
world. We know that that advantage comes from our Virginia
Class submarines and also pending construction of the Columbia
Class submarine.
Unfortunately, last year we saw a President's budget that
came over wanting to build one submarine. So we are retiring
submarines at a faster rate than we are building them. Listen,
folks, I am not a mathematician, but I find it hard to figure
out how we do addition by subtraction. When you are proposing
to retire more ships than you are building, that is not a good
path.
We know that China has 232 times the shipbuilding capacity
that the United States does, and they are using it today. The
one place we do have that advantage is in the undersea world.
We have to get back to building 2.33 Virginia Class submarines
a year to meet U.S. requirements and the requirements under
AUKUS. We are not anywhere close there. We have to make sure we
get our workforce back underway. That is an issue that needs to
be taken up immediately. How do we reconstitute that workforce?
We understand what happened post-COVID. We haven't recovered
the way we need to. I tell folks the top three issues in
reconstituting our shipbuilding capacity and ship repair
capacity--top three issues are workforce, workforce, and
workforce. That is the key.
Mr. Paxton, I wanted to ask you, what impact does a demand
signal--that is the President's budget, the outcome of the
National Defense Authorization Act. What impact does that have
on what the industry looks towards investing in and what does
that do in trying to develop the workforce in order to have
what is necessary, not just now but in the future?
Mr. Paxton. Yes, thank you, Congressman Wittman. As you
know, sir, better than most, demand signal is the biggest
factor in providing that predictability and the sustainability
to do two things: We are obviously cap-intensive, so we need to
invest in our facilities and invest in our workforce. So having
that demand signal is critical.
I would also say, sir, we do need that long-term target to
go towards, and having multiple or no shipbuilding plans is
difficult. We should have a plan to shoot towards, and that
does provide a demand signal that helps industry plan.
Mr. Wittman. Yes, we know that long-term certainty is
really the key in that effort. I wanted to get the panel's
perspective on how do we do the two critical things to make
sure that we are able to increase the pace and get closer to
the capacity and capability that we need? First of all, how do
we decrease build times? Unfortunately, what we see is build
times and also for that matter, repair times going up.
Maintenance of vessels lasting long.
And how do we reduce costs? We have to do both of those
because in order to prevail here we have to get more per our
dollar than the Chinese get for their yuan. And we have to
increase the pace. If they can build ships at a pace of 1 to
232, we have got a long ways to go and a short time to get
there. So I will go to Mr. Norquist, Mr. Fanning, and then Mr.
Paxton.
Mr. Norquist. So let me take that on in two parts: First,
to get to what you stated in the opening. When you look at the
challenges, you turn to the Pacific and the Chinese anti-access
environment. Undersea warfare becomes the unending demand
signal. It can get inside. It creates a strategic advantage for
the U.S. So the need for the U.S. for this is unambiguous. The
challenge is converting that into the demand signals for
industry that both causes them to be able to attract the
workforce that they need as well as to expand the supply chain
so there aren't delays from disruptions.
One of the things that I have seen is the Navy working with
local communities on welding and others to try and create a
pipeline. It is something perhaps on airplanes and Air Force
and others should look to copy. But as you point out, that
workforce piece is such a big part of it.And then the step down
from that is the suppliers. Those are the things that I think
help drive up the speed, but I would defer to my colleagues for
other insights.
Mr. Wittman. All right. Mr. Fanning?
Mr. Fanning. I would say I want to build on that. The
shipbuilding industrial base that the Navy is investing in
around the country, finding areas where there are concentrated
pockets in the shipbuilding industry has been very successful
looking for new entrants into the supply chain, investing in
them, helping them with tooling. That is a model that I think
we can probably extend across the defense industrial base.
The second thing I would say on cost is making sure we are
managing and keeping consistent the requirements. That adds a
lot of cost and it gets more costly as you continue to mix with
the program.
Third, is just a reminder to everybody that the government
investment in buying something is leveraged by a lot of private
capital coming into the system. And it needs that consistent
demand signal that CRs and shutdowns don't provide.
Mr. Wittman. Very good. Thank you. I am out of time, so I
will yield the balance of my time, what is not left, back to
the chairman.
The Chairman. Here, here. Here, here. Thank you,
Congressman Rob Wittman of Virginia.
Now we proceed to Congressman Don Norcross all the way from
New Jersey.
Mr. Norcross. Thank you, chairman and panel for being here
today. It is a fascinating conversation that we have had
repeatedly year after year, but certainly in the last few years
it has come to a head and we very much from an Armed Services'
standpoint have looked at the submarine base.
The idea that we are going to build submarines is something
that everybody knows, so from that perspective the government
is sending the correct signal. But it is much bigger of a
problem than that when we look across the entire base. I sit on
a lot of our committees along with Rob and others, so we have
seen the most important thing is a demand signal from
government that we are going to build. That is only part of the
equation.
The other part of the equation is that we follow through on
it. I can cite example after example where they go and put the
capital into facilities saying we are going to build, and they
don't build. Who makes up for that?
Now there are good reasons that happens, but it doesn't
help the problem. Our industry across the defense ebbs and
flows. We will have surge, but in our--what we build each and
every day, we don't have surge capacity. I suggest, and I have
mentioned this before, that we look at a way, how can we surge?
You start out with your facilities, which you say generally we
have them, but they can be ready, the raw materials or the
equipment to build it. And then what Rob said, and I firmly
believe, the longest lead item, the hardest to get and the
hardest to retain is the human side of this.
So with that being the pinch point on this, how do we look
at the American workforce creating surge capacity that we don't
do? You can have your core people. The one industry that does
this every day is construction. They have hiring halls. When
things go well, they hire. When they don't, they let go. But
they always keep their core group. Why haven't we looked at
that because very skilled--something you hire and lay them off
when you are finished. And that is their world.
So let me go right down the list and start with you, Mr.
Paxton. Surge capacity, which is a pinch point.
Mr. Paxton. Yes, sir. We have been on a peace time footing
for decades and during that time China and others--while we
have done our peace time footing, China and others have
massively invested in their industrial base to build up their
capability, building military vessels right next to commercial
vessels.
Mr. Norcross. So that is their surge? They can flip back
and forth?
Mr. Paxton. That is right, sir. And again they are building
vessels not to the level of complexity and without even
survivability as our vessels, but they are building next to
commercial assets and they build a lot. Seventeen hundred ships
is a big order book in a year. So that is the difference in
China. And hearing surge capacity, I think of the Philly
shipyard, which is up your way. That shipyard was down to 60
employees.
Mr. Norcross. Yes.
Mr. Paxton. They got a contract to build a series of
national multi-mission vessels, five of them. And they ramped
up to close to 2,000 employees. And they got other work. And
they are going to get more work. So I think when there is a
demand signal you can take a shipyard that had 60 people and
pretty soon you are up to 2,000.
Mr. Norcross. Which would just suggest the only reason that
their commercial side is because of the Jones Act--
Mr. Paxton. Yes.
Mr. Norcross. --which many people are looking to dismiss.
We lose Jones Act, we lose the entire commercial side.
Mr. Paxton. Yes, sir.
Mr. Norcross. Mr. Norquist?
Mr. Norquist. So I think the first part is when the
contracting officer goes to the industry--if they disfavor a
bidder with surge capacity because it has a higher price than
the one without, you are going to get what you asked for in the
contract. So you have to say I value surge capacity.
The other thing is because all of these facilities are
drawing from long supply chains, you also want to move away
from just-in-time inventory. You want to pay people to be able
to store large parts. And this has really two advantages to
U.S. for national security: One is if I want the facility to go
faster and they go and they lengthen the shift, the parts are
there to be able to finish. The second part is if there is a
conflict and things are getting disrupted, you have the current
back inventory to keep moving while you try and figure out what
has happened to disrupt the supply chain.
So from a national security point of view asking for a move
away from a just-in-time inventory is a national strategic
interest of the U.S. Government.
Mr. Norcross. Excellent. With 25 seconds, Mr. Fanning?
Mr. Fanning. Yes, real quick I would just add that what we
are talking about now there is a single customer. And so when
that customer's demand signal ebbs and flows and the workforce
goes away, they go away and it is very hard to get them back
when there is that surge. And it is true with the capital
facilities and the supply chains as well.
Mr. Norcross. Thank you. I yield back.
The Chairman. The gentleman yields back.
The chair now recognizes the gentleman from Tennessee, Dr.
DesJarlais.
Dr. DesJarlais. Thank you, Chairman Rogers. I would like to
spend a little time on defense acquisition reform and
deregulation, and I will start with Mr. Fanning.
You noted that the current defense acquisition system is no
longer serving key stakeholders effectively, often delaying the
adoption of critical technology. What specific reforms would
you recommend to streamline the acquisition process while
maintaining accountability and oversight?
Mr. Fanning. Well, I think there are different categories
here. One is just regulations or requirements that could be
changed right away. For example, cost and pricing data, raising
the threshold there. Providing costing data that has been
validated for one company across the entire defense industrial
base. There are lots of different things I think we can do for
efficiencies.
But I think the entire system needs to be reviewed because
it has been built in an additive way over many years. There is
no silver bullet to fix this system. And perhaps you would want
to pick some new advanced technology platforms like drones
where you pilot something new for the entire industrial base to
compete in and try something that moves faster with a little
bit more risk in the oversight.
Dr. DesJarlais. You mentioned that it takes nearly 300 days
on average to award prime contracts over 100 million. I am glad
you highlighted this point because it is utterly insane, but
sometimes it helps us when we can see practical effects of
these bureaucratic hurdles. So can you provide specific
examples where the contract delays have had a direct impact on
national security and military readiness to illustrate this
point for us?
Mr. Fanning. Well, two things come to mind. One is just the
delay of getting something into the warfighters' hands. We are
not moving as fast as our incredible manufacturing and
technology industries are and increasingly our adversaries are
catching up with us. That is one.
The second is it has tremendous ramifications on the supply
chain, which is already fragile. When it takes so long to get
something under contract, smaller companies that don't have the
same cash flow, cash reserves, or access to capital, especially
in a time when capital is more expensive; money is not free
anymore and it is being--and it is--there is less access to
these small companies for it. So these delays are--make it
harder to keep the supply chain whole and to keep it healthy.
Dr. DesJarlais. Okay. Let's shift gears a little bit and
talk about the rare earth minerals and the Ukraine agreement.
Earlier this month we heard from General Jack Keane about the
benefits that the United States could gain from securing access
to Ukraine's vast mineral resources. Shortly thereafter
President Trump entered negotiations with President Zelenskyy
to finalize an agreement on this issue.
Given Ukraine's significant reserves of critical minerals
such as titanium, lithium, and rare earth elements, how could
such an agreement bolster the U.S. defense industry and
mitigate some of these supply chain vulnerabilities?
Mr. Fanning. Well, critical minerals are one of our key
priorities obviously in industry and Congress to make sure that
we source them better internationally. We just should be
realistic also that they are expensive to mine and very
difficult to process. And so it is going to take an investment
to get that started so that we can source them in a smarter way
for the United States.
Dr. DesJarlais. Yes, and that was going to be my next
question. You just answered it. How do we deal with them once
we get them?
The defense industrial base has seen significant
consolidation over the past few decades with nearly 70 percent
of the companies that once served DOD in the 1990s either
merged or absorbed. As some of you have noted, the transitional
primes bring scale, experience, and cash flow to the table
while the smaller firms serve as powerful innovation
incubators. From your perspectives has this level of
consolidation successfully balanced these two interests or is
there a tipping point that we may reach? And anyone can answer.
Mr. Norquist. So I think what you always want in the
defense industrial is a dynamic where new firms are able to
come in and, if they are successful, able to grow. So I think
the consolidation was a reflection of what was happening with
the defense budget. And as you have them the balance between
the sizes of them really should be an outgrowth of firms that
are successful, firms that are delivering, moving and being
successful in the market. So my view is you want to see small
businesses graduate. You want to see new firms entering. And
the challenge is we are not seeing a lot of that right now. We
are seeing small firms and others leaving, which is a risk.
Dr. DesJarlais. Thank you all. I yield back.
The Chairman. The chair now recognizes the gentleman from
Massachusetts, Mr. Moulton.
Mr. Moulton. Thank you very much, Mr. Chairman. The state
of our defense industrial base is concerning, and there is no
argument there. I don't think you are going to hear arguments
from us.
But we also have a problem where there is just a
fundamental lack of competition, and a great example is with
the F-35. That program has been around for 24 years. Not once
in 24 years have they ever delivered anything ahead of
schedule. I am not sure they have ever even delivered anything
on time.
Many of the delays with the F-35 we have learned on the
committee have to do with the software, and it turns out that
Lockheed Martin is not a software company. But, of course,
America makes the best software in the world. We have a lot of
firms that make software. The problem is that Lockheed won't
give up the rights to that software, so there is no
competition, and we are not tapping into the talent and
knowledge in America when it comes to software development.
Now, I would argue that if we were on a wartime footing
Lockheed would do the right thing for the country and get
others in on--in competing to make software for the F-35. They
are not doing that. They continue to report record earnings.
So the issue here is that we have got a few primes. They
obviously have a vested interest in reducing competition,
consolidating the industry. They have been doing that for a
long time. And because they love earning calls, they are always
going to be investing their own profits. You know, they are
going to make sure they are--they are not necessarily, I should
say, investing their own profits into innovation.
So, Mr. Fanning, you expressed concern in your testimony
that 40 percent of small businesses have stopped working with
DOD in the past decade. What can we do as an industry to
actually encourage more small business competition?
Mr. Fanning. I think there are a couple of things. One, the
increasing barriers to entry for small businesses. AIA members
work in space, commercial aviation, and defense. Quite a few of
them, especially in the supply chain, as a risk mitigation for
their business strategies, are doing defense and non-defense
work.
And I see all the time where they--and, by the way, all of
the commercial aviation components--helicopters, airplanes,
aftermarket services, are surging right now, so there is a
demand on the supply chain. And when they see the burdensome
requirements to work with the Department of Defense, they move
over to the other side.
So one part is, as David was saying earlier, finding ways
to encourage, incentivize in the contracts, recognize, and,
unfortunately, pay for that diversity in the supply chain is
one element. The other is competition comes from competitions,
the numbers of things that we are building and competing out.
The number of platforms has also shrunk over that time, which
is why in some ways, you know, we have less competition. But I
think--
Mr. Moulton. Do you think if we--if we stripped out the red
tape and bureaucracy, all of a sudden you would see small
businesses getting a higher percentage of contracts over the
primes?
Mr. Fanning. No. It is about scaling, I think. And the
issue is the pyramid of the industrial base looks a little bit
more like a dumbbell now for the reasons we were discussing in
the earlier questions about why aren't companies able to grow
from small to medium and then to large, and to compete for some
of these bigger programs. I think that is what we--
Mr. Moulton. Well, at that--
Mr. Fanning. --have to explore is that mid-tier element of
the industrial base that has atrophied.
Mr. Moulton. Mr. Paxton, you say that we have--we don't
have a capacity problem in our shipyards. We just need to
improve efficiency. What is your position on competition? Do
you support competition?
Mr. Paxton. I do support competition.
Mr. Moulton. Okay. So then why, when I hear so many senior
naval officers asking to be able to repair their ships overseas
in allied nations like South Korea and Japan, do we not allow
that?
Mr. Paxton. Yeah. Well, we do. Certainly, in--if there is
battle damage or if there is repairs that need--
Mr. Moulton. Yeah. But we are not just dealing with battle
damage, right? We have a fleet--the amphibious fleet has a
cumulative 28.5 years in training and deployment time backed up
because of lack of maintenance.
So we have got a problem today. You are telling us to be on
a wartime footage. I have been a constant critic of Congress
and we need to do more to modernize, but what can you do? You
support competition. Naval officers want to repair their ships
closer to the fight, increase competition, more capacity, get
them done sooner.
Mr. Paxton. Yes, sir.
Mr. Moulton. And you are against that.
Mr. Paxton. No, sir. If there is emerging ship repair
issues, we are all about get it done there. We--in the fleet
concentration areas, we have private businesses that are
investing in our facilities to repair the non-nuclear surface
ships, and we have large investments in those home ports at a
time where the fleet shrinking and those workloads and those
home ports are going down.
We don't believe we should send more work overseas when
that work should be coming home and quality of life is--
Mr. Moulton. I will tell you what, Mr. Chairman. I think we
should do what is right for the Navy--
Mr. Paxton. Yes, sir. I agree.
