    [Senate Hearing 119-309]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 119-309

                   DEFENSE INNOVATION AND ACQUISITION REFORM
    =======================================================================

                                    HEARING

                                   BEFORE THE

                          COMMITTEE ON ARMED SERVICES
                              UNITED STATES SENATE

                        ONE HUNDRED NINETEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                JANUARY 28, 2025

                                   __________

             Printed for the use of the Committee on Armed Services

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                     Available via: http: //www.govinfo.gov

                                    __________

                       U.S. GOVERNMENT PUBLISHING OFFICE
    62-948 PDF                  WASHINGTON : 2026
    -----------------------------------------------------------------------------------

                          COMMITTEE ON ARMED SERVICES

             	ROGER F. WICKER, Mississippi, Chairman

    DEB FISCHER, Nebraska			JACK REED, Rhode Island
    TOM COTTON, Arkansas			JEANNE SHAHEEN, New Hampshire
    MIKE ROUNDS, South Dakota		KIRSTEN E. GILLIBRAND, New York
    JONI ERNST, Iowa			RICHARD BLUMENTHAL, Connecticut
    DAN SULLIVAN, Alaska			MAZIE K. HIRONO, Hawaii
    KEVIN CRAMER, North Dakota		TIM KAINE, Virginia
    RICK SCOTT, Florida			ANGUS S. KING, Jr., Maine
    TOMMY TUBERVILLE, Alabama		ELIZABETH WARREN, Massachusetts
    MARKWAYNE MULLIN, Oklahoma	        GARY C. PETERS, Michigan
    TED BUDD, North Carolina		TAMMY DUCKWORTH, Illinois
    ERIC SCHMITT, Missouri			JACKY ROSEN, Nevada
    JIM BANKS, INDIANA			MARK KELLY, Arizona
    TIM SHEEHY, MONTANA                  	ELISSA SLOTKIN, MICHIGAN

    		   John P. Keast, Staff Director
    		Elizabeth L. King, Minority Staff Director

                                      (ii)

                               C O N T E N T S
    _________________________________________________________________

                                january 28, 2025

                                                                       Page

    Defense Innovation and Acquisition Reform........................     1

                               Members Statements

    Wicker, Senator Roger F..........................................     1

    Reed, Senator Jack...............................................     3

                              Witnesses Statements

    Sankar, Shyam, Chief Technology Officer and Executive Vice            4
      President, Palantir Technologies.

    Diller, Nathan P., Chief Executive Officer Divergent Industries       7
      Inc..

    Geurts, The Honorable James F., Former Assistant Secretary of the    10
      Navy, Research, Development and Acquisition.

    Questions for the Record.........................................    51

    Appendix--The Defense Reformation................................    60

                                     (iii)

                   DEFENSE INNOVATION AND ACQUISITION REFORM

                                  ----------

                           TUESDAY, JANUARY 28, 2025

                                  United States Senate,
                                   Committee on Armed Services,
                                                        Washington, DC.
        The Committee met, pursuant to notice, at 9:30 a.m. in room
    SD-G50, Dirksen Senate Office Building, Senator Roger Wicker
    (Chairman of the Committee) presiding.
        Committee Members present: Senators Wicker, Fischer,
    Cotton, Rounds, Ernst, Sullivan, Cramer, Scott, Tuberville,
    Mullin, Budd, Schmitt, Banks, Sheehy, Reed, Shaheen,
    Gillibrand, Blumenthal, Hirono, Kaine, King, Warren, Rosen,
    Kelly, and Slotkin.

              OPENING STATEMENT OF SENATOR ROGER F. WICKER

        Chairman Wicker. This hearing will come to order. Thank
    you-all for coming. The Committee meets this morning to discuss
    the topic that is of great interest to every member of this
    panel. We're here to talk about defense innovation. We must
    change the way the Pentagon does business, otherwise there's no
    way we can maintain deterrence particularly against China.
        Today, we'll hear from three experts. Shyam Sankar serves
    as the Chief Technology Officer at Palantir, which has done
    important work for the military. Mr. Sankar has published
    widely on innovation, and we look forward to hearing his ideas
    today. We'll also hear from Nate Diller, who has worked at both
    the Department of Defense (DOD) and the House Appropriations
    Committee, where I previously worked in another life. Today,
    Mr. Diller is the CEO [Chief Executive Officer] of Divergent
    Technologies, which is seeking to make revolutionary changes in
    manufacturing, and we need revolutionary changes in DOD.
        Finally, James Geurts, is with us today. In addition to
    having one of the coolest nicknames around, Hondo, he is ably
    and successfully served this country as the acquisition
    executive for both SOCOM and the Navy. So thank you-all for
    being here to talk about innovation.
        The past few years have been marked by some success in
    innovation improvements, but we have much more work to do. Most
    of our work is actually ahead of us in this regard. I believe
    we're poised to go faster and further than we have thus far.
    I'm optimistic that many of my colleagues' ideas for
    improvements and reform will have an enthusiastic reception in
    this new Pentagon team.
        I appreciate my friend, Ranking Member Reed, for holding a
    hearing in the previous Congress on the planning, programming,
    budgeting, and execution of the Reform Commission. I expect we
    can continue to make progress in this new Congress. As a matter
    of fact, Mr. Reed, and my colleagues, we need a game changer,
    and we need it right now.
        The Committee took steps last year to remove unnecessary
    steps from the acquisition process and get defense innovators
    more powerful hiring authorities. We can and should continue on
    that positive trajectory. I recently released the FoRGED Act,
    and published this white paper entitled Restoring Freedom's
    Forge: America's Innovation Unleashed.
        I must say, I appreciate the positive comments and response
    that we've heard from industry and from Government officials.
    The white paper lays out in specific detail my plan to
    implement smart spending practices at DOD. The FoRGED Act
    proposes the most comprehensive set of budgeting and
    acquisition reforms in decades.
        It focuses on five areas. First, we must cut the red tape
    that burdens our defense workforce. Our regulations are full of
    outdated and excessive compliance requirements. Addressing this
    is exactly the type of work that DOGE [Department of Government
    Efficiency] is contemplating, and I hope we can make progress
    in this area. Contracting regulations total more than 6,000
    pages. Financial regulations add up to more than 7,000 pages.
    I'm interested to hear our witnesses address how this Committee
    can reduce the statutory and regulatory burdens, even as we
    retain the core elements of good policy.
        Second, we should harness one of our Nation's core
    advantages; our world class tech sector, which is built by
    American entrepreneurial spirit. Government unique
    requirements, have made it nearly impossible for commercial
    companies and startups to do business with the Department of
    Defense. We need to reward commercial innovation by making it
    possible for innovative companies to work with the Pentagon.
        Third, we must create competitive pressure by rapidly
    qualifying new suppliers to help build our weapon systems. More
    than 20,000 suppliers have exited the Navy shipbuilding
    industrial base in the past 20 years, and that's just the
    Navy's industrial base. Twenty thousand suppliers gone. I hope
    our witnesses will address how we can lower barriers to second
    sources, and how we can adopt technologies like 3D printing,
    which can dramatically reduce costs and expedite production
    schedules.
        Fourth, we must enable senior officials to manage programs
    by reducing the bureaucracy's ability to veto their decisions.
    A typical acquisition must satisfy nearly 50 documentation
    requirements and get 50 external sign-offs. We need to be
    careful about the taxpayer's money, but that is excessive. We
    need to give program managers all of the tools they need to
    success while retaining an appropriate level of checks and
    balances.
        Finally, we should modernize the Defense budget process by
    allowing money to move as fast as technologies and threats
    change. It currently takes at least 2 years to request and
    receive funding. Meanwhile, the commercial sector deploys new
    generations of technologies in less than 2 years, and the
    Pentagon is continually lagging behind.
        We cannot keep conducting business as usual. I repeat We
    need a game changer in this regard, and we need it now, because
    the United States is entering the most dangerous period we've
    faced since World War II. Our adversaries are rapidly
    innovating and leveraging commercial technologies. In response,
    we must expand our capacity to produce and sustain high-end
    weapons like ships, aircraft, and missiles. At the same time,
    we must adopt autonomous, adaptive, and networked or swarming
    systems.
        This is not an either-or effort. We must produce
    traditional and innovative systems quickly, and at the scale of
    relevance. Doing so will ensure that we can deter our
    adversaries from taking action against us and our interest. In
    other words, peace through strength. I look forward to
    discussing those initiatives and more with our witnesses, and
    again, I welcome all three of them to our hearing, and I
    recognize my friend, Ranking Member Reed, for his remarks.