Mr. Moulton. --for the fight.
Mr. Paxton. I agree.
Mr. Moulton. So thank you for that.
I yield back.
The Chairman. I thank the gentleman.
The chair now recognizes the gentleman from Indiana, Mr.
Messmer for five minutes.
Mr. Messmer. Thank you, Mr. Chairman.
Mr. Fanning, spectrum is a valuable, finite resource, and
there is those in Congress who want to require the DOD to
vacate its spectrum allocations, which I believe would weaken
the DOD's ability to protect the homeland and cause other
operational harms. It would cost taxpayers billions of dollars
to do that.
The defense industrial base is a critical partner in that
spectrum for the--and if the DOD was to require to vacate the
spectrum, such as the lower 3 band or the 7/8 band, what would
the cost and effect of that relocation have on our natural
security platforms? What would the cost be to the taxpayer? And
what kind of time would that take to reallocate those to other
locations?
Mr. Fanning. Thanks for that question. Spectrum is a
longstanding, very important issue, and we have all--we all
benefit by having more entities like telecoms in the spectrum.
We benefit in many ways.
But when it impacts the Department of Defense, we have to
be extra cautious about it. We didn't imagine when we were
allocating spectrum, and then building for it in the Department
of Defense, that there would be so much demand for it at this
point, and that other things would be adjacent so close to the
parts of spectrum that DOD has.
So we didn't test or build or understand at the time what
"interference" might mean, and so we need to understand that
very carefully if we are thinking about adding new things to
the spectrum, especially if it butts up against the Department
of Defense.
We can learn from recent experience in civil aviation, and
because our members went through that as well, and hopefully
won't repeat those mistakes. One is, get the sides talking.
Commercial aviation and telecoms are now collaborating very
closely, and mostly that is because we get the engineers in a
room together who understand this stuff, and we get the
engineers of the new spectrum owners and the manufacturers.
So it wasn't just the airlines. We had to get the
manufacturers in there to figure out the interference. That
cost--the airlines, the manufacturers, and ultimately the
flying public--a lot of money. We had to retrofit 15,000
aircraft when we did that. So there will be a tremendous
expense, even more so, with the Department of Defense, and that
will be a taxpayer expense that we need to take into account
and should come out of any auction proceeds that come from
selling that spectrum.
So I would caution that we do this very carefully. Smart
people come up with smart solutions. But just like civil
aviation, the risk tolerance for the Department of Defense is
higher than any other industry that is going to be in spectrum.
Mr. Messmer. I would imagine that the other allocations we
have done, we would call that the low-hanging fruit, and the
cost would be, you know, billions to relocate those spectrums
now.
Mr. Norquist, pivoting slightly, if the DOD was asked to
share spectrum, what are the considerations that the defense
industrial base would have to do to do that?
Mr. Norquist. So I think when it comes to the defense
industrial base, and with the DOD looking at spectrum, each of
these are very fact-specific. And part of the challenge when
you are looking at it from the outside is, how many of them
deal with either classified programs or aspects that are
classified?
So I think you would have to look first at the cost, which
systems are affected, how much would you have to retrofit. You
have to look at the mission impact. Does it even function well
if it is moved to a different spectrum, if their controls are
put upon it?
So I think I would urge somebody to approach this with
caution to make sure they fully understood, from both an
unclassified and a classified side, both the mission impact and
the cost and the timeline that is involved if you are trying to
convert legacy systems over to a new technology.
Mr. Messmer. Okay. Either one of you can answer this. You
know, what kind of systems are supported in the lower 3 and the
7/8 bands?
Mr. Fanning. Well, some very critical things--ballistic
missile earning warning--are in these bands. And so it is not
just the Department of Defense. They have some of their
critical programs in those bands.
And so, again, what we learned on the civil side is it is
not just about who is in the band. It is about the interference
of putting things nearby, which wasn't anticipated, and,
therefore, built into the requirements or built into the
programs. It has to be understood very carefully before you
make a change.
Mr. Messmer. Mr. Chairman, I yield back my time.
The Chairman. I thank the gentleman.
Mr. Fanning, I want to make sure I heard you correctly. Did
you say these words, "The risk tolerance at the DoD is higher"?
Mr. Fanning. No. The opposite.
The Chairman. Okay. I--
Mr. Fanning. For civil aviation--
The Chairman. --was going to say, I have never heard that
phrase with the DOD.
Mr. Fanning. I don't--you know, telecoms, that was part of
the issue on the civil aviation side is risk to them was a
little bit different. If they encountered interference, they
would find a way to fix it operationally. For civil aviation
and for defense, for the military, we need to know that the
risk is zero before we make a change.
The Chairman. Okay. Thank you.
The chair now recognizes the gentleman from California, Mr.
Carbajal.
Mr. Carbajal. Thank you, Mr. Chairman. And thank you to the
witnesses for being here today.
Mr. Fanning, good to see you again. As you know, I have had
the privilege of interacting with AIA through my role as co-
chair of the House Aerospace Caucus. Companies in my district
have told me time and time again that there is a need to change
the way we allow research and development activities to be
expensed.
Can you speak about what changes are needed to address this
R&D [research and development] expensing issue and how making
this change will benefit the industrial base?
Mr. Fanning. In the previous round of tax reform, they
switched the--or I should say sunsetted the R&D tax
amortization where if you spent $1 in a year you got to deduct
that in that year to a 5-year amortization cycle, so you got 20
percent of your investment.
At the same time, China doubled it. They gave you a 2
percent--200 percent deduction for every investment you made in
R&D in real time. That affects not just big companies that get
the attention because that aggregates into a lot of money, but
very small companies as well that are doing R&D that have to
stop doing it.
With the cash flow problems that small companies, like, in
your district are facing, they can't afford what becomes the
luxury of R&D investments, and that is not good for our--for
our economy, for our country, for our national security,
because they are doing some of the most interesting, cutting
edge innovation and research, but they can't afford it because
they have cash flow problems by not getting that deduction in
the year they spend it.
Mr. Carbajal. Thank you for shedding light on that.
Something I have heard from the space industry over and over
again is that they are facing a shortfall of skilled workers. I
have no doubt that this is--this isn't unique to the space
industry.
Mr. Fanning, Mr. Paxton, and Mr. Norquist, do your
organizations have any programs or are you working on ideas to
develop a talent pipeline to develop this skilled workforce?
And do you see Congress playing a role in developing this
pipeline?
Mr. Fanning. Our companies are doing a number of things.
They have recognized they have got to step in, work with local
community colleges, local high schools, even earlier than that,
for example. But there is certainly a role for Congress and the
government in terms of STEM education and vocational education
in our public education system.
We are not producing the same numbers of people in those
two categories as we did when I--when I went to school. And so
we are just not feeding into the system the, you know, students
ready to go into what is a highly skilled industry that pays
well. So I think that there are things on both sides we should
be doing.
We have a number of proposals for things that we would like
to see from government, and this has to start early. AIA runs
the world's largest student rocketry challenge, which is middle
schoolers and high schoolers, over 1,000 schools' teams
competing this year alone, just to keep that STEM pipeline
pumped, because what we find is, if you don't keep kids engaged
in STEM education, they will go into something else.
And so you have got to keep them from elementary school to
middle school, middle school to high school, high school to
college. But what we see is just the numbers keep dropping. It
is--you know, one in six high school graduates is prepared to
study STEM in college, and fewer than 50 percent who start
actually finish and get a STEM degree.
Mr. Carbajal. Thank you.
Mr. Norquist?
Mr. Norquist. So two things. First of all, as an
association, we do scholarships for students wanting to study
STEM to be able to put that into--if they are coming into the
defense.
When we survey our membership, though, what we see is on
STEM skills about 20 percent say they don't have enough. On
trade skills, it is closer to 30 percent. And then you see a
similar 30 percent when you look at cleared, and each one of
those they highlight the difficulty and the challenge in
recruiting. So this workforce challenge, as has been mentioned
before, is extensive, and it pervades the point.
I just also wanted to jump back, the majority of our
members are small businesses, and that R&D tax credit is very
important to them. So I know you had brought that up earlier,
but the effect on small businesses is significant as well.
Mr. Carbajal. Thank you.
Mr. Paxton?
Mr. Paxton. Yeah. Thank you for the question, sir. The
Shipbuilders Council of America is a facilitator for the talent
pipeline programs that we have around the nation. We have a
program in Danville, Virginia--not SCA, it is funded by the
Navy--but where we, you know, teach world-class welding and
pipefitting and machine work and electricity work. And so we
are doing it. We are investing in the next generation
workforce.
Mr. Carbajal. Thank you.
I have limited time, Mr. Fanning. I am going to submit this
question. If you could answer it later on, I would really
appreciate it.
With that, Mr. Chairman, I am out of time. I will yield
back.
The Chairman. I thank the gentleman from California.
The chair now recognizes the gentleman from Virginia, Mr.
McGuire, for five minutes.
Mr. McGuire. Thank you, Mr. Chairman, members of the
committee.
After being inspired by Ronald Reagan to join the Navy, he
talked about building a 600-ship navy. He talked about American
exceptionalism. He talked about peace through strength. I was
inspired to join the Navy and served as a Naval SEAL. And this
was a time when the United States Armed Forces was at the peak
of their strength since World War II.
It saddens me that we have allowed our readiness and
investment in defense industrial base to decline in the 35
years since the end of the Cold War. I think you guys used the
term earlier ``atrophied'' in every way.
According to the most recent data, the Chinese navy
consists of over 400 ships, 225 armed Chinese coast guard
vessels of 500 tons or more, and vast numbers in the inventory
of their maritime militia. The United States' 7th Fleet has
between 50 and 70 ships near the China and South China Sea. We
must work together to ensure that our Armed Forces and Navy can
overcome this threat posed by the CCP [Chinese Communist
Party].
Mr. Paxton, thank you for appearing here today before the
committee. The challenges facing the defense industrial base,
specifically the submarine industrial base, are concerning and
must be addressed immediately. The challenges facing the
defense industrial base, specifically the submarine industrial
base, are timely.
As I am sure you know, the overall capacity of our
shipbuilding industrial base has significantly degraded since
the Cold War. Over the last 30 years, thousands of businesses
have left the shipbuilding supplier base, limiting the Navy's
options. I am particularly concerned about this, especially as
we look forward to the future with near-peer competitors such
as the CCP who are aggressively growing their fleet and our own
need to recapitalize our fleet and surface ships and
submarines.
Do you agree that this lack of competition is unsustainable
and needs attention?
Mr. Paxton. I believe, Congressman, there is competition to
build the platforms, the fleet mix, that we have, that our
shipyards have the physical capacity to do this, and I will
just give you a reference point. In the 1980s, we were building
4.2 attack submarines a year, 2.5 DDGs a year. I don't think
the difference in capacity was different. I think what was
different was the experience in the workforce.
We had veteran workforce that was building those assets and
building them at scale and building them in series
construction. We got away from that demand signal, and the
subsequent workforce has suffered. And we have had
consolidation, as you know, sir, in this--
Mr. McGuire. That is why I am glad to hear us talk about
CT. So also--so I am also aware of the recent congressional
investments to develop the future workforce within the defense
industrial base, in part through the creation of regional
training centers such as the Advanced Training and Defense
Manufacturing, ATDM, Program, which we have right there in
Danville, Virginia, in my district.
I toured that last week, and it is amazing how they are
preparing these young folks, and they basically are creating a
maritime training pipeline in several other locations in the
United States. Do you agree that it is imperative to regenerate
and grow the shipbuilding and ship repair workforce throughout
the company--or country?
Mr. Paxton. Congressman, absolutely. We are in a
generational point, and I do think we are seeing the demand
signal from, again, the maritime industrial base program that
was set up, and the work that is going on in Danville. These
are programs that are being replicated around the country, and
I think we are going to hire and build the next generation
workforce.
Mr. McGuire. I am not a welder, but they don't just qualify
welders. They qualify welders to do just about anything you
would need for submarines. It is amazing. And not everybody is
meant to go to college. And some of these folks, they complete
this course and they are making six figures right out of the
gate.
Mr. Paxton. Yes, sir.
Mr. McGuire. And a lot of them are doing such a good job
that they are putting them to work on submarines and everywhere
right away.
Mr. Paxton. Yes, sir.
Mr. McGuire. As a freshman member of the committee, I, too,
support continued investment in the people, facilities, and
suppliers at naval shipbuilding and ship repair in our country.
So, Mr. Paxton, what can members of this committee do to
provide for this critical national capacity-- capability? And
what does the industry need? What more should the Navy be
doing?
Mr. Paxton. Well, sir, I commend this committee for all of
the things they have done. We have a demand signal that the
shipyard industry is building towards. The industry reflects
that demand signal. If it is going to keep going up, which we
hope it does, we will ramp up that workforce to meet it. It
will take some time and challenges, but the work of this
committee to authorize multi-year contracts, those type of
things, provide the stability that the industry needs.
Mr. McGuire. All right. One last question for everyone, if
you have something to say. I just talked to some folks in
Israel, and they said, "Perfect is the enemy of good enough,"
and sometimes they get a program in the field quickly and it is
battle tested, because time is an issue and we are taking so
long. And if you all had any comments on that.
Mr. Norquist. That is correct. That is the challenge. I
recognize the time is short, but you are correct. That is the
challenge.
Mr. McGuire. I thank everyone for participating.
The Chairman. The gentleman yields back.
The chair now recognizes the gentleman from Massachusetts,
Mr. Keating, for five minutes.
Mr. Keating. Thank you, Mr. Chairman. And I thank the
members of the committee, and I thank our witnesses for dealing
with this important discussion and going back and forth on it.
But I feel like I am sitting here at this moment in time,
in this place, a little like--with this hearing a little like
Mrs. Lincoln, who was questioned, "Other than that, Mrs.
Lincoln, how did you enjoy the theater?"
We are sitting here now, just in the last few weeks, where
the President of the United States has stated that Russia is
not the aggressor in Ukraine. That, indeed, Ukraine was
responsible for the war. That the duly elected democratic
leader of Ukraine is a dictator. In a time period where they
had a meeting, our administration, in Saudi Arabia with someone
that they have sanctioned--our country has sanctioned and
representing a war criminal to the exclusion of the Ukrainians,
to the exclusion of our NATO [North Atlantic Treaty
Organization] allies and our European allies.
The same period where a shameful act in the United Nations
occurred for our country with the President's leadership, where
they sided with Russia and China and Belarus and Hungary, to
the exclusion of our European allies.
So we are here talking about, as the title of this
committee goes, our industrial base. Well, when we tell Europe
and the rest of the world, "You are on your own," we are
sitting here worried about strengthening our industrial base,
they are going to be creating their own, to the exclusion of
the U.S.'s industrial base, with U.S. assets, U.S. training,
and they are going to gain influence around the world and that
includes our adversaries and our enemies like China that will
be advantaged the most of this. We are giving them a green
light.
So we are talking about this hearing with a concern on
deterring war while we are sitting there making sure we are
giving a green light to everyone else in the future. That is
where we are right now.
So when we have these hearings and we are talking about
what we should do, we better put it in perspective and realize
what is going on in our own country.
I yield back.
The Chairman. The gentleman yields back.
The chair now recognizes Mr. Hamadeh of Arizona for five
minutes.
Mr. Hamadeh. Thank you, Mr. Chairman, and thank you,
gentlemen, for being here today.
As we look at ways of strengthening our defense industrial
base, one thing is clear: a backlog of unfulfilled foreign
military sales is not just a paperwork issue. It is a national
security problem.
I faced these challenges during my time as an Army Reserve
intelligence officer facilitating our military sales in Saudi
Arabia. Delays in delivering critical defense systems or allies
undermine our ability to deter enemies, strengthen
partnerships, and sustain our own domestic defense industry.
At the same time, adversaries like China have streamlined
their arms export processes, leveraging speed and influence to
expand their global footprint. The U.S. must do better. We
cannot afford bottlenecks and bureaucratic inertia in an era of
strategic competition.
I look forward to hearing from our witnesses today on how
we can accelerate our production, cut red tape, and ensure a
defense industrial base is not just responsive but proactive in
meeting both the United States and our allied defense needs.
Now my first question is for Mr. Fanning. My understanding
is that after the cancellation of the Future Attack
Reconnaissance Aircraft Program, we did not divert resources to
continue Apache acquisitions. Is that correct?