                     STATEMENT OF SENATOR JACK REED

        Senator Reed. Thank you very much, Mr. Chairman, and let me
    join you in welcoming our witnesses, Mr. James Geurts, Mr.
    Shyam Sankar, and Mr. Nathan Diller. Thank you, gentlemen. You
    bring unique and important perspectives to this discussion, and
    this is a very serious and important discussion.
        For many years this Committee has examined various
    challenges for the defense acquisition system. Time and time
    again, we have heard the system is too slow, too rigid, and too
    outdated to keep pace with the changing world. As such, the
    Committee has worked hard and made progress toward streamlining
    the acquisition system.
        Importantly, we have helped provide the Department of
    Defense with significant flexibility in the acquisition
    authorities, including initiatives like middle tier
    acquisition, rapid acquisition authority, and other transaction
    authority. These authorities are intended to enable the
    Department to tailor acquisition strategies and contracting
    approaches to fit the needs of each program.
        Indeed, lengthy risky programs demand more rigor and
    oversight, whereas less risky non-development programs may move
    quicker with fewer bureaucratic checks on the process. I would
    ask our witnesses for their views on the successes and
    shortcomings of these acquisition authorities.
        Responsible regulation is key to the success of the
    acquisition and innovation ecosystem. Decentralizing certain
    aspects of the system is beneficial, but going too far may
    result in poor coordination among officers, and could introduce
    duplication and waste. The lack of coordination among the
    services or stove piping is especially problematic for programs
    that are intended to improve jointness throughout the force.
        Several years of legislation to reform stove piping has
    helped alleviate the issue, and further deregulation in some
    areas may be useful, but I would caution against quick
    decisions that could undercut the progress we have made. Many
    existing statutes and regulation exist because of past failures
    by the Department, or poor behavior from industry, and it's
    important that we remain uncompromising stewards of taxpayers'
    dollars. I would ask for the witness's views on this issue,
    also.
        Further, we must remember that our acquisition network is
    only as strong as our workforce. To meet growing demands, the
    acquisition workforce must grow accordingly to include
    contracting officers, subject matter experts, and skilled
    technicians in the defense industrial base. In this regard, I'm
    concerned that we have already begun to see attacks on the
    Department civilian workforce. The Trump administration has
    taken pride in the threat to slash the bureaucratic workforce,
    arguing a false equivalence between fewer personnel and greater
    efficiency.
        Ironically, reducing the acquisition workforce is likely to
    increase the contracting timeline and eliminate positions that
    support acquisition professionals will inject new inefficiency
    into the network. I would appreciate our witness's thoughts on
    the interdependencies of the acquisition workforce and their
    recommendations to make sure that acquisition workforce is
    appropriately sized and trained.
        Finally, I would like to point out that innovation is more
    than technology. Improving the Defense Department's innovation
    strategies will require more than overhauling systems or
    increasing funding. It will require bold thinking by leaders at
    every level of the enterprise. I'm reminded of a quote
    attributed to Winston Churchill, ``Gentlemen, we have run out
    of money, now we have to think.'' Successful innovation
    requires creative people to not only adapt to new technologies,
    but to adapt processes to new situations where technology is
    not yet available. Now, we must think.
        To help us do so, I look forward to hearing from this
    insightful panel of experts, and I hope we can work together to
    develop a better understanding of how the Department of Defense
    can adapt quickly to a changing world. Thank you again to our
    witnesses, and I look forward to your testimony. Thank you, Mr.
    Chairman.
        Chairman Wicker. Thank you very much, Mr. Reed, and let me
    say, we're going to hear from our witnesses now, and we'll have
    a round of 5-minute question and answer. I'm going just so that
    this Senator will understand and be prepared. I'm going to
    yield my 5 minutes to Mr. Sheehy because he has to preside in a
    few moments. So, after the opening statements, Mr. Sheehy will
    ask questions and they'll be followed by the Ranking Member,
    and then we'll go forward with Senator Fischer and on down.
        Mr. Sankar, we're delighted to have you and you are
    recognized for as much as 5 minutes.

        STATEMENT OF SHYAM SANKAR, CHIEF TECHNOLOGY OFFICER AND
            EXECUTIVE VICE PRESIDENT, PALANTIR TECHNOLOGIES

        Mr. Sankar. Well, thank you, Chairman Wicker, Ranking
    Member Reed, Members of the Committee. Thank you for the
    opportunity to testify today. Mr. Chairman, I want to commend
    you on your proposal. I was fist pumping in the air when I was
    reading it, and this is exactly the kind of reform that we need
    to win.
        I've spent nearly 2 decades at Palantir fighting the
    bureaucracy to deliver cutting edge technology to our war
    fighters. My message today is simple; that defense innovation
    and procurement are broken at precisely the moment. We need
    them to deter and defeat our adversaries, and for reasons that
    are profoundly un-American.
        The root of the problem is that the Pentagon is a bad
    customer. It's also the only customer. The defense market is
    functionally a monopsony where a sole buyer shapes the market
    with prescriptive requirements, complex regulations in 5-year
    plans worthy of Stalin, the cold war is over, and everyone has
    given up on Communism except for Cuba, and seemingly, with the
    DOD.
        The monopsony has created a divide between defense and
    commercial sectors. I call this the great schism, but you can
    think of it like the Berlin Wall. On the commercial side of the
    wall, companies are free to compete and to innovate. On the
    Defense side, a dwindling number of contractors toil away for
    the monopsony. More and more, they resemble state-owned
    enterprises instead of the innovative founder-driven companies
    that they were once were. The companies fit enough to climb the
    wall and defect to the free world did so long ago.
        Mr. Chairman, if we're going to win again, we need to tear
    down this wall, and your report helps us do just that. First,
    cut the red tape. Defense procurement is constrained by
    mountains of regulations that paralyze leaders and punish
    creativity. This is not what was intended, but this is reality.
        The road to hell is paved with good intentions. For
    example, the DOD 5,000 series, it was 7 pages when David
    Packard wrote it in the 1970s. It's now 2,000 pages. That's an
    11 percent compounded growth rate. One of the few areas the
    Department outperforms the market. Eliminating burdensome
    regulation must be a priority because no amount of process can
    save us, but it can destroy us.
        Second, unleash innovation. To do that, we need to reverse
    this great schism. During the cold war, 6 percent of Defense
    spending on major weapons went to defense specialists. Chrysler
    made cars and missiles. General Mills made cereal and
    torpedoes. That great schism, we need to turn it on its head.
    Today, that 6 percent has turned into 86 percent going to
    defense specialists. America needs our primes, and that's
    precisely why we need to ensure that they are subject to
    commercial incentives and to market pressure to keep them fit.
        We can fix this by ending the cost-plus mentality, which
    makes us slower, poorer, and dumber. SpaceX reduced launch
    costs by 85 percent. That simply isn't possible in a cost-type
    domain. We also need to stress a commercial first mindset in
    procurement. FASA [Federal Acquisition Streamlining Act] is
    already the law of the land. Perhaps we should just enforce it.
        Third, increased competition. Yes, please. But also, we
    need to increase competition inside of Government. During the
    early cold war, the services competed against each other to
    develop the best ballistic missiles. The Navy's Polaris, and
    the Air Force's Minuteman ultimately won, but not before the
    Regulus, Jupiter, Thor, Atlas, and Titan were developed in some
    form.
        Today, the bureaucracy would disparage that that contest as
    duplication. I see a competitive market with multiple buyers'
    pressured to innovate and no single point of failure for the
    Department.
        Fourth, enable decisive action. We are a Nation born of
    Founding Fathers. We understand the importance of great
    creative leadership. In place of the cargo cult that worship's
    process. Let's empower our people. We wouldn't have ICBMs
    [Intercontinental Ballistic Missiles] without Schriever, the
    nuclear Navy without Rickover, the Apollo program without Gene
    Kranz. I challenge you to name a comparable figure overseeing
    most major programs today, and it's not for a lack of talent.
    But we need to stop rotating people like fungible cogs every 2
    or 3 years, and give them the time and the space to create.
        Fifth, modernize the budget process. A budget is a plan,
    and right now we are planning to fail. No private company could
    survive if it took 2 years to budget for projects internally.
    They would be completely outcompeted in the market. The fiscal
    OODA [Observe, Orient, Decide, Act] loop is not survivable, and
    that's what sets the pace for the industrial base.
        Decision-makers in the building deserve to be treated like
    decisionmakers with a pot of money and the discretion to
    reprogram rapidly to meet new threats unless we actually do
    believe in central planning.
        We shouldn't be under any illusions about how hard these
    changes will be. You have to mobilize talent around it and
    attack the problem again and again, and that's why I think this
    hearing and this proposal is so valuable.
        Mr. Chairman, I look forward to taking your questions.
    Thank you.
        [The prepared statement of Mr. Shyam Sankar follows:]