Mr. Fanning. That is correct.
Mr. Hamadeh. Do you know why that was?
Mr. Fanning. I don't.
Mr. Hamadeh. Now, Boeing's Apache production is at--in
Arizona is at risk. If the DOD doesn't commit to a minimum
order of 12 or so helicopters, the production line could be
shut down, putting 5,000 Phoenix area jobs on the line. Now
that is not just bad for Arizona's economy, it sends the wrong
message to our allies, and our foreign partners won't invest in
a platform if they think the U.S. military is moving on from
that platform.
Now, how do we ensure our domestic acquisition policies
stay consistent, both with our long-term defense plans and the
needs of our allies to rely on these systems?
Mr. Fanning. Congressman, thanks for that question. That
sort of hits at the crux of I think what we are--what we are
talking about today, which is sending not just a clear sign to
our allies but to the industrial base, so that it invests its
money in the facilities, in the workforce, in the supply chain,
so that it can meet the needs of the Department of Defense.
And so that--if I had one single headline for what we need
for the defense industrial base, it is that clear, consistent,
and sufficient demand signal, so that the industrial base and
the private capital that supports it can line up for DOD
requirements.
Mr. Hamadeh. And how do delays in the foreign military
sales impact your members' companies?
Mr. Fanning. Well, it is a frustration all the way around.
I mean, as I said in my oral statement, last year for the first
time foreign military sales and direct military sales exceeded
what the Department of Defense spends on military equipment and
RDT&E. That is American jobs, that brings down the price for
the Department of Defense, that is interoperability, that binds
our allies closer with us over a longer period of time.
We want to make sure that the wrong people aren't getting
our stuff, and you, with the--with the Administration, decides
that. But if the answer is yes, we want to get there quickly,
where our allies want to buy our kit, our stuff, and we make it
as hard as can be for them to do that. If the answer is no, we
should get there quickly as well.
So we--one of our top priorities at AIA is trying to reform
and streamline that system, so it meets the intent of making
sure bad actors in the world don't get the stuff that we
produce, but we ought to be bringing our allies along faster
and making sure that we are not disincentivizing them in
anything we do to buy someplace else.
Oftentimes I see people--you know, it is a pocket veto
system. We have to switch the default to yes, people make their
case or they don't make their case and move forward, because
there are other places that countries can go to buy hardware.
Mr. Hamadeh. Mr. Norquist, do you have anything to add?
Mr. Norquist. Oh, yes, sir. A couple of things. First of
all, in our membership surveys, 55 percent said foreign
military sales and commercial sales were either very or
extremely important to the company, creates jobs in the U.S.,
but it also empowers our allies to defend themselves.
You asked for recommendations on change. I will give you
three. First of all, Defense and State had looked at FMS
[Foreign Military Sales] performance, but they haven't
finalized or been executing on that. So getting them to
execute--finalize those FMS reforms and then begin to execute
them would be essential, and then reporting back.
There is also an issue with the ability to switch to
commercial sales. In many cases, direct commercial sales can go
faster, and that is actually within the control of the
Department to say, "This should move as an FMS case." As it
moves as a commercial sale, that will go faster.
And then last is to build on what Eric said. There have
been reviews about the interagency process. It is very slow and
sequential, and trying to accelerate that, and that was per
Section 918 of your NDAA. Pushing them to bring that to closure
is very helpful. So those are three ones to talk--what you
talked about.
Mr. Hamadeh. Thank you, Mr. Norquist. I am sure my staff
will be in communication with you to tackle this problem that I
see as really pressing, especially when our allies now are no
longer purchasing our equipment and seeking elsewhere. Thank
you.
Chairman, I yield back.
The Chairman. The gentleman yields back.
The chair now recognizes the gentlelady from Pennsylvania,
Ms. Houlahan.
Ms. Houlahan. Thank you, Mr. Chair, and thank you,
gentlemen, for your testimony today. I have found it very
interesting, and it, as a result of your testimony, has had me
change my questions just a little bit.
Our job here on the HASC is, I believe, to ensure that our
defense industrial base is resilient and responsive and that it
is ready. Interestingly enough, just yesterday, the House
passed a $100 billion increase in defense spending in the DOD,
and also, concurrently and curiously, Secretary Hegseth has
asked for an eight percent annual decrease, and these things
are schizophrenic and confusing in my mind, and we can kind of
put that to the side.
But the bottom line is, we have a responsibility to the
taxpayers and to our constituents to be responsible for their
resources and for their money, and to understand how to be as--
optimize as much as possible our expenses for workforce, for
production lines, for the industrial base as well.
Mr. Norquist, you said something really intriguing about
just-in-time manufacturing. My background is in industrial
engineering. My master's degree thesis was in JIT [just-in-
time] manufacturing for the airframe industry, defense airframe
industry. Back in the day, that was the "thing." We really
wanted to streamline manufacturing in that way, and I am
intrigued by the fact that JIT probably has become passe as a
result of the shocks to our supply chain from COVID and other
things.
Can you dive a little bit deeper in what it would look like
and whether we have actually done some studies and whether
there has been some conclusions, real conclusions, about what
the defense industrial base would look like if we actually did
carry inventory, and what kind of inventory would it be, and
would it be stockpiled, and would it be additive manufacturing,
and all of those kinds of things. The devil is in the details.
Can you kind of drill down on whether that is a good
investment to carry inventory?
Mr. Norquist. Sure. And I think there is--there is three
levels at which you can do it, and I think the nature of the
product you are trying to buy drives it. So the first one is
you can stockpile the final product. You can stockpile the
munitions in anticipation of a war requirement. Most people are
familiar with that, but we should relook whether that is right.
The second one is the parts coming into the supply chain.
So you have somebody who assembles. They may have inventory
doing just-in-time arrival that is cheap, that is efficient,
that private sector has refined that. But that doesn't allow
you to surge, and that creates real risks in wartime.
Knowing which of those products that you are willing to say
to the vendor, "We would like you to hold 30, 60 days' worth of
parts," so a disruption to your subcontractor, those would be
very essential. You would have to do some analysis on, what are
those things you are most vulnerable?
The third one is one where we have seen studies out of the
Defense, which looks at even stockpiling raw materials, which
is, if we are not worried about a disruption to a U.S. vendor,
but actually overseas supplier, can we buy enough of that
material and keep it here to be able to be refined and produced
so other countries can shut it off.
So I think there is three levels at which people look at
that.
Ms. Houlahan. And I appreciate that, and in the interest of
time would love to follow up with you about how to look at that
through the NDAA and be a little bit more thoughtful on that.
Transitioning now to the other way that we can be
responsible is with workforce, and a lot of your conversation
today has focused on that. We have seen through the DOGE,
haphazard in my opinion, laying off of people who are
provisional employees, that to me, you know, smacks of getting
rid of our youngest and newest people in many cases. We also
had a long conversation with you all about STEM professionals
and STEM education.
I myself, as I mentioned, am an engineer, and we have 51
percent of our workforce presumably who are women, and yet we
are in the process of devaluing, you know, making sure we
emphasize the fact that women can be STEM professionals as
well, particularly in the defense industry.
You, as the defense industry and the defense industrial
base, if you could each comment a little bit on what you feel
is happening now that we are saying effectively that 51 percent
of our workforce doesn't need to be paid attention to.
Mr. Norquist. Well, I think it is--it is imperative, and
our companies feel that way, there should be recruiting from
the broadest population of--that the United States has to
offer. And in some ways if--if your workforce doesn't reflect
the United States, it may be that you are not recruiting in a
smart and comprehensive way. So that is important to us.
Workforce is the number one strategic risk, concern, priority
of our industry.
Ms. Houlahan. Would I ask, could I ask, of industry that
you put some pressure on those of us who are sitting across
here to tell us that this is indeed important? Mr. Norquist and
Mr. Paxton, with the 17 seconds I have left, I would love to
hear if you have any input in that area.
Mr. Paxton. Just we need to be strategic in how we do this,
and we value all our workers.
Ms. Houlahan. Thank you.
Mr. Norquist. Yes. You need to pull from the entire
population of the workforce to be able to take advantage of the
skillsets and the technologies. And so, as Eric pointed out,
you have got to make sure you are--you are recruiting from
everyone, so you can bring the best and the brightest.
Ms. Houlahan. Thank you. I appreciate it, and I yield back.
The Chairman. The chair now recognizes the gentleman from
the strategically important territory of Guam, Mr. Moylan, for
five minutes.
Mr. Moylan. Thank you, Mr. Chairman. Now, Guam remains a
vital strategic asset in the Indo-Pacific. As we look to
safeguard the defense of our Nation, its location makes it a
critical logistical hub for the moment--movement of personnel
and supplies crucial to maintaining our presence in the region.
And as a Nation, we face challenges in the defense industry
base, especially regarding shipyards and shipbuilding. The ship
repair facility in Guam was closed in 1997 as part of the Base
Realignment and Closure process. The facility was shut down
with the equipment remaining in place, and it is still there
today.
Now, with the growing threats and tensions in the Indo-
Pacific, we must prioritize improving our readiness
capabilities. This includes ensuring that we have the
infrastructure to support our Navy ships and submarines, which
serve as the backbone for deterrence and protection in the
Indo-Pacific region.
Now, as we prepare for potential future conflicts, it is
vital that we make full use of every available resource,
including boosting maintenance and repair capabilities. We
cannot ignore Guam's potential to provide and expand the
capability and support needed to keep our military assets ready
and operational in this critical region.
So my question for Mr. Paxton, as I stated earlier, the
ship repair facility in Apra Harbor, Guam, was closed in 1997.
The facility is still owned by the Navy and is available for
leasing to a shipyard company, offering potential for ship
repair and maintenance services, and to provide an insight into
the advantages of restoring the Guam shipyard as a domestic
repair facility.
Mr. Paxton. Congressman, I think to the extent that we can
have strategic capacity and we can have it available to us, we
should--we should absolutely be looking at that and finding
ways to utilize it the best way possible.
Mr. Moylan. Is time an issue? Do we have serious time
constraints on our hands with our Indo-Pacific region?
Mr. Paxton. For sure. I mean, we need that area to be very
strategic. We need it to be capable. And so to the extent that,
you know, there is private industry out there that wants to try
to do something with that facility, we would support private
industry taking that on.
Mr. Moylan. How important--rate it, one through five, one
being the best.
Mr. Paxton. Very important.
Mr. Moylan. All right. Well, thank you.
Next question is for Mr. Norquist. What steps can be taken
to improve the resilience in the defense industry base against
potential disruptions, such as natural disasters, especially in
our area?
Mr. Norquist. So, as you point out, there are multiple
challenges to it. You have everything from natural disasters
that can disrupt a supplier, and one thing that people forget
is the product may be made in one location, but the parts may
be made in another. And so, therefore, if the storm hits one
area, you can--you can have an effect.
The same thing is with a cyber-attack, right? You can have
an attack on a supplier, and at the end of the day you can't
finalize assembly until you have all of those pieces. So you
have to look at a number of things. One is, making places more
resilient, you know, in storm damage against other items. Same
thing as on cyber protection.
And then the third is figuring out how to have supplies
moving through, so that there is always some capacity. So a
short-term disruption while you get a facility up and running
doesn't stop everything downstream from the supply chain from
it.
Mr. Moylan. With our strategic location and our distance
being an issue, what do you think about Guam? Are we prepared
with what you just said?
Mr. Norquist. So I think the challenge is when you look at
the Pacific, Guam is so central to the strategy, right? There
is multiple things, whether it is air ranges, repairing on
location, movement of supplies, it is--it is the hub for many
of those, which brings you both the question of protecting it
as well as which of the things that you want to prioritize
using in that space. Is it pre-positioning? Is it facility and
production? Is it repair? But when you look at--it is often
hard. People have to get them a globe and rotate and say, "Look
at the Pacific. All right. And some places you can't see either
ends, but in the middle you can see there is Guam."
So trying to just understand the sheer scale of distance in
the Pacific and how much that challenges U.S. logistics
operations, and, therefore, understanding the role of Guam in
those types of operations. That is key.
Mr. Moylan. Thank you to the panel.
Mr. Chairman, thank you. I yield back.
The Chairman. The gentleman yields back.
The chair now recognizes the gentlelady from California,
Ms. Jacobs.
Ms. Jacobs. Thank you, Mr. Chairman, and thank you to our
panelists.
We have talked a lot about workforce today and the
importance of workforce. I am really proud to represent San
Diego, one of our major shipbuilding hubs. But I have noticed
that one of the things we haven't talked about workforce is
actually the role immigration plays. And it struck me that many
of my colleagues who are worried about workforce are the same
ones who are saying we should restrict immigration, restrict
legal immigration.
So I guess, Mr. Fanning, could you talk about how
restricting immigration would have an impact on these defense
industrial base industries that we really need?
Mr. Fanning. So all aspects of workforce need to be on the
table and discussed, including immigration. A lot of our
workers are cleared, highly skilled, take years to train, but
no workforce exists in isolation. And so if any industry is
having problems with its workforce, it could have problems--it
could create problems for ours, including driving up wages.
So I do think we need to discuss that, making sure if we
can't organically fill the workplace needs in our country, how
we go about an immigration policy that helps with that.
Ms. Jacobs. Thank you. And, you know, we have talked a lot
today also about these, like, big, exquisite capabilities,
right? F-35s, ships. But I think one of the lessons of Ukraine
is that military dominance isn't just about how much money we
spend and how many big things we have, right? It is about
agility, adaptability, cost effective innovation.
And one of the things that frustrates me about these
conversations sometimes is we keep hearing demand signal,
demand signal, demand signal. Well, the demand for munitions,
like 155 rounds, couldn't be clearer. The demand for things
like Patriots couldn't be clearer, and yet we are still having
them not be produced at the rate that we need them.
So I guess, Mr. Norquist, can you talk about some of these
other capabilities and why we aren't seeing the defense
industrial production that we need for munitions, for, you
know, these kinds of things?
Mr. Norquist. Right. So typically what you have is you have
something in a munition where either the demand signal wasn't
there, or if you think of something like the GMLRS [Guided
Multiple Launch Rocket System], it--the demand signal was there
and the CRs blocked the ramp up of production. So you ended up
with fewer than you wanted.
Then you have an event like Ukraine where all of a sudden
there is a surge in demand. Industry starts to see the signal
and starts to respond, but in some cases the government says,
"And, by the way, as soon as this is resolved, the demand is
going to go to zero."
And then industry says, "Well, okay. Then I will expand my
current team as fast as I can, but I am not going to do a new
or second or third line, because by the time they are on board,
you may have stopped the purchase." So when people talk about
the stability, one of the concerns is--and it is not
irrational--the government has an increase in demand. And when
something passes, it drops, and yet that swing has the very
disruptive effect on the capacity.
There are things we can do. There is abilities to help with
companies in terms of getting--being able to qualify access to
capital, to be able to do expansions, be able to draw on the
workforce, and looking at choke points in the supply chain.
So I think those are all key, and sometimes it is the least
glamorous stuff that is the most important.
Ms. Jacobs. Thank you.
And, Mr. Paxton, I just want to ask you, the Shipyard
Infrastructure Optimization Program, it was intended to be a
generational investment, right, to bring our public yards into
the 21st century and yet what we have seen is that costs have
ballooned, timelines have slipped, and we still don't have a
full cost estimate for the program.
We have seen the industry benefit from significant
government support, including long-term contracts and subsidies
and infrastructure funding. And some might argue that this has
actually reduced the incentive for the private sector to invest
in shipyard modernization, leaving the government to foot the
bill for these upgrades.
So how would--how should we strike the balance between the
necessary public investments but also ensuring that the private
sector is making their own meaningful contributions to our
domestic shipbuilding base?
Mr. Paxton. Yeah. Thank you for the question,
Congresswoman. For sure, the SIOP [Shipyard Infrastructure
Optimization Program] is critically important for our four
public shipyards. We need those. Those are critical assets in
the inventory of our shipyard industrial base. They obviously
do all of the nuclear propulsions systems.
But private shipyard investment, we have been spending in
the order of billions in our facilities, in our workforce, on
the private side of things. And when we see that demand signal,
to Mr. Norquist's comments, we respond, but it does take time.
It does take time to ramp that workforce up, but the
investments are being made.