                     Prepared Statement by Mr. Shyam Sankar
        Chairman Wicker, Ranking Member Reed, distinguished members of the
    committee, thank you for the opportunity to testify on one of the most
    important topics facing the U.S. Department of Defense and our Nation:
    defense innovation and acquisition reform.
        Mr. Chairman, I want to commend your report on this subject,
    Restoring Freedom's Forge: American Innovation Unleashed. I also want
    to commend your bill, the FoRGED Act. Restoring defense innovation and
    fixing our acquisition system will require boldness, vision, and
    sustained attention. Your leadership is an important piece of the
    puzzle.
        I want to assist your work by sharing insights gleaned from nearly
    two decades at Palantir, where I've worked to battle bureaucracy and
    deliver innovative technology for our Nation's warfighters.
        My message today is simple: Defense innovation and procurement are
    broken. And they are broken at precisely the moment we need them to
    deter and defeat our enemies.
        The Members of this Committee scarcely need to be reminded about
    the threats we face. President Xi Jinping has instructed the People's
    Liberation Army to be ready to invade Taiwan before the decade is
    through. Even now, Chinese shipyards are building large transport
    vessels that could be used in an amphibious invasion. Russia is
    continuing its bloody war of attrition against Ukraine, sustained by
    China's seemingly endless industrial base and fanatical North Korean
    troops. Iran is licking its wounds and reorganizing its proxy armies to
    continue their onslaught against Americans and allies in the region.
    Amid these threats, time and complacency are luxuries we cannot afford.
        Our defense industrial base and defense innovation base are wholly
    ill-equipped for these challenges. More than ever, the United States
    needs mass production and speed to deter conflict. The stockpile is not
    the deterrent; the flow of mass production is the deterrent. There is
    little evidence our industrial base, as currently constituted, is
    delivering this deterrent capability.
        I believe this problem is caused by perverse incentives embedded in
    our broken acquisitions process. Put simply, the Pentagon is a
    difficult customer. It is also the only customer. The defense market is
    functionally a monopsony, where the sole buyer shapes the market with
    overly prescriptive requirements, overly complex regulations, and 5-
    year plans more reminiscent of the countries we defeated in the last
    century than America's free, innovative, capitalist system.
        This monopsony has created a vast gulf or ``Great Schism'' between
    the defense sector and the commercial sector. Innovative companies
    capable of competing in the larger, more lucrative commercial market
    have fled the defense market. Meanwhile, specialist defense contractors
    have been cutoff from the refining pressure of the marketplace and have
    consequently grown bloated and uncompetitive. Today, most defense
    contractors resemble their government customer more closely than the
    founder-driven, innovative companies they once were.
        Bridging this divide and introducing greater competition and market
    pressure into the defense sector is the first step to sparking defense
    innovation and repairing defense acquisitions. These changes must be
    accompanied by a change in mindset. We need to overcome the complexity
    and bureaucracy of the present system and understand that winning is
    the only requirement that matters. If we can drive substantive reforms
    of the process and create a bias toward speed and decisive action, then
    I am confident the many patriots in government and industry will rise
    to meet this moment.
        Appended to this statement is a copy of The Defense Reformation, a
    treatise I produced late last year that explores these issues in
    greater detail and provides actionable recommendations for reform.
    (Please see page 60)
        I am honored that the Committee on Armed Services has invited me to
    share my views on these challenges and I look forward to taking your
    questions.

        Chairman Wicker. Thank you very much, Mr. Sankar.
        Mr. Diller, you're recognized.

        STATEMENT OF NATHAN P. DILLER, CHIEF EXECUTIVE OFFICER
                       DIVERGENT INDUSTRIES INC.

        Mr. Diller. Chairman Wicker, Ranking Member Reed, and
    distinguished Members of the Committee, it is an honor to
    discuss defense innovation and acquisition reform with you
    today.
        At the core of this discussion, we must focus on ensuring
    America's ability to deter aggression and create that
    overwhelming strength, while minimizing risk to human life, and
    reducing the burden on the taxpayer. Unfortunately, America's
    ability to deter is at its lowest point in many, many decades.
        That said, the FoRGED Act coupled with a multitude of other
    successes, leaves me more optimistic today that America cannot
    only reverse this trend, but actually do it in a way that
    creates a renaissance in American manufacturing and actually
    unlocks human creativity. But we must act today.
        I think the word forge provides some personal markers for
    me. America's manufacturing output tripled that of China during
    the time that I was pulling forged plows growing up on a farm.
    By the time I flew F-16s dropping forged bombs, we were at
    parity. Today as we discussed The FoRGED Act, China more than
    doubles our manufacturing output.
        After years in defense innovation and acquisition, I'm
    convinced that a nation that does not manufacture technology
    cannot maintain a technological and military advantage. This is
    what led me to transitioning to Divergent Technologies today
    led by Kevin Czinger and his son Lucas, where they are truly
    revolutionizing the factory today. Bringing us an ability to
    actually turn great ideas into hardware for deterrence.
        Daily, Divergent seemingly transforms a car factory into a
    weapons factory. It is operating at production scales,
    leveraging 700 patents driven by AI [artificial intelligence].
    Right now, we are literally printing our 253 mile an hour
    hypercar in the morning and cruise missiles in the afternoon.
    This can be done. It is all made in America.
        We're in agreements with most defense primes and many of
    our great American startups. Delivering capabilities for air,
    land, sea, and space. The capital efficiency that comes from
    this agility can reduce taxpayer burden, increase war fighting
    capability, and quickly rebuild U.S. global innovation and
    manufacturing dominance.
        What acquisition reform is needed to bolster defense
    innovation and attract companies like Divergent to create
    American military advantage? First, we have to be very clear of
    turning America's software advantage into a hardware advantage.
    We must foster competition for fully digital and AI-driven
    design and production systems so America can build.
        We must scale innovation successes. New acquisition paths
    and organizations have created access to mobilize a broad
    industrial base with the ability to create a hedge portfolio of
    software-driven hardware. But it is not clear that we have the
    structure to scale this to success.
        Three, we need to build a civil reserve manufacturing
    network so America can build. The factory is the weapon. The
    taxpayer buys billions of dollars of weapons every year solely
    for war. Why are we not buying some factories as a service?
    These factories distributed, could produce parts for legacy
    platforms to ensure we can fight tonight, can scale a hedge
    portfolio, or produce commercial goods in a way that bolsters
    competition, increases our military resiliency and
    capabilities, and saves billions of dollars to the taxpayer.
        The term forge is fitting to express the gravity of this
    moment. This act of forging is literally defined eras in
    civilization going back to the Bronze Age as societies use the
    process to turn ideas into hardware. The title FoRGED Act is
    appropriately to communicate the emergency situation that we
    are in in America today as our eroded capacity of turning ideas
    into hardware is creating this national crisis.
        Fortunately, visionaries mobilize a whole-of-nation effort
    in World War II. It is time for Freedom's Forge 2.0, and while
    we're in emergency State, I am optimistic because I believe the
    ingredients are present for a general generational shift in
    manufacturing and defense innovation that could be more notable
    than going from the Stone Age to the Bronze Age. I'm confident
    America will forge that peaceful and prosperous era together.
    Ladies and gentlemen, it's time to build.
        [The prepared statement of Mr. Nathan Diller follows:]

                    Prepared Statement by Mr. Nathan Diller
        Chairman Wicker, Ranking Member Reed, and Members of the Committee:
    It is an honor to address opportunities and challenges in Defense
    Innovation and Acquisition Reform. Today, we might discuss bureaucratic
    labyrinths, contracting wizardry, or appropriator obstinance. However,
    make no mistake, the purpose of this discussion is to advance America's
    ability to create controlled violence that strikes fear in the heart of
    the enemy to avoid war, deterring aggression, all while minimizing the
    risk to human life and reducing consumption of taxpayer treasure.
    Unfortunately, recent examples of enemy aggression, in some cases
    protracted aggression, suggests that America's military and industrial
    strength to deter and defeat, has grossly eroded, potentially to its
    lowest point since World War II. The FoRGED Act could reverse this
    trend.
        The term forge has personal meaning to me on my journey in defense
    innovation. I grew up on a family farm pulling forged plows at a time
    when America's share of manufacturing was triple that of China. By the
    time I started dropping forged bombs from my F-16 as fighter pilot, the
    United States and China were at parity. As we sit here today
    considering the FoRGED Act, China's share of global manufacturing more
    than doubles that of the United States. A nation that does not
    manufacture technology cannot maintain an enduring lead in that
    technology sector. Reversing the decline of American manufacturing to
    support national security is what led me to Divergent, where founders
    and inventors Kevin and Lukas Czinger have truly revolutionized the
    factory.
                   mobilizing dual-use manufacturing for dod
        Divergent is doing something that has not been done in decades.
    Transforming a car factory into a weapons factory. The difference is
    that the agility of their 700 patent AI-driven factory factory of the
    future operating at scale today makes this transformation seamless and
    it happens daily. The digital design toolset, unmatched metallic 3D
    print speed, and fixtureless assembly has been radically reducing
    development time, assembly time, weight, part count, labor, tooling,
    and cost for the world's top auto manufacturers like Aston Martin,
    Bugatti, and McLaren as well as for our own hyper car, the Czinger 21C,
    the world's fastest production car on the road with the world's highest
    power density engine, all made in America. The agility of this AI
    factory is now giving us an opportunity to quickly pivot into aerospace
    and defense. Right now, we literally are printing hyper car frames in
    the morning and cruise missiles in the afternoon. We are in agreements
    with most of the defense primes and many startups, delivering
    capabilities for air, land, sea, and space during all phases of the
    life cycle (RDT&E, Procurement, Sustainment). The capital efficiency
    that comes from this agility can reduce taxpayer burden, increase
    warfighting capability, and quickly rebuild U.S. global manufacturing
    advantage.
        How can the FoRGED Act unlock capabilities like Divergent's
    Adaptive Production System and so many other critical technologies to
    regain U.S. national security advantage?
        1.  Turn America's software advantage into a hardware manufacturing
    advantage.
        2.  Build on innovation successes to rapidly field a hedge
    portfolio of software-driven hardware.
        3.  Use DOD as an incubator to scale a new civil reserve
    manufacturing network model.
           use america's software advantage for a hardware advantage
        I have had the chance to work in some of the world's most
    innovative organizations: DARPA, Strategic Capabilities Office, Air
    Force Rapid Capabilities Office, White House Office of Science and
    Technology Policy. I led classified flight test, Joint Staff air and
    space requirements, and AFWERX where we funded thousands of startups
    with billions of dollars. Throughout my career, I have seen the
    military value in adopting commercial technologies at pace. However, I
    believe the concept that the U.S. can simply be an ``idea factory''
    while outsourcing manufacturing for short-term financial gain has
    proved short-sighted. Provisions in the FoRGED Act could reverse that
    trend. The United States has purged jobs, eroded our capacity to turn
    ideas into hardware and--some might even suggest--undermined the
    American spirit of building. We have lost our hardware advantage. One
    result of that is an erosion of our military advantage. That could
    change if the U.S. can turn our software advantage into a hardware
    advantage with a fully digital adaptive production system, driven by
    advances in artificial intelligence.
                           scale innovation successes
        To effectively leverage and scale America's innovation ecosystem,
    DOD must build on successes in innovation. Work has been done first
    through Innovation 1.0 launching the conversation with the
    establishment of In-Q-Tel, DIU, and SOFWERX. Innovation 2.0 advanced
    thousands of contracts per year with Army Futures, Task Force 59, and
    AFWERX. Innovation 3.0, advanced capability with Chairman Calvert's
    hedge portfolio, the Office of Strategic Capital, and DIU leveraging
    flexible funding traded for transparency, loans for deep tech, and
    funding Replicator. Given complexity and cost, scaling quantities of
    legacy systems will not be possible in a relevant timeline. The urgency
    for deterrence has led some to suggest a need to field small, low-cost
    mass, or a hedge force to augment the legacy force. These acquisition
    reforms have enabled DOD to mobilize incredible entrepreneurs across
    America to build that force, but it still is not clear that DOD has
    established the right structure to scale these successes. Talent
    management will be critical to the restructuring.
                      civil reserve manufacturing network
        While a hedge portfolio is necessary, if America goes to war
    tonight it will fight with the multi-trillion-dollar legacy portfolio
    it has purchased over recent decades. Unfortunately, the offshoring of
    manufacturing has created a crisis, as many industrial base companies
    that were once the backbone of weapons system sustainment--and local
    economies--have gone bankrupt leaving the legacy portfolio without
    parts. Every year taxpayers buy billions of dollars of weapons that are
    only used during war. It seems that there needs to be a clearer
    understanding that the factory is the weapon, and if we might need more
    factories for sustainment and war we should be buying that capacity
    now. However, to be affordable and useful into the future, those
    factories must be incredibly agile so they can pivot to different types
    of production during different phases. This industrial resiliency and
    fiscal responsibility is only possible if we can turn America's
    software advantage into a hardware advantage and create an agile civil
    reserve manufacturing network of distributed factories. Many provisions
    of the FoRGED Act could enable a future with a digital adaptive
    production system that, on one hand, is capable of surging to build a
    hedge force, sustaining a legacy force, or if peace is secure, produce
    commercial goods. This is possible today with AI-driven manufacturing.
    DOD has an opportunity to lead the way--driving adoption of dual-use
    technology and with it a resurgence in US manufacturing, while reducing
    taxpayer burden for defense. If we miss this opportunity, however,
    there is a very high risk that in less than 4 years China will have
    consumed this market in the same way it consumed the global small drone
    market and many others. We will all be measured by the effort we took
    to avoid that potential tragic future.
                                 forging ahead
        The term ``forge'' is fitting to express the gravity of this
    moment. The act of forging has literally defined entire eras in
    civilization going back to the bronze age, as societies used the
    process to turn ideas into hardware, often the hardware necessary to
    deter and defeat enemies. To this day, forging remains core to building
    weapons of war. It is worth noting that, today, China's share of the
    global forging market eclipses that of the United States. The title
    FoRGED Act is appropriate to communicate the national security
    emergency we face as a result of America's eroded capacity to turn
    ideas into hardware. Fortunately, visionaries mobilized a whole-of-
    nation effort before we entered World War II. That mobilization led to
    victory on the battlefield, and that scale of mobilization is needed
    again. The State of manufacturing and national security is troubling,
    but I am optimistic because I believe the ingredients are present for a
    generational shift in manufacturing and defense innovation that could
    be more notable than going from the stone age to the bronze age. I am
    confident America will forge that peaceful and prosperous era together.
    It starts today!