Ms. Jacobs. Thank you. I have just got to say, I am so
frustrated by the whole concept of demand signal, because I
just feel like this committee couldn't have been clearer, for
the four years I have been on it so far, about the kinds of
things we want to see. And so, like, I think we have got to get
away from just saying we need more money, less oversight, and
get to some real solutions.
And, with that, Mr. Chairman, I yield back.
The Chairman. The gentlelady yields back.
The chair now recognizes the gentlelady from Virginia, Mrs.
Kiggans, for five minutes.
Mrs. Kiggans. Thank you, Mr. Chair. And thank you very much
to our panelists for joining us.
I have the privilege of representing Hampton Roads areas,
so home to a lot of our ship repair businesses, and just
defense industry in general, large and small businesses. And I
hear them time and time again when we do visits, when we have
meetings with them, about their frustration with our budget
process and passing continuing resolutions. And I know that
they are disproportionately impacted by these continuing
resolutions that we continue to pass.
We passed one, and then we passed another, and now we are
facing another deadline where we perhaps may pass one that will
lead to a full-year CR. And, as a person who is newer to
Congress, in my second term, it continues to frustrate me as a
person who wants to be an advocate for our defense industry,
who wants to make sure that you all understand how much money
you all have to work with.
So, Mr. Fanning, I know you touched on it earlier, but
could you just for the record tell us what the impact of a
full, long CR would be for your industry?
Mr. Fanning. A year-long CR is particularly disruptive,
especially if it has limited anomalies. New programs don't
start. I mean, I think this is what people don't understand is
that a CR is just saying continue with the last year's plan.
And so if there is a new start baked into it and companies have
invested in it all up and down the supply chain, lined up the
workforce, lined up the materials, the parts, to get ready to
go, and it doesn't happen, it is a tremendous financial hit on
them, again, especially on small companies, ones that I think
you are talking to in your district that don't have the cash
flow or the access to capital to withstand that type of a
delay.
And this is what, you know, sort of feeds into having that
consistent signal from the government, so that all of that that
is required to line up to produce what the government needs
when it needs it, takes place in a way that it causes not just
a disruption in building those supply chains, it causes a
disruption in trust for the companies--large, small in
between--to lean forward and invest to be ready, because they
do that. They want to do that.
They are all doing risk and strategy assessments every
year. Where am I going to put my money, so hopefully it lines
up with what the government needs at that point? And a CR that
doesn't have anomalies in it is basically skipping a year for
that change, that growth, that increase in quantity orders, or
what have you.
And, again, it causes industry to react conservatively to
what they are hearing from government, because they have got to
see that there is something at the end of their investment.
Mrs. Kiggans. Thank you very much. I just wanted that to be
made very clear.
Let's see, so also, in my district with ship repair, the
ship repair industry that we have there, we are seeing, because
of the CR, a lot of them have to lose staff. They are having
just to change how they do business. I know we have heard our
colleagues talk about the number of ships we don't have in the
U.S. Navy right now, so perhaps not enough business for ship
repair.
We are seeing them do things that are a little bit outside
the box, you know, participate in some of the modular build
programs, working with Huntington Ingalls, and we have close
proximity, so we can build modular components and ship them up
the--up the river to Huntington Ingalls. We have a wind turbine
project off the coast of Virginia Beach that we are seeing some
ship repair even being involved with staging and some
manufacturing.
So they are trying to do some things, which I applaud them
for, to compensate for these--the budgetary issues that we are
facing.
But, Mr. Paxton, do you see these kind of thinking outside
the box, you know, options that my local ship repair industry
is pursuing as good alternatives to ways that we can just keep
that skilled workforce in place, so that they don't have to
shift around so much?
Mr. Paxton. For sure. We are having a constant internal
discussion about commercial ship repair. A lot of your yards
down your way, while they do amazing Navy maintenance and
modernization, used to have a lot more commercial ship repair
work. For a lot of reasons, that commercial ship repair has
gone overseas. We should be clawing that back and doing more of
that.
I will say Virginia leads the way--Virginia Ship Repair
Association--in educating the local communities down there on
the just patriotic jobs that are in our shipyards. So, Bill
Crow does an amazing job.
Mrs. Kiggans. They are great. We appreciate them.
Mr. Norquist, do you have anything to add on that?
Mr. Norquist. So I was just going to come back to the point
you had on CRs. I think there is--we have had over 1,900 days--
over 1,900 days--of CRs in the last 16 years, equivalent to
five full years.
And each of those is telling Defense and companies and the
military that whatever you need next, don't do it, go back to
the--do the things that we would have told you to stop doing,
and that becomes incredibly disruptive, and people think, well,
they can just do the same as last year.
You passed a pay raise. A CR doesn't accommodate the pay
raise that you would have to figure--you know, there is a
series of changes that this committee and others have voted on
to say, "We need DOD in a different direction."
A CR says, "Never mind. Do the old plan."
I can understand why it is very appealing for China for us
to keep doing these. I don't understand why it is--it is in our
interest, and I think it is a real challenge for our membership
to have to deal with. I know that you guys are more frustrated
in this, as much as anybody else, but to--and the shipbuilding
is all a new start. So every one of these is a big setback, and
so I would be very concerned on the effect of a long-term CR.
Mrs. Kiggans. Thank you. I share your frustration.
I am out of time. I yield back. Thank you.
The Chairman. Well, as a very senior member of the
Congress, I can tell you most of the members who tolerate CRs
as an acceptable option are just ignorant of the impact of
those resolutions.
With that, I recognize the gentleman from New York for five
minutes.
Mr. Ryan. Thank you, Mr. Chairman. Thank you all for being
here.
I think we have the right three people here and your
membership. You represent collectively basically the entire
defense--at least the traditional defense industry, between the
five big primes--Lockheed, Boeing, Northrop, GD [General
Dynamics], and RTX--over $200 billion in defense revenue last
year alone. Rough math, that is about 130 billion from
contracts from DOD, 15 percent of our entire defense budget.
And since that is really discretionary spending, that
essentially means one in $12 we are spending as a country went
to these five companies, and we thank you and the employees
that are doing that work.
Given that context, though, and you may have seen or heard
a little bit in the news about--government efficiency has been
certainly a topic in the first month or so while the Trump
Administration has found time to fire 6,000 veterans, to fire
thousands just Friday night at the DOD, they haven't yet found
time to highlight any specific examples of the supposed waste,
fraud, and abuse at the Department of Defense which
constitutes, as I said, a huge part of our spending, and I
agree.
So could each of you just name one program, could be major,
could be minor, one thing that we need to--that we should cut.
Mr. Fanning, start with you.
Mr. Fanning. I think a lot of things are being conflated.
Mr. Ryan. Just one--what is one thing?
Mr. Fanning. I think, you know, every program is there for
a reason. It doesn't--
Mr. Ryan. Okay.
Mr. Fanning. --mean it can't be more efficient. But I
don't--
Mr. Ryan. Mr. Norquist--
Mr. Fanning. You know, we--industry--
Mr. Ryan. --will you point to one thing?
Mr. Norquist. Yeah.
Mr. Ryan. I only have a few minutes.
Mr. Norquist. So I will just say, when I was in the
Department, we did a defense-wide review, and we proposed $5
billion worth of reductions. So there are people who are
constantly producing recommendations. The challenge is, one
person's offset is another's essential requirement, and you
have to work through the--both the politics and the mission
impact to--
Mr. Ryan. What would you say, given your expertise, is the
number one thing?
Mr. Norquist. The number one thing I would do is I would
actually change the requirements process, because I think it
has--
Mr. Ryan. What is the one program that you would eliminate?
Mr. Norquist. I think I--
Mr. Ryan. In our entire--
Mr. Norquist. Well, I can give you a copy of the report
that we produced.
Mr. Ryan. I would love to follow up on that.
Mr. Norquist. Yeah. I would be happy to.
Mr. Ryan. Mr. Paxton?
Mr. Paxton. Again, I echo my colleagues' comments on this.
I think the sheer volume of the DFARs [Defense Federal
Acquisition Regulation] is-- needs to be contracted.
Mr. Ryan. And I agree. And I know I am being--
Mr. Paxton. Yep.
Mr. Ryan. --somewhat provocative here, but it is incredibly
frustrating to me that we are in high-level agreement on--and
there has been incessant talk of the need for efficiency, and
you all are the experts, and your members, and we would love to
work with you. I would love to work with you, and I think there
are a lot of members that know there are legacy things that we
are out there from--I am 42--that have been out there, you
know, in the ether from before I was alive that we--that even
services are saying we don't need.
So I do think it would be helpful to not speak at the up-
in-clouds-level, but we need to be specific and have those
details.
To that end, my second question, we have talked a lot about
hardware-focused programs, which are of course a huge driver of
our budget, but I want to talk about some of the legacy
software programs across the Department of Defense that are
ridiculously over budget, archaic, and largely, in many cases,
simply don't work, but are still programs of record because of
the broken acquisition system, largely, thanks to cost-plus
contracts, hardware-first primes win software-centric
contracts, and they just cannot deliver the necessary
capability on an appropriate timeline, yet they are rewarded
for increasing their business expenses, unnecessary auditing,
excessive accounting.
I was in INDOPACOM [United States Indo-Pacific Command]
last week. We were hearing directly from senior leaders that
the major Army C2 [command and control] program they are
literally not even using. It is sitting there, and they are
locked in because of, you know, a program office's contracts.
So, and this is going back to my time in the Army, has the
Department not learned anything, in your opinion, from going
back to the D.C. GSA [General Services Administration] fight
with Palantir that hardware-centric primes shouldn't be
building software?
Mr. Fanning. I think, because I live--I lived through that,
a couple of things I would say is, first of all, you know, the
issue with Palantir at that time I think, and even SpaceX
earlier, was about competition and the nature of competition
and setting up a competition that allowed new entrants to show
what they could offer instead of suboptimizing them.
It is hard for us I think to pick a program, because it
probably is being met--it is probably one of our companies. I
will say that the industry--
Mr. Ryan. That was my not-so-subtle point.
Mr. Fanning. Yeah. The industry is ready to surge, though.
If somebody loses a contract, and that money goes to another
investment, then there are winners and losers. That is
competition. The industry stands ready to support the decisions
Congress and the administration make about which programs to
keep, which programs to end.
The Chairman. The gentleman's time has expired.
The chair now recognizes--
Mr. Ryan. Thank you, Mr. Chair.
The Chairman. --the gentlelady from New Hampshire, Ms.
Goodlander.
Ms. Goodlander. Thank you, Mr. Chairman. And thanks to our
witnesses for being here today.
I have just come from the Small Business Committee where we
had an opportunity to hear from some of the real innovators in
our defense industrial base who are the smaller players. And I
wanted to give an opportunity to our witnesses to talk about
the programs that you have seen work well, including the SBA
[Small Business Administration] SBIR/STTR [Small Business
Innovation Research/ Small Business Technology Transfer]
programs, which I very much appreciate you have included in
this--in this very helpful and thick handout.
But if you could speak a little bit more about the
smaller--Mr. Fanning, I know you represent family-owned small
businesses--the challenges that the small businesses face in
our defense industrial base and what you would encourage
Congress to prioritize in our support for those important
companies.
Mr. Fanning. I guess small businesses in particular are
operating on tighter margins and with fewer resources and tools
to get them over perturbations in the system. And we have had a
number that are non-government--COVID, for example, inflation--
but anything that we can do to be consistent in our timelines
and how we deliver on programs and how we deliver on the
contracts, to include payments, helps those small businesses.
They are in a real crunch right now. Many of them are still
delivering on contracts written pre-inflation, but having to
buy their materials at post-inflation prices. So they are just
being squeezed in a number of different ways, and anything that
government can do to stay consistent on timelines is a lifetime
for small businesses.
Mr. Norquist. So we have over 1,000 small businesses as
members of our associations. The majority of our organization--
I think our small business chair may have been, in fact, one of
your witnesses. So if I contradict ML, ML Mackey is right, and
I am wrong.
The first thing, of course, is the permanent
reauthorization of SBIR/STTR. I think that is very essential
for the small businesses. That is a great pipeline to bring
the--I think this needs some emphasis on the conversion side.
Another one to look at is it is very important to have
cyber security, the CMMC [Cybersecurity Maturity Model
Certification
standards are part of that, but having either guaranteed
loans or tax credits for small businesses who have to carry the
load of getting compliance would be a particular help to them.
And it was mentioned earlier about software. For those of
them who are software-focused, the reciprocity of authority to
operate, they get authority to operate in one place, but then
it doesn't carry over to the other. Large firms can manage
that. Small firms end up getting trapped with a product they
would like to sell on scale, but they are--they are only
getting clearance in one place, and there is a cost for that.
So I think those are a couple of things that can be done to
help small businesses. But, again, I appreciate your interest
and your emphasis on them.
Ms. Goodlander. Well, thank you. I wanted to ask our
witnesses if you could say a few words about the National
Defense Industrial Strategy that was introduced just a year ago
and how you see the implementation of that strategy. I know
there has been a follow-on implementation plan. What is your
advice to this committee about the content of that strategy and
our progress on implementation.
Mr. Fanning. I am happy to start. I think there are two
things that stood out to me sort of in a strategic way on the--
on the strategy. One is it recognized private capital as a
stakeholder, which I hadn't seen in a document before.
The other is that it explicitly recognized that the
National Defense Industrial Base is shaped by a single
customer. We have learned a lot in Ukraine, a lot of
conversation about surge and about demand signals, but it was
years of demand signals that got the industrial base to where
it was when the war kicked off.
And it is not an easy thing to counter, and that is partly
because industrial policy, munitions which, you know, you can
take a 20 percent risk on munitions year after year after year
after year after year, and the industrial base will shape
around that. You can't buy 80 percent of an aircraft carrier.
And so I think those--you know, the problem with surge, the
problem with stockpiles, and the problem with industrial policy
is in the end game of the budget, they don't compete well to
things that you can actually park at a pier or put on a ramp.
And that is what I would just remind--the ranking member
talked about choices. In the end game, it is all about choices,
and what you can actually have in your inventory tends to win
over these types of investments that we think are critical,
because capacity is a capability and it does deter.
Mr. Norquist. So, first of all, it is very helpful that the
Department produced the first National Defense Industrial
Strategy. It was a clear recognition of the challenge that--
facing how the challenge came about over time through
government policy. I would encourage the new administration to
look at that. They are, of course, going to have their own
version, but the industrial base has been a priority for them,
so to be able to use and draw from that what they value, but I
think that is something that the recognition of the effect of
certain policies on it, the recognition of rare earth metals,
the recognition--I mean, they did a relatively across-the-board
look, and so I think that is a great place for someone to start
and to build on.
And so I encourage the committee to look at it and to--and
the implementation plan, and then recognize some of those have
costs associated with them. And so you just have to pay
attention to that.
Ms. Goodlander. Well, I thank you, and I yield back, Mr.
Chairman. I will be submitting some more questions for the
record. I appreciate the time of the witnesses.
Mr. Moylan. [Presiding.] The chair now recognizes Mr. Mills
from Florida.
Mr. Mills. Thank you very much, Mr. Chairman. Thanks so
much for being here, gentlemen. Mr. Norquist, great to see you
again.
Mr. Norquist, I would like to pivot to another critical
concern related to our industrial base, namely supply chain
integrity and transparency. I don't think I need to rehash the
issues that we have in regards to our reliance on adversarial
nations for critical components, but even more certain is the
critical minerals that we have banned DOD and commercial
partners from sourcing from adversarial nations.
These restrictions are often too waivered for, you know,
these individual program managers or, you know, these
adversarial trading proxies and minority ownerships from taking
advantage of these thresholds.
So my question I guess is that knowing that the
responsibility of both DoD and the industrial partners to
ensure the United States abides by these responsible
acquisition practices, what is the industry doing to ensure
transparency in the supply chains?
Mr. Norquist. So each of the companies in industry is
working that, and there are companies that are helping produce
tools to let you map your supply chain and be able to
understand what is coming from where. This is both a supply
interruption risk, even if it is a domestic company, or it is
an item that could be compromised along the way. And so you
need to know that ship or whatever is coming from a trusted
supplier.
The same thing actually somewhat comes in place with
trusted capital and knowing that the investors and the people
you are playing with are worthwhile. So that has been a part of
it. Now this is--these are relatively complicated supply
chains, and there is risks involved when you go to--overseas.
So there are certain things that can be done with regard to
promote domestic mining or refining capabilities. There is
either the 45X tax credit was used. It is not available for
mining. But if you are trying to get after the rare earth metal
issue, that would be one of the uses on it.