        Chairman Wicker. Thank you very, very much, Mr. Diller.
        Mr. Geurts.

     STATEMENT OF THE HONORABLE JAMES F. GEURTS, FORMER ASSISTANT
      SECRETARY OF THE NAVY, RESEARCH, DEVELOPMENT AND ACQUISITION

        Mr. Geurts. Chairman Wicker, Ranking Member Reed,
    distinguished Members of the Committee, it's good to be back
    here with you, again. It's quite an honor to be here for this
    discussion. Having spent the last almost 40 years of my career
    trying to drive innovation in acquisition as a person in
    uniform, as a civilian, as an appointee, and now in the private
    sector, it's a subject that's near and dear to my heart, and I
    think critically important for our Nation.
        I've had the honor to lead some of the Nation's finest
    acquisition teams in time of war and global competition. I've
    seen what's possible when there's a clear understanding of
    intent, a sense of urgency at all levels of the organization, a
    close connection between the acquirer and the operator, a
    robust and diverse network of industry partners, transparency
    to all the stakeholders, and an empowered and accountable
    acquisition workforce.
        Unfortunately, over the last several decades, our ability
    to do this at scale across the Department has decayed. The
    industrial base that service so well after World War II is not
    up to the challenges right now that we need as a nation alone.
    The accumulation of decades of statutes, regulations,
    processes, special interests, all well-intentioned about which
    permeate the bureaucracy, have hobbled our ability to adapt and
    change
        The risk-averse culture that that's driven has diffused
    accountability across multiple organizations, departments, and
    the workforce so that it's unclear who's actually accountable
    to deliver, and they are not empowered to actually deliver the
    results we need from them.
        The challenges facing the Department and Nation are many.
    The Nation needs to be innovative, productive, and agile; while
    also ensuring they're relentless stewards of the taxpayer
    dollar. Rather than trying to rebuild the industrial base we
    once had, I believe we need to focus on building the future
    industrial network that we need that gives us the ability to
    scale and the ability to be agile in this time of global
    competition.
        Harnessing our collective capabilities, talents, and
    innovations into such a dynamic and aligned network will help
    overcome the limitations, and linear thinking, risk-averse
    approaches that have been impairing the Nation's competitive
    capability since.
        I'm thankful that this Committee is placing such an
    emphasis on this issue and am optimistic with the tenets of the
    FoRGED Act. We have a systematic issue and we've got to attack
    it systematically. We've tried over the last couple of decades
    tweaking, making some changes here, making some changes there.
    But if we're really going to act at the scale and with the
    speed, we need as a Nation, we need to overhaul both our
    approach to the industrial base, focusing on this industrial
    network, as well as leveraging a clearly accountable and
    empowered acquisition workforce.
        Thanks for the opportunity to appear before you, and I look
    forward to your questions.
        [The prepared statement of The Honorable Geurts follows:]

              Prepared Statement by The Honorable James F. Geurts
        Chairman Wicker, Ranking Member Reed, and distinguished Members of
    this Committee, I am honored to appear before you today in this hearing
    on defense innovation and acquisition reform.
        Having spent my entire career of nearly 40 years driving innovation
    in defense acquisition, whether in uniform, as a government civilian,
    as a senate confirmed appointee, or now in the private sector, it's a
    subject that is of great importance to me and to the security of our
    Nation. I have had the honor to lead some of the Nation's finest
    acquisition teams in times of both war and global competition, and I
    have seen that it is possible to execute an operationally responsive
    acquisition system when there is clear understanding of intent, a sense
    of urgency at all levels of the organization, a close connection
    between acquirer and operator, a robust and diverse network of industry
    partners, transparency to all stakeholders, and an empowered and
    accountable acquisition workforce.
        Unfortunately, over the last several decades, our ability to
    achieve that level of acquisition performance across the entire
    Department has decayed. The industrial base which has served us so well
    since WWII is struggling to adapt at scale to the changing global
    conditions. The accumulation of decades of statutes, regulations,
    processes, special interests, and outdated systems have further hobbled
    the ability of the Department to rapidly field new capability at
    operationally relevant timelines. The risk averse culture which
    permeates much of the existing bureaucracy, with unclear and
    overlapping responsibilities across numerous departments and
    organizations, clouds accountability and cripples timely and effective
    decisionmaking at all levels. It is clear just making piecemeal
    incremental changes to the existing system, as we have attempted over
    the last several decades, will not be sufficient to achieve the speed
    and scale we now need as a Nation.
        The challenges facing the Department of Defense and Nation are
    many. The Department needs to be innovative, productive and agile while
    also ensuring they are relentless stewards of the taxpayers' money.
    Rather than trying to rebuild the defense industrial base America once
    had, the Department should forge the future industrial network the
    nations needs while at the same time making fundamental changes in how
    the government effectively leverages this future industrial network.
    Harnessing our collective capabilities, talents, and innovations into
    such a dynamic and aligned network will help overcome the limitations
    of linear thinking and risk averse approaches that have impaired the
    Nation's competitive position in an increasingly challenging world. It
    will improve the revitalization of conventional defense-industrial
    capacity, while also more fully integrating the creative, productive,
    and dual-use commercial capabilities of the broader economies of the
    United States and its allies. Attracting and scaling a larger number of
    more varied performers into this industrial network will enable the
    United States to accelerate growth, dramatically increase agility, and
    substantially enhance resiliency. By building a flexible industrial
    network more powerful than the sum of its individual parts, the United
    States will create a system capable of outperforming more
    authoritarian, centrally planned competitors such as China.
        I am thankful for the focus this Committee is placing on this issue
    and the hard work underway through initiatives such as the FoRGED Act
    to enable substantive positive changes to our current approach.
    Recognizing that we have a systemic issue which cannot be fixed through
    incremental tweaks, I am optimistic a systematic focus on cutting red
    tape, creating competitive pressure, enabling decisive action,
    modernizing defense budgeting and unleashing American innovation will
    improve the readiness and lethality of the DOD while simultaneously
    growing the ability of the industrial network to deliver capability at
    scale and with speed. Equally critical, but often forgotten, will be
    the need to rapidly implement these measures across the Department,
    train the workforce, and incentivize and measure their effective
    adoption. Doing so will ensure positive change is solidified,
    transforming the historically risk adverse culture into one focused on
    delivering speed, scale, and war winning outcomes.
        Thank you for the opportunity to appear before you and I look
    forward to answering your questions.

        Chairman Wicker. Thanks to all three of you. I'm going to
    add for the benefit of the listening public and those in the
    audience. Typically, in a hearing like this, where there are
    three witnesses, the majority suggests two of the witnesses,
    the minority suggests one. It would be hard for the listening
    public to know which witness today was a majority witness and
    which witness was a minority witness. So, I do appreciate your
    thoughtful testimony. At this point for it to begin our
    questioning, Senator Sheehy, you were recognized for 5 minutes.
        Senator Sheehy. Thank you, Chairman.
        Everything you guys said, of course is, I think, pretty
    blatantly accurate for everybody. The word innovation is thrown
    around a lot for defense acquisition and systems development. I
    don't think we really have an innovation problem. Private
    companies innovate. We have all these fusion labs within the
    military that innovate actually pretty well. The challenge is
    adopting the innovation on a programmatic level and then
    fielding it quickly.
        I think, Hondo, when you and I were in together, I served
    as a SEAL team leader and we'd have IED threats that would--the
    enemy would watch with the binoculars how we would disarm an
    IED [improvised explosive device] or what technology we'd use,
    and the next day they would change their design. Literally, the
    next day. I mean, they go back to their garage, they'd rewire
    it, and then come out the next day, and our policies for
    fielding equipment to counter those IEDs were stuck at the pace
    of our defense acquisition system. We'd send that feedback back
    home, and maybe a year or two later, we'd get a new jammer or a
    new tactic out and God bless the guys out there doing it which
    is me a lot of the time.
        Unfortunately, our ability to innovate, we didn't innovate
    at the speed of the threat. We innovated at the speed of
    bureaucracy, and we can innovate, but adopting that quickly is
    the biggest challenge. So, it's open to anybody, especially
    you, Hondo, coming from a career in that acquisition system.
    What's the single biggest change we can make as a legislative
    body quickly to encourage adoption of the innovation that
    already exists?
        Mr. Geurts. Yes, sir. Thank you for the question. I concur.
    Many of our roadblocks are self-inflicted and culturally
    reinforced, and it's for a lot of different reasons. I think
    the number one thing you can do is that you can empower the
    program manager and hold them accountable. Right now, program
    managers answer to a--you know, dozens and dozens of folks they
    have to go get permission to move a dollar to a better
    priority. If they see a new technology that comes out, they
    have to spend years creating a program to adopt. I think that's
    one.
        Then, two, breaking down this barrier so that--listen, we
    need defense primes. As Shyam said, we need new entrants, we
    need commercial providers. We need program managers that have
    the authority to actually pick, have visibility of all those
    things, and then rapidly be able to choose the best performer.
        Then, finally, we've got to break down the barrier that
    we've created between the person buying the equipment and the
    person using the equipment. Again, well-intentioned
    headquarters staffs that have accumulated over time, reviewing
    that reviewer to doer ratio. So get the doers doing, get them
    aligned with the operational needs, give them the flexibility
    to make the best decisions and then hold them accountable to
    deliver.
        Senator Sheehy. Mr. Sankar, a question for you. I love your
    writeup, by the way, agree 100 percent. When I got out, I
    actually started a defense company myself. We ended up having
    to split the company in two largely for investment purposes,
    because what you refer to as, you know, that wall, which is
    very accurately portrayed.
        But in addition to the acquisition regulations and the DCAA
    accounting requirements and all that, there's also a
    restriction, of you can innovate something commercially and to
    bring that innovation back in and have a cross-feed valve where
    the defense technology benefits from commercial innovation is
    almost not allowed. Therefore, we're missing out on a massive
    pool of--especially as we move into machine learning models and
    AI, we can't benefit from commercial.
        In your experience, how can the DOD better leverage
    commercial innovations to make sure that the defense innovation
    is adopted at the speed that private sector innovation is?
        Mr. Sankar. Well, thank you. I think Congress and its
    wisdom saw this in the 1990s, right? This is why we have the
    Federal Acquisition Streamlining Act, which is that the
    commercial, you have a much broader market around which you can
    amortize your R&D [research and development] in the commercial
    world, and you can bring that stuff at a lower risk and with
    much greater speed to the DOD.
        We were able to deliver the operation warp speed supply
    chain in 2 weeks during Operation War Seed, because actually 2
    years before that, we had built very similar solution in oil
    and gas. You can't connect those dots prospectively. I didn't
    make that investment in oil and gas because I knew it would pay
    off when the Nation needed it for a Covid vaccine distribution.
        But really, if you're going after these hard problems, you
    can benefit whole-of-nation. At some point in time, every car,
    camera, and cereal box that Americans bought actually
    subsidized our national security. I think I would attack this
    systematically by thinking about what are the barriers that
    have meant that we have developed a defense industrial base and
    lost our American industrial base.
        Now, I think the real issue here, to your point, we don't
    have an innovation problem. You know, innovation doesn't need
    capital. America's capital markets are the deepest and richest
    in the world. Dare I say, if you're unable to finance your
    idea, that probably tells you something about your idea in this
    country.
        But innovation does need customers, and so, shortening that
    OODA loop, the fiscal OODA loop. I think we'd be better off
    spending half the money twice as quickly. It's really time,
    speed has a quality all of its own here. That's how we drive up
    commercial adoption. It will pull these folks into the
    industrial base in a way that we really need.
        Yes, we need to cut the red tape. We need to get rid of
    some of these regulations. But I think the biggest barrier is
    encouraging adoption, empowering our people. So much of this, I
    couldn't agree more with Senator Reed's comments that
    technology is--it's not a technology problem. It's actually a
    people problem, a leadership problem. You can't chop off a lot
    of our regulations. You know, something goes wrong, we come up
    with a new rule. We're trying to chop off one end of the
    distribution of all the things that can go wrong. You can't do
    that without making sure nothing can go right either.
        Chairman Wicker. Thank you, Mr. Sankar. Mr. Reed.
        Senator Reed. Thank you very much, Mr. Chairman.
        Mr. Geurts, we all recognize how critical a workforce is to
    get anything done, and this is particularly a case in
    acquisition. What's your assessment of the Department's
    acquisition workforce today in terms of its capacity and
    capability?
        Mr. Geurts. I think it is mixed. We have a very talented
    workforce that's been hobbled for a bunch of years. But they're
    also not fully informed on the full market that's available to
    them. As a Committee here makes all of these, what it looks
    like, very value-added changes, we've got to make sure we
    handle the implementation step. Because right now we have lots
    of great authorities in the Department. We have not implemented
    them to their full extent, nor trained the workforce to be able
    to leverage them to their full extent.
        So, part in part with change in the authorities and rules
    needs to be rapid implementation guidance, and then rapid
    training, and then hold everybody accountable after you've done
    those two steps.
        Senator Reed. One of the observations that I made,
    particularly in regard to submarine construction, is Covid sort
    of triggered a premature retirement of a lot of Government
    supervisors, workforce acquisition specialists, et cetera.
    We're lacking in those people, their experience, frankly, and
    it comes down to people, as Mr. Sankar said. Do we have to make
    a special effort to rebuild that workforce?
        Mr. Geurts. Sir, I would do two things. One, we've got to
    review the reviewer to doer ratio. So we have a lot of the
    workforce tied up in multiple levels of review that could be
    deployed to help immediately, and get those assets doing work,
    not reviewing other people's work they're doing.
        Second, we need to create a training pipeline, which fully
    informs them of how commercial markets work, how venture
    capital markets work, how traditional manufacturing works, how
    new advance manufacturing works. So they're exposed to all of
    these opportunities, and then hold them accountable for