When we talk to our membership, one of the things they
bring up is, in the last three years, 28 percent lost a
critical supplier; 30 percent lost a sole source supplier. So
mapping is not just--it has multiple values, security,
understanding, and then recognizing your vulnerabilities and
your choke point, so you can start to build resilience.
Mr. Mills. Yeah. As a business owner, one of the things you
always look at is your single point of failure. Obviously, one
of those key and critical areas is the 92 percent of microchips
and semiconductor capabilities that is within Taiwan.
That is why building up INDOPACOM's capabilities, ensuring
that we diffuse some of the increased adversarial kind of
nature of both ourselves and China, knowing they are the
greater aggressor, looking at ways of coastal defense, and
other things like that, should these things take, but also
working with other committees such as Ways and Means with
Chairman Smith, to eliminate the double taxation on Taiwan,
which would allow them to invest in the industrial base here in
America to ensure that we have the ability to go forward and
create those semiconductors and microchips ourselves.
You know, one of the key things that I have been concerned
with for a very long time is that America still adopts the idea
that warfare is built on kinetic only. The supply chain, the
resource capability, the electronic, the IO/IW [information
operations/ information warfare] space, that is really a
concern for me as we advance to what real warfare looks like.
I mean, if you think about China, Russia, Iran, and North
Korea's geopolitical alignment, this is not meant to just
involve themselves in a kinetic element, yet proxies from the
Iranians will actually help to be a distraction as we saw with
the Houthis, who disrupted 12 percent of global trade through
the Red Sea when the last Administration delisted them as a
terrorist organization.
But China's aggression has been mostly not just expanding
out the Belt and Road Initiative, but utilizing Russia to
expand the European, like, eastern front, taking Oceania,
taking the 15 of 16 rare earth mineral mines in Africa, and
doing what we claim to do on paper which is, oh, we are
sanctioning you, they are doing it from a geopolitical stance
where they are actually moving the football by cutting off
western hemisphere supply chains, the Red Sea, the Persian
Gulf, the Black Sea, the Horn of Africa, while using economic
coercion on Panama and Honduras to try and influence trade,
tariff, taxation, and capabilities through the canal. That is
really actually cutting off America and our supply chain
capabilities.
You know, the thing that has worried me is that we have to
get proper procurement reform in place. The DSP-83/DSP-5s that
are sometimes held up for political purposes, that is not
restricted by USML-151 or things like this are not meeting the
90-day threshold of the Directorate of Defense Trade Controls,
is putting us really far behind our adversaries with supplying
our allies the necessary tools.
But I am committed to continuing to support the industrial
base to have American-built components, American-built
products, that allows our economy to thrive and stop
adversarial reliance, which allows us to build the economics of
another nation who is out to destroy us.
Thank you for your support. Thank you for all you guys do.
And we are here to give our best to try and make sure America
continues to build back strong.
With that, I yield back.
Mr. Messmer. [Presiding.] Thank you. Does the gentleman
from North Carolina have any questions?
Mr. Davis. Yes.
Mr. Messmer. Recognize the gentleman from North Carolina.
Mr. Davis. Well, let me say as our military faces
increasingly challenges with budgetary constraints,
prioritizing our defense industrial base is of even greater
significance. So, with that, thank you all for being here
today.
Newport News Shipbuilding in Virginia employs North
Carolinians over the state border in my congressional district
in North Carolina's First, in the northeastern portion of the
state, and is currently hiring North Carolinians, the shipyard.
This is my question, Mr. Paxton:
What efforts are being done when we talk about taking
advantage of entire populations, a particular workforce, all
the conversations about workforce, what efforts are being taken
to strategically and being intentional about bringing in rural
areas in particular in these workforce conversations?
And then not just rural areas but, for instance, in North
Carolina they are right there, and many are going into Virginia
to then entice states to collaborate more with each other?
Mr. Paxton. Thank you, Congressman, for the question.
First of all, I think the goodness of the shipbuilding
industry, and ship repair industry, is oftentimes they are the
economic engine of some communities that aren't in major city
locations. And so, the initiatives, I know Newport News and
other shipyards do for their apprenticeship programs are world
class. And they attract the best of the best. And they want to
hire up those people who maybe didn't go to college, who just
got their high school degree and want to have a career.
One of the great things about the shipyard industry is you
can have that career. And I know Newport News does an
exceptional job bringing in the next talent in our shipyard
industrial base.
Mr. Davis. Is there anything specific that you would
suggest as a priority that would focus specifically in helping
to cultivate workforce in rural communities across America?
Mr. Paxton. You know, Congressman, to the extent that we
are trying to raise the awareness of the shipyard industrial
base that we are a great family wage, career destination, and
you have seen some of that with the shipyard industrial base
promotions and where they, those promotions go, so I do think
there is outreach to rural areas to, to make them aware of our
industrial base and that, again, these are career jobs.
Mr. Davis. What was interesting this week, we had educators
that came into the office from Chowan County. And we had a
principal from Chowan Middle School. We also had the STEM
coordinator.
My question is, could you just speak briefly when we talk
about cultivating workforce, because they were sharing with me
their vision of extending STEM within schools within the
county, how important is STEM?
Mr. Paxton. STEM, and I am sure my colleague will have some
opinions on this as well, is absolutely the most critical thing
we need right now. And, and our shipyards are going into
elementary schools now to talk about STEM and talk about
careers in the shipyard industry as well.
Mr. Davis. Yeah, I think what you want to do is you want to
give individuals exposure to the industry so they can develop a
passion for it.
You know, many people they get, because one of their
parents worked in a field. If your parents aren't involved in
these, if you are at a school where you have the exposure to
work either electrical bonding, I mean, there is a range of
technical trade skills and there is a range of STEM topics that
people start to develop an interest for when they are young.
And then that passion they discover there is a whole career
field attached with that that allows you to work with those
skills in that area.
So, I think the ability of introducing that--and we have
chapters of NDA all around who work with local schools, do
different programs, in order to expose them to the range of
career fields that are out there. And then from that they look
around and say, oh, there is a shipyard nearby, or I can drive
this distance to get there. But trying to show them these are
some interesting things to do that there are entire careers
behind that you can make a living doing.
And let me say this: North Carolina's First Congressional
District, we are one of the most economically distressed.
Mr. Paxton. Uh-huh.
Mr. Davis. And we have to look at these areas that are
experiencing distress, and especially rural communities, and
really begin to go to the core. And that is building the future
through our workforce.
Mr. Paxton. Right.
Mr. Davis. Thank you so much.
And I yield back the balance of my time.
Mr. Messmer. Thank you.
I now recognize the gentleman from Illinois.
Mr. Sorensen. Thank you, Mr. Chairman.
Good morning to everyone. Thank you so much for your time,
sharing your expertise.
Strengthening the defense industrial base is such a
critical issue, especially for my neighbors in central and
northwestern Illinois. I am so glad that we are taking the time
to delve into that today. Our defense industrial base fosters
innovation, it creates jobs, it helps our allies around the
world, and keeps our adversaries at bay.
I am so proud that my district is home to the historic Rock
Island Arsenal that back in the 1830s there were decisions that
were made here in Washington to put one of our most strategic
places on an island in the Mississippi River. And still to this
day men and women back home go there to do this important work.
And it is my job to make sure that we are making sure that the
Arsenal will meet the needs into the future.
So, we know back home firsthand how important the organic
industrial base is.
So, Mr. Fanning, I will begin with you. Has the Department
of Defense in your opinion done a good enough job leveraging
the organic industrial base in areas where the private sector
is not there?
Mr. Fanning. I think the Department does do a good job,
prodded by Congress to make sure that they do that.
Where I think perhaps there is a problem is the investment
in that organic industrial base in the arsenals. I think much
like surge capacity is generally a bill payer in the end, most
installation investments I think are a bill payer in the end.
But I do think the Department does a good job, again because
they know Congress is watching, at leveraging that organic
industrial base.
Mr. Sorensen. Thank you. The Rock Island Arsenal is also
home to the Army's Center for Excellence for Advanced and
Additive Manufacturing, which has pushed the boundaries of
innovation through the surrounding defense industry all around
eastern Iowa and western Illinois where I represent. The story
of advanced and additive manufacturing at Rock Island, it shows
how investing in our modernization improves the readiness and
strengthens our national security posture.
So, Mr. Norquist, to what extent do you see additive
manufacturing playing a role in the future of the defense
industrial base?
Mr. Norquist. So, I see two particular areas that I will
focus on. There are many, but let me just dwell on two.
One of them is in places that do maintenance repair and
others, the ability to get an old piece of equipment working
by, by additive manufacturing saves you.
The other part is when you have either deployed or at home
a spare part you don't have access to, deployed may be because
of a supply disruption, but at home because it is an old item
and the vendor went out of business.
Mr. Sorensen. Right.
Mr. Norquist. The ability of additive manufacturing to say
we can produce that for you without the traditional cost of
tooling and running a production line and then doing a run of
20, which is incredibly inefficient, provides real
opportunities for the Department in terms of rationalizing its
supply, its parts, and its production.
So, I think there is a lot of great opportunity. And I
think this is one of those areas we have seen progress and
succeed as it has moved into new and different fields.
Mr. Sorensen. How important is that, especially as this
Administration seems to go at cost-cutting measures and
efficiency, how important is that?
Mr. Norquist. Oh, it's a major cost savings. See, think
about, think of all the systems we have that were built 20, 30
years ago.
Mr. Sorensen. Uh-huh.
Mr. Norquist. Many of those suppliers are gone. So, the
cost of trying to build those the traditional way is both
financially expensive, but operationally such a long lead time.
Additive manufacturing says we can do that faster, and
less, and let you keep things up and running. So, I really see
that as one of the key items for, for speed and cost savings in
the Department.
Mr. Sorensen. Right. Glad that we could be a part of that
in my district.
Mr. Norquist. Uh-huh.
Mr. Sorensen. And, also, the congresswoman across the
aisle, Congresswoman Kiggans, she had asked about, you know,
the effect that it has on this when we look at short-term CRs.
And I know she had asked that to you, Mr. Fanning.
Mr. Norquist or Mr. Paxton, would you like to answer that?
Mr. Paxton. Yeah. The one thing I would add is in ship
repair, if we go much longer we are going to be talking about
work stoppages. And that is no one wants that. We don't want to
issue warn notices. We don't want to do that.
So, that is the severity of the CR: it is going to be hard
on the, on the shipyard industrial base.
Mr. Sorensen. Mr. Norquist?
Mr. Norquist. On the CRs? I think one--
Mr. Sorensen. Right.
Mr. Norquist. --one of the things that people tend to
misunderstand on CRs is a regular appropriation bill can have
the top line go up or down. The only thing that is different is
a CR tells you don't do the stuff you think you need to do
next, do the stuff you used to do a year ago, even if it was
something you recommended stopping. It is incredibly
inefficient. And then it creates cascading effects down through
the system.
One is instead of awarding a single contract, a contract is
doing multiple iterations which creates instability and
uncertainty.
And then the other part is funds just aren't aligned in the
right place.
Mr. Sorensen. Right.
Mr. Norquist. And so, we have had companies get stop work
orders because they were under a CR and the Government didn't
know how much O&M [operations and maintenance] they would have,
how much maintenance money. So, they said--and that company
just laid off its workforce. And then two months later they
said, hey, we think we are in a better shape, can you find them
again?
And so, they try and find them from wherever they were--
Mr. Sorensen. And they are gone.
Mr. Norquist. --and bring them back.
It is unnecessary, it is just you are putting on the breaks
and then at your end you are going to hit the accelerator;
right? And then you are going to pay the consequences. It is
incredibly inefficient.
Mr. Sorensen. Yeah. Thank you for all three of you.
And, Mr. Chairman, I yield back.
Mr. Messmer. Thank you.
I recognize the gentleman from Louisiana.
Mr. Higgins. Thank you, Mr. Chairman.
Gentlemen, thank you for appearing before us today.
Mr. Paxton, I am going to be directing my questions at you.
Would you concur, good sir, that small shipyards are an
important part of the industrial base that our nation requires
as we look at the future of shipbuilding and our responsibility
to provide vessels for the United States Navy?
Mr. Paxton. Absolutely, sir.
Mr. Higgins. Okay. So, workforce availability is
challenging across the spectrum of shipbuilding in America. Is
that an, is that an accurate statement, generally speaking?
Mr. Paxton. Our number one challenge, sir.
Mr. Higgins. Number one challenge. There you go.
So, if smaller shipyards for our republic, and by extension
may I say not only for the defense of the United States of
America but for the, for the prosperity and security of the
entire world relies upon the United States Navy, and we agree
that small shipyards are vital and significant parts of any
foreseeable shipbuilding future for the United States of
America, and should be recognized as such.
So, workforce stoppages, a job, when you pause a job, the
impact of that for a smaller shipyard is far greater than on
your larger shipyards. They just move those guys. They can keep
their welders, their fitters, their machinists, their
supervisors, et cetera, they can shift them, you know, to
another, another project within that larger shipyard.
But a smaller shipyard can't do that. They have to bear the
cost of even a shutdown for a few weeks can mean they have to
let these guys go. And then that workforce leaves. And these
welders and fitters and machinists, they are going to get other
jobs. And it is difficult to replace that workforce for your
smaller shipyards.
So, how would you, how would you address that? And I yield
to the, I yield to the gentleman. Is the Pentagon paying
attention is my--the cornerstone question here?
Mr. Paxton. I think, Congressman, you raise a very
important point. We should be opening the aperture in DoO
contracts for smaller shipyards that can do some of the work
the Navy needs to get done.
For instance, a shipyard in your state got a contract to
build berthing barges. That should not have been a complex
contract. And it became very complex for that shipyard.
And we should, we should try to--
Mr. Higgins. You are talking about the YRBM [Yard Repair,
Berthing, and Maintenance] and Conrad?
Mr. Paxton. Yes, sir.
Mr. Higgins. Yeah.
Mr. Paxton. What we were trying to achieve there, sir, is
open that aperture for a shipyard like that that cuts its teeth
commercial work and makes, you know, does really great things,
employs a lot of people. They shouldn't have been punished for,
for getting a government contract.
Mr. Higgins. Precisely.
Mr. Paxton. Yes.
Mr. Higgins. So, you concur that this has to be--this
consideration is part of the totality of circumstance that,
that the DOD, the Pentagon, our Navy commanders, and the
Executive Branch, must keep in mind when we are, when we are,
we are laying out plans for what shipbuilding looks like in
America and how we are going to actually perform.
Mr. Chairman, I would like unanimous consent to submit for
the record a letter that I submitted to the Executive Branch on
February 24th regarding this topic, the importance of workforce
and the impact of shutting down programs even temporarily. I
would like unanimous consent to enter it into the record,
please, sir.
Mr. Messmer. Hearing no objection.
[The information referred to can be found in the Appendix
on page ?.]
Mr. Higgins. Thank you.
Mr. Paxton, I have one specific question I would like to
get to.
Your testimony cites excessive oversight and frequent
design changes by the Navy as causing delays. And I am saying
that those delays may be, may be manageable by your larger
shipyards, but they can cause significant economic injury to
our smaller shipyards. And I yield to the gentleman to respond
to that position.
Mr. Paxton. Yes, sir. I think we should be clear-eyed about
once we have a functional baseline design on that ship we, we
have to be rigid in not having requirements creep and ship
specifications continually to increase because that drives up
cost, that drives down the schedule, and it ultimately hurts
smaller shipyards.
Mr. Higgins. Thank you, sir.
Mr. Chairman, thank you for convening this hearing. And my
time has expired. I yield.
Mr. Messmer. Thank you.
I recognize Mr. Vindman.
Mr. Vindman. Thank you, Mr. Chairman.
So, my first question is for Mr. Fanning.
Sir, you served as the secretary when I worked in the
headquarters at the Pentagon. And so, you are very familiar
with the Pentagon and the Army bureaucracy. And you stated in
your testimony that the defense industrial base is largely
shaped by a single customer, the Federal Government; that the
defense industrial base relies on federal investment to ensure
the overall health of the industry.
And I agree that it is critical that we support our defense
industrial base in a way that supports new technology at
reasonable costs and delivery timelines, especially in response
to the prevalence of weapons such as cheap and easily-
acquirable drones.
So, I have been thinking about the modern battlefield and
what we see developing in Ukraine, these small inexpensive
systems that have really been a game changer. The Ukrainians
are looking at establishing basically a 15-kilometer kill zone
that is largely unmanned.
How do we maintain the speed of innovation, you know,
smarter, faster development of systems, when we have a
acquisition system that is antiquated, that it takes years to
develop?
Give you a chance to answer that first.
Mr. Fanning. Sure. Thanks.
Mr. Vindman. Simple question.
Mr. Fanning. Well, I think what we are learning in Ukraine
is you need high-end and low-end. How they combined volume is
attributable. And what is interesting about that part of, of
your production plan, of your acquisition plan is there is the
opportunity for a lot of competition there.
You know, you are not going to have a lot of competition in
legacy platforms that you keep that are fairly mature and way
too expensive for, for some new company to come in and try and
compete. But you can get a lot of competition here to bring new
entrants into the industrial base.
I think the issue on the acquisition side, David and I
served on the PPBE Reform Commission. There are some great
ideas in there, I would say. One is a way how do you create
some more competition and speed inside the Department? One is
portfolio management. Give the program managers, the PEOs
[Program Executive Officers], the ability to, to think of pots
of money differently and move things around inside of them.
It requires a lot more transparency with Congress so you
can complete your oversight responsibilities.
But you can try to reform the entire acquisition program or
you can take the parts where you really need that speed the
most and focus on those. And I think of some of this new
technology that we are seeing coming in.
Mr. Vindman. And there are some decent models out there for
special operations authorities that can move much faster than
the typical system. Is there, do you see any major issue with
actually just applying or dropping that model in that Special
Operations Forces use onto regular acquisitions?
Mr. Fanning. I think--well, I, what I would argue is it is
the risk reassessment to turn too far in the anti-risk
reaction. And I would, if someone wants to take risk I would
applaud it so long as there is transparency and it can be
monitored.
What is nice about the Special Operations authorities is
they have been tested over a long period of time, and so we
have some confidence in them. But the question would be just be
careful which ones can scale and which ones can(t scale. There
are lots of rapid authorities and rapid offices in the
Department of Defense that are designed as work-arounds that
wouldn't scale very well.
But I think what Special Operations has done has proven to
be a good model, and I think you could apply it to other things
very quickly.
Mr. Vindman. Thank you for that.
And so, I think getting the right balance between the
exquisite expensive systems and the cheap dual-use systems is
going to be critically important.
So, Mr. Norquist, without giving you too much of a preamble
because I only have less than a minute left, you know,
production of the magazines, so to speak, that we need, the
artillery, missiles and such, is way behind where we are
producing right now.
So, as the U.S. doubled its production capacity we are
still struggling to produce artillery shells, for example. So,
how do we address that issue?
Mr. Norquist. So, I think there are a couple of things. The
first is to recognize part of the way we got here was the wild
swings in munitions.
So, I think one of the first steps is working with the
Department to have much clearer floors for munitions inventory.
That way the vendor understands there is going to be a
quantity. The Department warfighters know that in the event of
a conflict they will have access to greater volume.
There are things you can do with the, the vendor in terms
of helping them set up new facilities and being able to do some
production. But that assumes that the demand signal is going to
be long enough. It takes several years to get it back up and
running. And sometimes with these, the signal is actually going
to drop on the other side, and that creates a problem.
Mr. Vindman. Thank you.
I yield back.
Mr. Messmer. Thank you.
I recognize the gentleman from Colorado.
Mr. Crank. Thank you, Mr. Chairman.
Mr. Fanning, in your written testimony you touched on how
rapid inflation caused by the Biden administration weakened the
defense industrial base. And I just yesterday meet with
Axellio, which is in my district, about that very thing.
Talked about the inflation crisis and how it was especially
harmful for the small businesses in the industrial base. You
know, these mom-and-pop shops effectively had their fixed price
contracts renegotiated to slash their revenue by 20 percent,
through no fault of their own. And for many companies this
means laying off staff, or closing their doors.
What flexibility does the DOD have to support small
contractors during extreme situations like the inflation crisis
that we have had? And how can Congress assist them?
Mr. Fanning. Well, first, I think recognizing the impact of
inflation. My observation in this job, having been in
government before, is that industry is the shock absorber of
inflation.
The Pentagon seemed to think that it had managed through
inflation because it hadn't hit it yet. When the next round of
contracts, or economic order quantities, or competitions take
place that inflation that has been absorbed by industry is
going to show up and the Government is going to have to deal
with it.
And I think the way that what Government can do in real
time, which is hard, is pay for it. The contracts, most of the
contracts that are directly with the Government have adjustment
clauses in them. But it doesn't matter if there is no money to
pay for those adjustment clauses.
And that is what caused, you know, the primes, anyone who
has a direct contract with the Government, to absorb it and
then pass it down through the supply chain. And what you are
seeing now is small businesses that are locked into contracts
to their customer pre-inflation, that are now buying materials
and parts in post-inflation and their margins are just getting
squeezed.
Mr. Crank. Yes.
Mr. Fanning. And, I am sorry, and we can chase them out of
the defense industrial base because they can adjust to
inflation much more quickly on the non-defense side of the work
that they are doing.
Mr. Crank. Right. Okay, thank you.
Mr. Norquist, in your written testimony you talk about the
burden of regulatory compliance that contractors are forced to
bear in order to support our national defense. For small
contractors who can't afford to devote an entire position or
department to compliance, the regulatory burden is crippling.
Do you have any sort of estimates as to how much time or
money the average small contractor is forced to commit in order
to meet federal requirements?
And, you know, it seemed to me like Congress would want
those resources to be focused on supporting the warfighter
instead of checking the box for DOD.
Mr. Norquist. So, we don't have estimates in the aggregate.
But individual things like the CMMC standard, how many, you
know, hundred thousand, two hundred thousand are they going to
have to spend to get them, or just for the annual inspections.
Each of those we tend to, you know, for some of them we don't
have estimates.
But as you point out, those are all significant burdens for
the small business. And it makes moving into, the barrier to
moving into the Government sector or staying there very high.
Mr. Crank. Well, and it also takes money away from the
warfighter; right?
Mr. Norquist. Correct.
Mr. Crank. When they are spending it on compliance--
Mr. Norquist. Correct.
Mr. Crank. --instead of. Right.
Mr. Norquist. Right.
Mr. Crank. Okay. Thank you.
I would yield back, Mr. Chair.
Mr. Messmer. Thank you.
I recognize the gentleman from Missouri.
Mr. Bell. Thank you, Mr. Chair.
Thank you, members, Mr. Fanning, Mr. Norquist, and Mr.
Paxton. Thank you for being here today.
Mr. Norquist, I want to start with a question for you.
I think you mentioned or identified brittle supply chains
as one of the key vulnerabilities facing America's defense
industrial base. Often our defense critical supply chain,
chains can be dependent on products and materials sourced from
other strategic competitors and adversaries, including China.
And my district in the St. Louis region is home to numerous
contractors and subcontractors that are part of the crucial
backbone of our country's, nation's defense, including the
aerospace industry.
Given recent efforts to increase our leverage and
involvement of small and medium sized defense contractors, what
steps are you aware of that the Department of Defense is taking
to ensure these entities have the necessary support and
resources to meet the demands of our national defense strategy?
Mr. Norquist. So, I think you bring up the critical
challenge, which is mapping the supply chain, understanding
where you are either vulnerable because it is, it is offside,
or you are vulnerable because of the fragility of your supply
chain.
I know the Department has been looking at different choke
points. Solid rocket motors is one of the most obvious ones
where there was not a capacity to meet it. But they have. And I
think some of it may be covered in their national defense
industrial strategy where they go through and they work
backwards and say, ``Where are the common choke points?''
And that is a common project you often do with, with
industry to map, to understand where the overlaps are.
Sometimes competitors who are bidding against each other
and build different products are actually buying from the same
supplier for the part. And so, being able to be aware that that
part, disruption there would affect several, then the question
goes to the Government about what is the best way to deal with
it?
You know, one of the old techniques is Defense Production
Act. You go to the supplier and you help them increase their
capacity. That works well.
The other one is in future contracts you incentivize the
winning firm to develop a second supplier as part of their
contract. And so, they will then grow a second subcontractor
who will be able to provide that.
Both of those are useful. And I think it is really a matter
of understanding where the choke points are versus what you
don't want to do is do that where you actually already have
capacity and there are other firms willing to bid, and if you
just found them they would come right on in.
Mr. Bell. Thank you.
And, Mr. Fanning, as industry continues to drive innovation
in military and civilian aviation, how do you see Missouri-
based contractors contributing to the development of next
generation technologies?
Mr. Fanning. Well, I think our industry has a footprint in
every state in the country. And so--
Mr. Bell. Which is great. But I am--
Mr. Fanning. I know. You are talking about Missouri, which
is fantastic.
We, we--Missouri-specific, I would have to get back to you
on that and we can have a conversation. Because as we said
earlier, workforce is the critical component here. There are
shortages. And if we, if there are regions or states in the
country that want to work with aerospace and defense, that is
an easy partnership to develop.
Mr. Bell. Thank you, Mr. Fanning.
Mr. Norquist, I want to continue the discussion on supply
chain resilience and security. While it is essential to reduce
reliance on parts, and products, and strategic competitors, it
is also critical to strengthen cooperation and expand
industrial supply chains with our allies.
Can you speak to the importance of fostering robust
partnerships and trade within the industrial base, particularly
with our NATO allies and other multilateral security partners?
And are there any specific programs or initiatives that you
believe are particularly effective in this regard?
Mr. Norquist. So, I think one of the things that give
incentives, with our formal allies we have over 50 percent of
the world's GDP. So, there is an amount of economic capability
there. These countries are both suppliers of parts to us and,
if they are allies, then they are friendly suppliers, as well
as buyers of the products we make which create jobs here.
So, there is a value in having that working relationship
with them.
There has been work in AUKUS with U.K. and Australia to be
able to expand our ability to trade. There are certain
companies in Europe that are absolutely essential for certain
systems that we build where they are the best suppliers.
So, I think it behooves us to take advantage of allies when
they are useful. And it is useful to be able to have allies
take advantage of and buy from the U.S. And I think that that
reciprocity is part of what makes it effective.
Mr. Messmer. The gentleman's time has expired.
Mr. Bell. I think that is my time. I yield back.
Mr. Messmer. Thank you.
Recognize Mr. Cisneros.
Mr. Cisneros. Thank you, Mr. Chairman.
Mr. Norquist, good to see you again.
You know, as a former Comptroller, former Deputy Secretary
of Defense I think you are well aware of the cause of what a
continuing resolution and how it impacts, you know, defense
building and the industrial base. But I am actually going to
ask you about the, the workforce.
So, would you say developing the workforce, given
production shortfalls, is a priority?
You know, companies, like, in your association continue to
invest in higher education and engineering degrees, but we
still need manual labor, the wrench turners, the guys who
actually build the things. We need that to create the work--we
need to create the workforce for tomorrow.
So, what role do your industries have in expanding all of
our future workforce, and not just recruiting engineers and
STEM degrees, but actually building, the guys who are putting
hands on the product and building it?
Mr. Norquist. So, I think first of all it is important to
understand the value, you can use the expression blue collar
worker, but they are skilled labor. And many of these skills
are very complicated skills: an advanced electrician, a welder
working on an aluminum inside. Those are very complicated
processes.
And so, with industry what you want to be able to do is
recruit people, and train them, and then retain them. Because
it is the years of experience and that training. And so, I
think industry is very keen on that. It understands the risk of
disruption.
There are things that we can do to help. You know, when
there is a break in production, the incentives financially are
to get the industry to lay people off. There is not an
incentive to try and retain them. That is not in the
Government's long-term interest.
There are opportunities to encourage training of people
coming in before they are onboard. That can be, if that was an
allowable cost, that would bridge it.
But I think it is really important as we, as we see how
many of these places the value of that skilled labor and their
ability to produce a quality product is essential to our
national security. And often it is the shortage there that is
holding back a number of industries.
Mr. Cisneros. And that is the thing, right, is how do we
get people? I don't think anybody really kind of knows or
thinks growing up is, like, hey, I want to be a welder, but not
only a welder, I want to be a skilled welder in this industry.
And we don't realize actually what a good career that could be.
But how do we work to recruit people into these industries
and to become those skilled laborers--
Mr. Norquist. Right.
Mr. Cisneros. --to go, and to retain them, as you say?
Mr. Norquist. So, there was a time when we started to shift
and started emphasizing college and the liberal arts degree as
a solution for everyone. And we saw that both in things being
done in the Department of Education. We saw that even in the
military when, when people are leaving the military that was
sort of the theme.
The answer is that many of these career fields, the skilled
labor, are much better paying and have much more stability and
a more interesting career field. And so, I think we need to,
both inside the Department and as a country, right-size the
recognition of both the value of that labor and making it clear
to people the potential to have a real career, that this isn't
something you interim, you can make this a long-term career and
be, have a very successful life in a very positive environment.
Mr. Cisneros. Thank you.
Mr. Fanning, I want to ask you around the same lines
really. You know, what are some of the biggest challenges you
see in the aerospace and defense industry in attracting and
retaining these skilled workers?
Mr. Fanning. I think I would just be adding to what David
said. We, we pivoted in this country away from vocational and
technical training to community college investments. And I
think we, not only did we move the needle too far in the other
direction, but David mentioned the value of this work. We sent
a message about the value of this work, the worth of this work
to, to our country.
And I think we know we have jobs that pay 50 percent more
than the national average. We pay well. We have to pay well: we
need that technical workforce.
And so, I have got a company in Kansas that actually
recruits on farms because they can at least find people who
have worked, who work with big equipment. We need to have that
pipeline and it has to start early, that feeds into STEM that
can be this type of high-skilled labor you talked about.
Mr. Cisneros. Right.
Mr. Fanning. Again, you know, what we want to do is hire
people in and not just retain them, recruit them, but grow them
and move them into those higher-skilled jobs that are on the
floor.
Mr. Cisneros. You know, I think this is something we need
to look at; right? And I know the Department of Defense, and I
am sure you all know this, right, you know, we have got fifth
graders, going in to get them interested in science, and
physics, and becoming engineers. But I think we need to start
getting not only the Government, but industry as well, focused
on and making investments to have, building that skilled labor
so that we have that workforce for tomorrow, especially as
these weapons get more technical and difficult to build.
So, anything we can do to partner with industry to kind of
make that happen, I am here to help and support that.
And with that, Mr. Chairman, I yield back.
Mr. Messmer. Thank you.
Recognize Mr. Tran.
Mr. Tran. Thank you, Mr. Chairman, Ranking Member.
Thank you, gentlemen, for being here.
I am deeply concerned about our dependence on components
and materials sourced from the People's Republic of China and
the implications of our supply chain. China is already levying
new export restrictions against the United States. And I have
no expectations that tensions between our two countries will be
alleviating any time soon.
The question is, for any of the witnesses, what are the
most critical supply chain vulnerabilities in the defense
sector? And how can we better mitigate China's influence on
U.S. supply chains?
Mr. Norquist. So, I will just start with a few and they can
jump in.
I think one of the places we see this is energy storage and
batteries and the materials needed to produce those. That has
effect across a wide range of technologies. And many of those
also depend on rare earth metals for development, either not
produced here or not refined here.
And so, that would be one where you would need to look to
both improve you either stockpiling your development and your
processing, or make mining either here or through an ally.
You will also see this, this came up with micro-
electronics; right? And that one is not just a interrupt the
supply, for the Department of Defense it is how do I know the
integrity of the chips that I am using have not been
compromised?
So, I think those, those two.
I think raw materials, we have talked about extensively in
this one, and feeds into both of those two questions. So, I
would start there as the ones I would highlight.
Mr. Tran. And I would maybe expand the focus a little bit
to add capital, watching very carefully where China is moving
its manufacturing to make sure that we are not getting it
through a secondary source.
And then a recognition, this is a, this decades-long
whipsaws. You know, it was our strategic focus to partner
closer with China over time. And so some of these things will
take time if they are left to their, on their own to right
themselves. So, there is investment requirement there if we
want to get speed.
Mr. Paxton. Yeah, just my comment here would just be, while
we are down to single-source suppliers in our shipyard
industrial base supply chain, we have got to make sure the
health of the industrial base is such that, you know, when we
continue to ramp up--and that signal might be coming that we
are going to do that--that we have a supply chain that can be
resilient and answer that call.