    creating a strategy that bets leverages all of those
    capabilities.
        Senator Reed. Thank you, Mr. Sankar, thank you for your
    testimony. One of the approaches we took was trying to attract
    the non-traditional defense contractor. That was a term that's
    sort of changed over time because now many of these non-
    traditional defense contractors are actually defense
    contractors. In addition, they also have access to and involved
    with governments in many different capacities. Would you
    recommend any changes to this approach of the non-traditional
    defense contractor?
        Mr. Sankar. Thank you. I think what we seek with non-
    traditionals is the same power of the American economy, which
    is that people will take their private capital and put it at
    risk to build new things and offer it to the Government, not at
    the taxpayer's expense. If it works, that's great, and if it
    doesn't, no harm to the taxpayer.
        That's what you see with the non-traditionals, that they're
    going and raising private capital. They're putting their
    balance sheet at risk, they're delivering these innovations. If
    I was to contrast that to the traditional market, what the
    monopsonist prefers is I will pay you by the hour. I will
    control everything you're doing. I will own what you ultimately
    create. Then we are surprised that that category of traditional
    player isn't investing more in R&D. Well, I think, literally,
    we've gotten the industrial base that we've incentivized
    getting. So, my hope is actually we could find more ways of
    turning what we today view as the traditionals into non-
    traditional, that would be the alchemy that really powers our
    national security.
        Senator Reed. One other aspect. Just observation and we all
    understand that the defense industrial base has shrunk
    dramatically from 20 years ago. A lot of that was through
    mergers, acquisitions. In some cases, looking at a threatening
    young competitive company and buying it for reasons that might
    not be appropriate. How can we sort of stop that?
        Mr. Sankar. Well, I'm spending my time personally on that.
    So, I think the antidote to the Last Supper, this consolidation
    wave that happened is what we should call a first breakfast.
    How do you know as Palantir has blazed a trail, survive the
    valley of death? I want to now lower the ladder and make it
    possible for many more new entrants to get there.
        How do I reduce the time it takes to get accreditation? How
    do I enable it to field, yourself, not in an exercise that's
    not real, but in the actual war fighting needs. Get more
    feedback and more scale as a consequence. We need a positive-
    sum mindset here, and the big shrinking that happened during
    the Last Supper encourages a zero-sum thinking, which we need
    to get out of.
        Senator Reed. Thank you.
        Chairman Wicker. Thank you very much, Mr. Reed. Before I
    turn to Senator Fischer, Mr. Geurts, this changing the reviewer
    to doer ratio we could do that without a changing the statute,
    could we not?
        Mr. Geurts. In some cases, yes, in some cases, no. So,
    there are certain parts of the statute that require, you know,
    different offices review things. I think over time, we've let
    the functional side, get the contracting folks have to review
    it independently, independent flight test authority. So many of
    those are internal, but a lot of those are driven by either
    statute or intent from external stakeholders.
        Chairman Wicker. Thank you very much. Senator Fischer.
    You're recognized.
        Senator Fischer. Thank you, Mr. Chairman.
        Mr. Geurts, the impact of CRs on the Department, it's well
    documented whether limiting new starts or the challenges of
    increasing production rates. While CRs [Continuing Resolutions]
    result in concrete negative impacts, the Department has little
    influence over whether a CR actually occurs since
    appropriations are the purview of Congress. Based on your
    experience, are there any specific recommendations you have
    that would enable the Department to continue to make progress
    on certain programs, even through a CR?
        Mr. Geurts. Thank you. Yes, CRs are very damaging to a
    rapid and agile workforce. One of the reasons is you have to--
    if you're applying an award of contract for the year and now
    the CRs occurring, you're doing it in, 3-month increments or 2-
    month increments, and it ties up both sides. So, I think
    anywhere we can create authorities, if it's small programs, if
    it's programs that we're know----
        Senator Fischer. Sir, is there any place right now that the
    Department can continue its progress or does it, do you know of
    anything or it's all shut down?
        Mr. Geurts. It's really challenging because of the
    specificity of the CR and the challenges. I think some of the
    Services have asked for special authorities in areas that are
    very dynamic. I know the Army has asked for authorities to be
    able to rapidly reprogram and be flexible in like electronic
    warfare, and UASs [unmanned aircraft systems], counter-UASs. So
    I think there's areas where it's really a dynamic environment
    that I think we could work together to build a trust to be able
    to have more flexibility in the CR period.
        Senator Fischer. Okay. Thank you. Mr. Diller, do you have
    anything to add from a private sector perspective on this?
        Mr. Diller. Yes, Senator, I think there have been some
    notable changes just over starting with the Fiscal Year 2024
    Defense Appropriations Bill, that provided some of that agility
    that is key. If we look at how quickly our acquisition model
    works, where we're budgeting, and in instances, it's taking 4
    years for something to actually come available.
        That certainly is not the case from a private sector. If we
    look at the pace that large language models in artificial
    intelligence have occurred right there. Those budgets were
    being built two to 4 years ago. I would commend the work of the
    appropriators that have looked to see what type of flexibility
    allows the speed of innovation that is actually happening in
    the private sector.
        It gets to this question of adoption, of innovation, and
    so, I think really great pilots have happened. When we look at
    the ability to scale, it certainly--at some point the measure
    needs to be, how can we get the funding that actually allows
    that production and the movement?
        I think there's been increased abilities. We look at
    digital approaches to actually creating trust across the
    Potomac River, where the Pentagon and the Congress can actually
    get a higher degree of assurance that the money is being spent
    quickly. This is being piloted right now with DIU [digital
    interface unit] and I think that is going well. It's good for
    industry, it's good for trust across the legislative and
    executive branch.
        Senator Fischer. Thank you. Mr. Sankar, in your work with
    the Department, what are some of the key factors that limit
    your company's ability to innovate?
        Mr. Sankar. I think really if you think about our--when we
    first started the business, I thought our competition was going
    to be the primes. That the primes would be threatened by the
    innovation of what we were creating. But actually, the entity
    that was most threatened was the existing program of record.
    So, it's our inability to tolerate heterogeneous innovation
    coming from a number of places.
        All innovation starts off as something that is heterodox.
    It's going to challenge the status quo; it's going to upset the
    apple cart. So, we need to enable more flowers to bloom, and to
    recognize that innovation is fundamentally messy and chaotic.
    Any attempt to put process around it and make it clean destroys
    the innovation.
        Senator Fischer. Mr. Geurts, as a former acquisition
    official, what do you think are DODs most promising initiatives
    to be able to take advantage of that commercial innovation?
        Mr. Geurts. If I look back 10 to 15 years ago, I think
    there was a divide between the commercial industry's interest
    in national security and the Government's trust that they could
    actually deliver something relevant to national security. If
    you look over the last 5 years in particular, that has, that
    element is broken down. So, the conversations are starting to
    occur, the trust is starting to occur, the demonstrated success
    is starting to occur. Now, we have to do that at scale as a
    matter of business, not as an exception.
        Senator Fischer. Thank you. Thank you, Mr. Chair.
        Chairman Wicker. Thank you, Senator Fischer. Senator
    Shaheen.
        Senator Shaheen. Thank you, Mr. Chairman, and thank you to
    each of our witnesses for being here today.
        I recently took over as the Ranking Member of the Senate
    Foreign Relations Committee, One area that comes up over and
    over again is ensuring that our foreign military sales process
    works not just for us, but for our allies, for our military,
    and for our industries. To ensure that we maximize the
    capabilities of our alliances, we need to focus on being able
    to fight in an interoperable and coordinated way with our