Mr. Tran. Thank you. You will hear me talk a lot about our
people. After all, our people are our military's greatest
asset. In this case, I would like to know more about recruiting
and retaining the skilled workers needed to meet production
demands.
What are the key workforce shortages affecting the defense
industrial base?
And what specific partnership will be necessary to ensure
industry can identify and recruit enough talent to meet our
strategic requirements?
I know we talked a little bit with Rep. Cisneros. But
specific partnerships is what I am looking for.
Any of you gentleman.
Mr. Norquist. So, I will just start. The key ones are
skilled labor, STEM, and also people who can get clearances
because that becomes a choke point as well.
Some of the most important partnerships are with the local
communities through their high schools and other programs so
that employees get exposed, or students get exposed to the
technologies, the STEM, the trade skills. And that creates a
pipeline, as well as them being aware of what industry
opportunities are available in the area.
So, I think those are some of the starting points.
I think the Navy has done a good job with this. I think the
Air Force is looking at doing this as well, to be able to bring
people in and let them know that this exists; right? There is
an opportunity here.
So, I will pause there and let the others weigh in. But
that is where I would start.
Mr. Fanning. I think, absolutely, local communities and
educational institutions, and expanding so that the educational
systems and the state and local governments can see what will
help these students get jobs like this. And it backs up further
than, than high school.
I mean, if you want to do some of these jobs you have to
start taking, and understanding, and studying math in
elementary school. And so, that is a long pipeline that is
important.
But I would say that the importance of retaining, because
you brought that up as well. And one of the hardest things that
undercuts retention is inconsistency, surging, and coming down
off of a surge.
And, you know, we have talked about it in terms of demand
signal and investment. But, but these companies never want to
lose their workers; they will go someplace else and it will be
very hard to get them back.
And we saw that in COVID, again the shared supply chain, it
hit the commercial aviation side so hard. And that was the
focus: how do we keep those workers? Because we won't get them
back; they are in demand, they will go someplace else.
And so, that consistency that industry can have so they can
plan around retaining that workforce is very important.
Mr. Tran. Thank you so much, Mr. Chair. I yield back.
Mr. Messmer. Thank you. And the chair wants to announce we
will have a hard stop at 1:00 o'clock.
And with that, I recognize Ms. Elfreth.
Ms. Elfreth. Thank you very much, Mr. Chair. Fully
recognizing I am batting clean-up, so I just have one question
for everybody. And it is kind of a natural evolution of some of
the questions that we just heard.
But I appreciate there are multiple variables that
contribute to what we are discussing today: obviously,
workforce that we have discussed, supply chain issues.
Continuing resolutions aren't helping any of this.
But I would like to specifically drill down on the threat
of this administration's tariffs on our allies and our
adversaries, both on the raw materials that you utilize, from
copper and aluminum to lumber, but also a lot of the process
materials and the products we have also discussed today.
So, I just wanted a greater appreciation from any of the
witnesses as to the potential impact the tariffs that have been
announced could have on exacerbating this challenge?
Mr. Fanning. Aerospace and defense is the largest net
exporting manufacturing industry in the country. And we have
had the longest running export surplus of any industry in the
country, so our market is all over the world.
And a part of that is also having a supply chain that is
all over the world. And we have been doing a lot of work to
rationalize that supply chain, get it out of China, take the
lessons we learned from COVID and move it where we need it to
follow successive administrations' guidance on this.
But buying American involves getting a part of the economic
benefit of that purchase. Companies that buy airplanes, for
example, they also want some economic benefit from doing that.
And so there are incentives to buy American, to invest and to
move your supply chain internationally
So, you know, we are watching this very closely. When we
went through this before the defense industry, in particular,
was given very careful consideration for exemptions,
recognizing that any tariffs that are impacting what the
Government is buying essentially go back to the taxpayer
because of the economic adjustments that are in the contracts.
Mr. Norquist. So, I think in multiple ways the Government
gets revenue, each one of them has an effect on how it takes it
and the incentives it creates. And so, I think with a tariff
you have to be what is it on, and what products? And then you
have to work through the supply chain to figure out what is
disrupted. And remember the second or the fact, which I may not
be buying overseas, I may be buying from a U.S. supplier who
is, right, so there are consequences to that.
And trying to understand the effect on defense and making
sure that those are taken into account so you don't harm
national security would be an essential step.
Mr. Paxton. I will just say as a general matter on the
commercial side of things we are--it is much because we have
global supply chains on, you know, commercial shipbuilding
there are some real near-term impacts on what that could mean
cost-wise.
But like my two colleagues have said, there is still a lot
of kind of analysis of what is going on here that we are going
to do.
Ms. Elfreth. Thank you very much.
And I think it is clear that there are, again, multiple
variables here. But adding an additional stressor, the effects
are still unclear as to our preparedness, our readiness, all of
those things. And so I do hope this committee continues to ask
these questions and have these challenging conversations.
And with that, Mr. Chair, I will yield the remainder of my
time.
Mr. Messmer. Thank you.
And we recognize, the chair recognizes Mr. Scott from
Georgia.
Mr. Scott. Thank you, Mr. Chairman. I will be brief. I am
sorry that I have been running in and out of other meetings
with people from the Department of Defense.
Not taking care of the supply chain just a few years ago
put our country in a position where if we wanted to launch a
rocket we actually had to buy that rocket from Russia, if I am
not mistaken. Correct? And I think that, obviously, if we had
not gotten ourselves out of that position we would be in, we
would be in dire straits right now.
And I am afraid maybe that we haven't, haven't necessarily
learned our lessons.
Certainly, Buy American makes sense. And a lot of things,
Mr. Paxton, and then we will come back to you, Mr. Fanning, one
of the areas that I have the hardest time with, though, I
understand that shipbuilders need a consistent flow to, to get
decent pricing for us and reasonable margins for them. But I
don't understand why we only buy one ship or one part of a ship
at a time. I don't understand why we don't do block purchases.
And the thing that I have the hardest time with, though,
with the shipbuilding is, like just buying roll off/roll off---
roll on/roll off containers for TRANSCOM [United States
Transportation Command]. I would prefer to have the U.S.
shipbuilding industry focus on more specialized products, and
we could buy roll on/roll offs from Singapore or South Korea.
But are we only contracting for one ship at a time? Is
that--why does it cost so much more in America?
Mr. Paxton. Well, certainly we, we are subject to the
appropriation process where these ships are bought in, you
know, a single appropriation year. But certainly we have
advocated for block buys.
The recent amphib bundle down at Ingalls was exactly the
right thing to do. Putting ships together in groups like that
gives the shipyard everything they need for predictability and
sustainability.
The other thing I would say, this committee authorized a
10-ship buy of ConRos [Container RoRo], ROROs for the national
defense reserve fleet. And that was very smart. Appropriations
were funded for that, and we still had the Maritime
Administration sitting on putting that, that out to contract.
In that case, Congressman, we would be using commercial
best practices to build those ships.
Mr. Scott. Oh, okay. But it is cheaper to buy the roll on/
roll offs from?
Mr. Paxton. You know, Congressman, I think the reality is
when we buy in ones, and twos, and threes here, it is more
expensive. If you buy an order of 10, it is going to be much
more affordable.
I will say, if you are buying in orders instead of--
Mr. Scott. Thank you.
Mr. Paxton. Yes.
Mr. Scott. Just we got to work through this.
Mr. Paxton. Yes, sir.
Mr. Scott. We can't, we can't pay as much as we are for the
equipment we need, and it can't take this long.
Secretary Fanning, I am going to come to you because you
were Air Force before you were Army; right?
Mr. Fanning. Yes. Navy before that.
Mr. Scott. Okay. Well, I was trying to give you credit
without demerits.
[Laughter.]
Mr. Scott. The data on the F-35. We listened yesterday. I
am very concerned about the contracting.
When we, when the United States taxpayer pays for the
development of a weapons system, and then we turn around and
because of poor lawyer contracting we end up not owning data or
systems that we paid for, do we own the data on the F-35?
Mr. Fanning. Congressman, I actually don't know the answer
to that question. We don't work on individual programs at AI.
Mr. Scott. Okay. I thought maybe from your time at Air
Force.
Mr. Fanning. I don't recall specifically. I do know that
data rights is a complex issue. It does come down to what is in
the, what is in the contract. But I don't know the answer to
your specific question.
Mr. Scott. So, the guy from the private sector, I don't
think it is that complex in the private sector. If a private
company pays to develop something, they own what they paid to
develop. And so I want our defense contractors to be
successful. And being successful means you have a reasonable
margin, just as being responsible to the taxpayers. When the
U.S. taxpayers' funds are used to develop a system, the U.S.
taxpayer should not have to pay to license that system back.
And that is something that the U.S. Government has got to
do a better job of.
I appreciate all of you. Sorry that I have been running
from meeting to meeting. I'm sorry, Mr. Norquist. I could have
asked you a trigonometry question or something.
Thank you.
Mr. Messmer. The chair recognizes Mr. Khanna.
Mr. Khanna. Thank you, Mr. Chair.
Mr. Paxton, I found your testimony very, very helpful and
on point, especially as you pointed out that our shipbuilders
are competing with state-owned enterprises. That it is not a
fair competition. I mean, China, South Korea, Japan basically
have been financing their ship industry for decades. And we
have not done that with our ship industry.
Now, others have pointed out that China is making 1,700
ships a year in the commercial sector, and we are making about
five. I am a co-sponsor on Mr. Garamendi's excellent SHIPS
bill, which is bipartisan. But my understanding is that would
take us from making five ships to 25 ships a year, 250 ships in
10 years. I mean, we are still orders of magnitude less than
China.
And I guess my question is, you know, the bill, as I
understand it, is about $250 million of investment a year, but
if we are serious about this shouldn't we be putting in more
money and financing a shipbuilding industry in this country
like we did in World War II with Roosevelt, and actually making
the investment that is required to catch up, if we can, to
China, or at least add some capacity?
Mr. Paxton. Yeah. Thank you, Congressman, for the question.
I don't think we are ever going to catch up to China. I think
what we want to try to achieve, and I think what the SHIPS Act
is trying to achieve, is having that national maritime
strategy, a 250 commercial strategic fleet that balances out
the fact that we don't have any logistics globally in the
maritime space beyond the Maritime Security Program, which is
about 65 ships.
So, I think this legislation gets us down the path, sir.
And I think, you know, the legislation thinks about stuff like
a cost differential subsidy, which we let go in 1981. And is
that something that we are serious about implementing again?
And if we are, you know, what is that demand side of the signal
for what these ships are going to go and do?
I think it is undeniable, though, the Ready Reserve fleet
is aging out. We need to recapitalize our auxiliaries. We
should be building two auxiliaries a year in perpetuity. And I
think the SHIPS Act gets at that logistical lack of logistics
that we have.
Mr. Khanna. Mr. Paxton, how much can the federal financing
solve this? I mean, with generous investment tax credits and
generous financing. I understand there is need for regulatory
reform. And I get your point--
Mr. Paxton. Yes, sir.
Mr. Khanna. --you don't want, you know, one inspector for
two ship workers. Fine.
Mr. Paxton. Uh-huh.
Mr. Khanna. But, you know, that is--I am not saying that is
the easy part. But let's say we have a consensus on that, if
Congress said tomorrow we are going to put a billion dollars
into this or serious more money, will that solve it? I mean, is
that really the biggest variable?
Mr. Paxton. I don't think it is just money is the variable.
I think what you have been hearing a lot today is that demand
signal. Are we serious about this or is this going to be a
five-year initiative that then goes away?
I think if we were serious about this and you could see out
on a horizon of 10 to 15 to 20 years, absolutely this industry
is so capable that they will invest in their facilities and
continue to grow, and can be serious about building.
Mr. Khanna. And would the Government have to give the
demand signal even for the commercial fleet? Or would it be a
purchase tax credit for American consumers or American
businesses that use American fleets?
Mr. Paxton. Yeah, I think there has to be a demand side to
this. I think the Energizing American Shipbuilding Act which
looks at prioritizing a certain amount of our petroleum and LNG
to go on preferenced U.S.-built LNG [liquified natural gas]
carriers or U.S.-built tankers is how you get at this.
And so, I think you have got to have a demand side of it of
what we are going to do with these ships.
Mr. Khanna. Well, I appreciate it. I really appreciated
your testimony. And look forward to working in a bipartisan way
to support shipbuilding.
Mr. Paxton. Thank you, Congressman.
Mr. Khanna. Appreciate it.
Thank you, Mr. Chair.
Mr. Messmer. The chair recognizes Mr. Van Orden.
Mr. Van Orden. Thank you, Mr. Chairman.
Mr. Paxton, I chair a subcommittee on Veterans' Affairs
Committee. It is great. Economic Opportunity. And I have
learned something. I have been in Congress for two years and
five minutes. This is what I figured out: an agency, a
department, or an office is not a person. And the only way to
get stuff done is to identify the person. And then,
unfortunately, sometimes humiliate them on public television.
And that is not my account with you, sir.
[Laughter.]
Mr. Van Orden. So, I guess that was a little sketchy there
for a second, wasn't it?
So, who by name, like, by name is the person that is
responsible for setting out these standards that are so
exquisite for these, these ships that we are physically
incapable of building them? Who is that?
Mr. Paxton. First, first of all, Congressman, great
question. We work with our Navy partners, industry, private
industry does. And we really do have a relationship where we
want to get better. There is a lot of--
Mr. Van Orden. Mr. Paxton.
Mr. Paxton. Yes?
Mr. Van Orden. That is not a person, is it?
Mr. Paxton. Yeah, that is not a person.
We, we work very closely with NAVSEA [Naval Sea Systems
Command]. And a lot of the folks at NAVSEA work on some of
these.
Mr. Van Orden. Will you do me a favor?
Mr. Paxton. Yes, sir.
Mr. Van Orden. I want to talk to you. We can do it in
private if you want.
Mr. Paxton. Uh-huh.
Mr. Van Orden. But I want to find the person, and I want to
figure out why we are setting these standards that are
crucially high. Are you familiar with Liberty ships?
Mr. Paxton. Yes, sir, I am.
Mr. Van Orden. Okay. So, the Liberty ship, we realized we
didn't have enough maritime transport during World War II, so
they developed a thing called a Liberty ship.
Mr. Paxton. Uh-huh.
Mr. Van Orden. Unfortunately, they had some issues with the
welding and they broke in half. Do you know? Do you know what I
am talking about?
Mr. Paxton. Yes.
Mr. Van Orden. If they get torpedoed they break in half
because they didn't do the welding job. Anyway, they fixed
that. And then we were producing a ship a day. The United
States of America was producing a ship a day. And then was it
Himmler figured that out? Oh, no, Goering figured that out, and
it was like we have just lost the war.
So, Nazi Germany realized they lost the war when we could
produce a ship a day. And those Liberty ships are very simple.
So, maybe we need to get back to that basic concept.
Mr. Paxton. Yes, sir.
Mr. Van Orden. Mr. Fanning, how are you doing there?
Mr. Fanning. Well, thank you.
Mr. Van Orden. You have repeatedly stated that these
continuing resolutions are not helpful and it is having a
detrimental effect on national security.
Is that correct?
Mr. Fanning. It is.
Mr. Van Orden. Okay. So, could we maybe think that some
other folks in my party and in my other party, or the other
party here, could be cloaking themselves behind patriotism and
fiscal conservatism, and they are actually having a detrimental
effect on our budget and the security of the United States?
Would you say that is an accurate statement?
Mr. Fanning. I will say that I agree CRs are detrimental to
our nation's security and the industrial base, yes.
Mr. Van Orden. Okay. Well, then I will just say it. There
are some people in my party and the guys across the aisle who
are cloaking themselves in patriotism and fiscal conservatism,
and they are actually making us spend more money and making the
world and our nation less safe for political purposes. And that
has got to stop.
National security should never be political. And our
budget, believe it or not, should not be political either.
So, when we do have some folks that are complaining about
this DOGE thing, which I am a very strong supporter of, they
don't understand that a smaller, more nimble force is more
accurate and more lethal.
And so, I think there is room for both sides to come
together and put the American flag over their political T-
shirt.
Mr. Fanning. Yeah, the top line is a separate issue. This
is about operating as efficiently and effectively as possible
with what you spend.
Mr. Van Orden. Correct.
Mr. Fanning. And it is an enormously complex industrial
base making simple things up to enormously complex things that
nobody else in the world can make. And the fits and starts of
how it is funded and what is allowed is extremely costly and
costs time.
Mr. Van Orden. Would you say, Mr. Fanning, would you say
that even if we had the, if we had the manufacturing capacity
to produce everything we possibly wanted, that we still
wouldn't be able to get it to the troops because our
acquisitions process simply sucks?
That is a term of art. I really didn't want to say that.
[Laughter.]
Mr. Fanning. If we had the resources to build everything we
wanted, yes, we would still be getting things to the troops
late.
Mr. Van Orden. Okay.
Mr. Fanning. And it is not just a question of resource. In
fact, resource is probably covering up some of the problems in
the system and buying down--
Mr. Van Orden. Would you say it is an issue of process, not
product?
Mr. Fanning. Yeah, I would. I mean, we are building the
most complicated things. You know, we have been talking
quantities of ships and those types of things, but nobody can
match the, the effect of what we build. And so, I do think it
is a process issue.
It is an investment issue, it is a political issue, it is a
process issue.
Mr. Van Orden. Okay.
Mr. Fanning. We are not unleashing the full strength of our
industrial base.
Mr. Van Orden. Thank you, Mr. Fanning. My time has expired
and I yield back.
Mr. Messmer. Thank you.
Mr. Fallon is recognized.
Mr. Fallon. Thank you, Mr. Chairman. And I will be brief. I
know we have a hard stop at 1:00, so I want to thank all the
witnesses for coming. And thank you for your great line of
questioning. I like your industry terms.
Mr. Fanning, how can the procurement process in the defense
industrial base become more agile and enhance adaptability and
cost efficiency?
Mr. Fanning. In the industrial base or in the?
Mr. Fallon. The defense industrial base.
Mr. Fanning. In the defense. Well, I think the defense
industrial base will respond to whatever process the customer
puts in place. There, it is not like--I liken it to--it is a
simple analogy, a hardware store. You know, there is only one
customer buying hammers. And if you stop buying hammers, or if
you want to buy hammers in a different way or different color,
the hardware store is going to respond to that.
So, I think the change has to come from the Department of
Defense and the processes there. And industry will, will fold
around that. And whoever figures it out the best is going to be
the one that wins.
And if we emphasize speed, nimbleness, and the metric of
getting something to the troops, the companies that do that
will win.
Mr. Fallon. And then if I could ask, and this is just to
touch on this, I just came from a DOGE, the DOGE Subcommittee.
So, I was DOGEing. All right, that is the first time we used
that as a verb. But, you know, how do you all think the DoD can
reform the acquisitions process to accelerate innovation, to
deploy critical technologies and, really, honestly, just become
far more efficient and give the taxpayers more bang for the
buck?
If you want to start, Mr. Paxton, and go to your right it
would be great. Thank you.
Mr. Paxton. Well, if we are going to look at acquisition
reform, which I think we should do, I think this committee is
all about that, and we have some proposals, both the House and
the Senate, we really have got to get serious about the level
of oversight, the volume of our contracts.
You know, when we are building something relatively simple,
we are still dealing with 4,000- or 5,000-page contracts. And I
don't know if that is efficient. I do know that is not
efficient. We should be streamlining our acquisition and
contracting process extensively.
Mr. Fallon. Mr. Norquist?
Mr. Norquist. So, one of the things I would point out is,
you know, we have had studies on the acquisition, we have had
studies on the budget. Where we haven't focused is
requirements.
One of the challenges is if I write--and this is the case
in the Department--very specific requirements, you are going to
have to build to that solution.
And as the United States, we have a very innovative
population, defense industrial base, so trying to use central
planning and be better communists than the Chinese is not going
to get us to the solution we want.
The place you get disrupting, big savings is when somebody
says, I don't need this widget. I have this problem: I need to
sink a ship at sea from a distance. I need to--come tell me how
you might do this. Right? Because otherwise you get very
incremental changes, you get cost-plus, you know, new
contracts. And the person who comes in with something that cuts
the cost in half, well, that is not a very welcome solution
because it doesn't generate revenue for you, it doesn't meet
the, the contract.
So, you want to really open up to disruptive, innovative
ideas. And we have seen this is what happens in the private
sector. Somebody comes in an finds a way that does something,
that others do, for half the price. And they just do it
differently altogether. And then all of a sudden that takes
off, other companies enter, and then the price comes, comes
down. But we really have to be careful in our requirements
process not to handcuff the solution, but to open up where you
can.
There are some parts it has got to be a widget, it has got
to fit exactly on here. That's fine. But if you are trying to
open up defense, what is the problem you are trying to solve,
and let people bring you some very radical solutions.
Mr. Fallon. Great. Thank you.
Mr. Fanning, do you want to bring us home?
Mr. Fanning. I agree it starts with the requirements. Bring
industry in as early as possible. And bring the warfighter in
as early as possible, the one who is actually going to use it.
You know, field things, it gets improved more and faster
when you get it into the hands of the warfighter earlier and
let them figure out how to make it work.
The second is it is not rocket science. It is not easy,
though. It is every part of the process needs a review. It is
an additive process where things were put in because something
wrong happened and you want some mechanism to prevent it. There
is no countervailing process to clear the brush of this.
And I would give more control, it comes with more
oversight, to program managers to be able to move money around
to who the winners and losers are, in coordination with the
combatant commanders who are actually fielding the, fielding
the weaponry.
But you want--you know, winners and losers, as they present
themselves, as you bring them in early you want to be able to
reward them quicker.
Mr. Fallon. Uh-huh. To be practical, fill a need, and live
within the bounds of reality it sounds like, you know what I am
saying.
Thank you very much. And thank you, Chairman. I appreciate
it. I yield back.
Mr. Messmer. I thank our witnesses for being here and our
members for their participation.
The committee stands adjourned.
[Whereupon, at 1:08 p.m., the committee was adjourned.]
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A P P E N D I X
February 26, 2025
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PREPARED STATEMENTS SUBMITTED FOR THE RECORD
February 26, 2025
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DOCUMENTS SUBMITTED FOR THE RECORD
February 26, 2025
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QUESTIONS SUBMITTED BY MEMBERS POST HEARING
February 26, 2024
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RESPONSE TO QUESTIONS SUBMITTED BY MR. WILSON
Mr. Wilson. In your testimony, you mention some of the issues
facing our defense industrial base. One area you mention is our current
skilled trade workforce has lost effectiveness due to it being
underutilized. Do you believe that this is the only reason our
workforce has deteriorated, or is it also due to lack of new workers
being attracted to the job fields?
Mr. Norquist. Representative Wilson, thank you for your question.
Unfortunately, several obstacles are stymieing the growth and
sustainability of America's skilled workforce. First, there is a lack
of communication, awareness, and coordination between various sponsors
of vocational training programs.
For example, many regional technology hubs promoted by multiple
federal agencies, as well as individual companies in the U.S. DIB, have
experimented with workforce solutions, often through individual
partnerships with community colleges and trade schools.
However, without a central repository, these hubs are unable to
easily collaborate, identify best practices, promote the workforce, and
propagate solutions nationwide. Second, for many in our nation's
education pipelines, a bachelor's degree for every student is
considered the ideal outcome. While the intentions are honorable, the
impact unfairly presents students with a single outcome - a four-year
degree - as the only viable option for a successful future, thereby
artificially limiting potential career fields in which a student could
thrive.
Finally, the national perception of skilled labor as a less
desirable career path hampers recruitment efforts. Due to a negative
perception, fewer potential candidates are willing to view these kinds
of jobs as viable or desirable and are therefore unlikely to enroll in
Career and Technical Education (CTE) or apprenticeship programs.
To compound this challenge, many positions in the U.S. DIB require
background checks, drug tests, and/or security clearances, adding
additional perception barriers to filling the U.S. DIB's skilled
workforce demand. Furthermore, government-industry forums have
reinforced that the U.S. DIB is not competitive with the commercial
sector in the areas of compensation and fringe benefits. Due to
regulations limiting the U.S. DIB's profits and wage limits, the U.S.
DIB has not been able to keep up with non-defense increases in pay,
making it hard to recruit and retain professionals who can find higher
pay and more attractive benefits elsewhere.
Without tailored and scalable apprenticeship programs, changes in
awareness and perception of skilled labor careers, and increasing the
competitiveness of the U.S. DIB to the commercial sector, there simply
may not be enough welders, technicians, electricians, maintainers, and
other skilled workers available to meet the manufacturing needs of the
U.S. DIB, not to mention the nation as a whole.
Mr. Wilson. Mr. Paxton, in your written testimony you stated that
capacity is NOT the major contributor to meeting on time delivery for
both new construction and repair of ships. Yet, with our capacity we
still are having issues with US Navy ships being ready to support
operations and deployments. How do we support the defense industrial
base and the shipyards to meet these production and maintenance
benchmarks for our warships, so we can remain ready to meet the threats
presented by a possible conflict in the Pacific?
Mr. Paxton. There are certainly challenges the Navy faces in
getting ships out on time for their operations and deployments.
However, there is a significant difference between the challenges at
the Public Shipyards and the challenges in the private ship repair
industrial base, which is the subsection of the industry that I
represent. While not where we want to be, according to the GAO , the
private shipyard industrial base has improved on time ship maintenance
efforts since 2019. The core issue is not the raw capacity; it is how
we plan, fund, and execute work across the enterprise. We can meet the
production and maintenance benchmarks and keep the Fleet ready for a
Pacific contingency; by stabilizing demand, disciplining requirements,
fixing material readiness, empowering execution, and fully leveraging
the potential of the U.S. industrial base.
Stable and predictable workloads and budgets are key to ensuring
ontime maintenance of our naval assets. Reaching on-time availability
depends on having materials ready. Government-furnished equipment and
long-lead items need to be funded early, staged ahead of need, and tied
to clear work packages, with suppliers actively managed in the schedule
of risk plan. That means defining scope sooner and more completely,
aligning schedules across all providers, and staying focused on
shrinking cycle time, not just chasing a delivery date.
At the same time, we should upgrade public shipyards for nuclear
work, keep a steady flow of non-nuclear surface maintenance at private
yards, and avoid sending routine jobs to foreign shipyards as this
weakens the domestic industry and hurts our readiness. As I said in my
testimony, the Navy needs to make investments to fund the ``tail'' or
maintenance, of the current and new ships entering the fleet to ensure
that they remain in commissioned service through their expected life
cycle.
Much like shipbuilding, ship repair and modernization would benefit
from the use of acquisition strategies that promote private sector
investment in people and infrastructure, increase the volume of work in
existing shipyards and promote the speed of execution to meet the
unique challenges of the maintenance and modernization environments.
Current strategies appear to reduce the very complex nature of repair
and modernization to a commodity rather than appropriately implementing
a strategy that optimizes the capacity of industry's existing workforce
and facilities. Lastly, we ask this body to do its part to regularly
authorize and appropriate funds to provide predictability and stability
for government shipbuilding and repair programs.
______
RESPONSE TO QUESTIONS SUBMITTED BY MR. CARBAJAL
Mr. Carbajal. Mr. Fanning, You made a point in your testimony that
I want to highlight. The industrial base is shaped by and relies on
demand signals from the federal government.
Last year, the Space Force released its Commercial Space Strategy,
and the DoD released its Commercial Space Integration Strategy, both of
which I was pleased to see.
What kind of demand signals do documents like this send to
industry? And what potential consequences for industry do you foresee
if the Department and Space Force don't follow through and execute
these strategies?
Mr. Fanning. Last year's Pentagon's Commercial Space Integration
Strategy and the Commercial Space Strategy from the U.S. Space Force
were effective outlines for how the U.S. government may incorporate
space capabilities pioneered by commercial companies, including AIA
members, into the national security space enterprise.
Strategy documents such as these send clear demand signals to
industry that the federal government is open and willing to collaborate
with the private sector to scale and integrate emerging commercial
technologies into the Pentagon's future architectures. However, these
strategy documents often lack a clear path towards implementation,
concrete milestones, and funding mechanisms to ensure accountability.
Future commercial strategies and implementation plans should include
actionable steps so that the Pentagon can capitalize on the rapid
innovation taking place in the commercial space sector.
Without incentives to act on these comprehensive commercial
strategies, the federal government may risk falling behind potential
adversaries in harnessing emerging technologies that give our
warfighters the advantage.
______
RESPONSE TO QUESTIONS SUBMITTED BY MR. GOLDEN
Mr. Golden. Recently there have been a lot of conversations about
how to fix the Defense Industrial base to speed up production across
several sectors. Mr. Paxton, particularly with shipbuilding, what can
we do right now to stop talking about this and see true progress in
this area?
Mr. Paxton. The fastest way to move from talk to tangible progress
is to restore predictability and discipline across the system. This
starts with ending budget whiplash and signaling steady demand to
shipyards and suppliers. Congress should pass full-year appropriations
on time and expand flexible tools, advanced procurement, incremental
funding, and block buys; to smooth work, unlock supplier investment,
and keep crews on the job.
Congress should also sustain the domestic maritime base by
reinforcing policies that support the commercial segment, including the
Jones Act, and by supporting legislation such as SHIPS for America to
expand U.S. shipbuilding and repair capacity and the supplier
ecosystem. In parallel, the Navy can act now by using the shipbuilding
and supplier capacity we already have. That means moving past the
``seven yards'' idea and spreading work across over 120 U.S. shipyards
and a wide supplier base that already produces key components and
support vessels.
The Navy should speed up oversight and decision-making from RFP
through delivery, lock requirements at contract award, and hold
internal Navy teams accountable for cost and schedule when changes are
truly necessary. To cut costs and improve fleet readiness, we must get
the fundamentals right, and execute on them early. Taken together,
these actions will deliver ships faster and cheaper while strengthening
the industrial base.
Mr. Golden. Mr. Paxton, you also stated in your written testimony
that there are more than 120 shipyards across the US. How can we
leverage these smaller shipyards to not only help build our future
ships, but maintain them when they come up on a maintenance cycle?
Furthermore, what would happen if these smaller shipyards were to shut
down, even though they are currently under-utilized?
Mr. Paxton. The U.S. has more than 120 shipyards, we can build that
capacity by steadily sending modular construction and standardized
maintenance to the qualified small yards on a reliable schedule. Large
shipyards can have smaller facilities to build repeatable sections and
critical components. If funding is stable, designs are disciplined, and
interfaces are standard, we see similar reductions to mid-stream
changes and rework.
While the government is the largest customer by volume and capital,
there is still a stable domestic commercial market that is essential to
maintain the shipyards beyond those that do traditional Navy and Coast
Guard work. While the closing of smaller yards is devastating to our
national capacity for shipbuilding and ship repair, it's also
devastating to the local economies that depend on these companies as
economic engines. A 2019 Maritime Administration report found that for
every 1 job in a shipyard, there are more than 2.6 jobs created in the
broader community. When the jobs are lost at the waterfront, there are
economic reverberations throughout these communities.
Mr. Golden. The Marine Corps cannot maintain their USC Title 10
requirements because the Amphibious Ships availability is not at full
capacity due to maintenance restraints. Can these smaller and current
shipyards assist in this matter? If so, how?
Mr. Paxton. Smaller and mid-tier private shipyards can indeed help
close the amphibious maintenance gap that is constraining the Marine
Corps Title 10 readiness, but doing so requires changes in how work is
planned, contracted, and executed. Private companies already handle all
non-nuclear surface maintenance and have unused capacity.
The real problems are unstable funding, change orders to existing
work packages, material shortages, and inconsistent demand from the
Navy for amphibious readiness. To save money, the Navy has proposed
early retirement for some ships and cancelled critical maintenance on
them. Those early retirements and delayed maintenance availabilities
further challenge the stability of the domestic workload. Inevitably,
it becomes a vicious cycle wherein delayed or cancelled maintenance
results in more work needing to be done to get the ships ready for
deployment. However, the Navy is still allotting regular maintenance
budgets for increased work, which leads to a narrative that the
shipyard industrial base is the root of the maintenance challenge, when
there are multiple factors that inform this issue.
Introducing new domestic shipyards to Navy maintenance, especially
those outside of Navy homeports will not get at root challenges of ship
repair and maintenance delays. Locking the scope early, securing all
required government and long-lead materials before work starts, and
uniting all modernization teams under one accurate schedule are the key
drivers of on-time delivery.
[all]