    allies and partners. I assume that you would each agree with
    that. You're nodding.
        Mr. Geurts, how should industry and Government think about
    and be working to ensure that American businesses can work with
    our counterparts, with our allies in Australia and Japan and
    South Korea, to ensure that systems are built on compatible
    architectures that allow coordination between our forces in
    combat?
        Mr. Geurts. I think a couple things. One would be anywhere
    we can reduce the FMS [flexible manufacturing system] burden in
    terms of regulation, and statute, and things that make it hard
    to do FMS sales, and things that disincentivize our allies and
    partners wanting to use the FMS system.
        Second, I think as commercial----
        Senator Shaheen. Are there specifics that you would point
    to?
        Mr. Geurts. I think there's been a number of studies on
    areas that we can break down. A lot of it's the review
    timeline. A lot of it's the external authorities. I think
    there's work to be done there. Then, I think as commercial is
    global, there are areas where we can leverage commercial
    capabilities that do span many of our allies and partners that
    are already interoperable from the start and leverage those
    versus trying to back in interoperability from a custom DOD-
    made area. We've got to differentiate it. It's not one or the
    other. We need both.
        Senator Shaheen. I certainly agree with that. Mr. Diller,
    one of the things that has happened as the result of the war in
    Ukraine is that we've watched how creative the Ukrainians have
    been with many of their responses to that war. Do you think
    that there are lessons that we should be taking from what the
    Ukrainians have been able to do?
        Mr. Diller. Yes, ma'am. Unfortunately, I don't know that
    our defense primes or our startups responded in the way that we
    necessarily would want to that type of crisis. I do think,
    fundamentally, as has been discussed with my colleagues, this
    is an industrial-based problem in America, not just a defense
    industrial-based problem.
        So how do we look at taking the next leap that allows the
    factory to be part of that war system, that war fighting
    system? You see agility in Ukraine that you are actually
    getting hardware to evolve at the speed of software.
        On your previous question about FMS, if we can actually
    have 21st century manufacturing system that is digitally
    driven. It allows us to actually have that factory evolving at
    the pace of the war to close that OODA loop, as it's called,
    and to create both interoperability between nations, and to be
    able to scale and remain agile in warfare.
        Senator Shaheen. Thank you. Mr. Sankar, I'm a big proponent
    of small business. They create 16 times more patents than large
    businesses. One of the ways that we try and take advantage of
    that innovation is through the Small Business Innovation
    Research (SBIR) Program, which has been very successful. I know
    it's a program that Palantir has worked with extensively.
        I am very concerned about the order that just came out from
    the acting director of the Office of Management and Budget
    (OMB) that essentially puts on hold any financial assistance
    that's dedicated to any programs like SBIR [Small Business
    Innovation Research]. There are 82 of those programs within the
    Department of Defense. What does it do to the research that's
    going on in our small businesses when there's that kind of a
    halt on the program, and we don't know how long it's going to
    last, and we don't know whether it's going to be forever, or if
    they're going to be able to resume what they're doing?
        Mr. Sankar. Well, what I can certainly speak to is the
    value of small business. So, if we think about the American
    system. This is about David versus Goliath, and you know, we
    need the small business program to continue to encourage many
    more Davids to get out there. But we should be clear that we
    want David to get big. You know, where, where the small
    business program may be failing our existing entrepreneurs is
    it's just enough to keep them small. A class of indentured
    servants living as small businesses. But that's not what we
    aspire for them. We want the small guy to have an opportunity
    to become the next king.
        So, if there were ways of continuing to evolve that program
    so that we were holding ourselves collectively more accountable
    to how many of our small businesses were able to get big, how
    many of them are now defining the next frontiers of what we're
    doing in defense innovation, I think the Nation would be much
    better off.
        Senator Shaheen. I certainly agree with that, and hope that
    we can look at the next stages of the SBIR Program to do that.
        Chairman Wicker. Thank you, Senator Shaheen. Senator
    Rounds.
        Senator Rounds. Thank you, Mr. Chairman. First of all, let
    me thank all of you for being here today and helping us in this
    project.
        Albert Einstein, in a letter to President Roosevelt,
    identified the risk of losing to Nazi Germany with regard to
    the possibility of a nuclear bomb. He talked about the need the
    United States to take lead role and basically begin that
    project. At the same time, once that occurred, the Manhattan
    Project was ordered, we started a process within our industrial
    base and within the scientific community that was unbelievable
    at the time. Part of it had to do with a whole lot of really,
    really bright people talking to one another, both from within
    the Department of Defense, within the National Laboratories as
    they had existed back then, and he universities, but also the
    military, and the political leaders.
        Today, I guess my question, to begin with, we face a very
    similar situation right now with the implementation of AI, and
    with adversaries who are moving very, very rapidly. This tool
    that we have, this AI tool, the countries that are best able to
    incorporate it and to move it forward as quickly as possible,
    are going to win the race militarily and economically as well.
        Mr. Geurts, in the time that you were within the Department
    of Defense, how often did you actually have a round table or a
    visit with some of the key thought leaders, industrial base
    leaders, innovators? Did you ever sit down and just have a
    round table with them, or is that restricted?
        Mr. Geurts. Yes, sir, I did. Both of my time in special ops
    and in the Navy, we would create the forum for those kinds of
    discussions, and I would concur. Having those kinds of
    discussions is fully available within the statute and
    critically important to understanding the opportunities that
    are in front of us and how to leverage the full ecosystem.
        Senator Rounds. Mr. Sankar, Palantir is recognized as an
    innovative organization, a thought leader, a proven facilitator
    in many cases with regard to AI implementation. How often are
    you invited into the Pentagon to sit down and to visit, to talk
    about how you can coordinate with our purchasing organizers,
    the acquisition people, in terms of actually acquiring the best
    and coordinating it with the weapon systems that we have today?
        Mr. Sankar. I'd say it's a mixed bag. There are certain
    parts of the community that are very proactive in seeking
    advice and interest from outsiders, actually even seeking help
    and pulling together the right groups of folks who would be
    completely non-traditional and very far away from defense.
    There are others that have a more captive sort of approach to
    this.
        Senator Rounds. You ever been invited in to sit down and
    talk?
        Mr. Sankar. A few times I have, yes.
        Senator Rounds. Mr. Diller?
        Mr. Diller. If we look at the innovation progress that's
    happened over the last decade or so, you see three different
    eras of this starting with the conversation with the launch of
    DIU. Eventually, though, that conversation needed to move into
    something more meaningful, which I think started where we got
    to contracts, where notable civil reform allowed those
    conversations to happen against sometimes large inertial
    hurdles that thought that conversation couldn't happen.
        I think we need to get to this third era that actually is
    how do we turn this into capability? How do we actually scale
    to get hardware and software so that this is not an episodic
    conversation, but this is the way we conduct war in America,
    this is how we mobilize America for war. That is still a gap
    that I think is needing to be filled. But I'm optimistic that
    we're on a path building on these successes and these pilots
    that is possible.
        Senator Rounds. Look, I agree with you that that's the path
    forward. I'm just questioning whether or not our acquisition
    process today will allow that to happen.
        Mr. Geurts, we have a rapid acquisitions process that some
    of the branches are able to access. Is there any reason why all
    of our acquisitions shouldn't be based upon a rapid
    acquisitions approach?
        Mr. Geurts. Sure. I couldn't agree more. I get a little
    frustrated when we have the rapid acquisition community and
    then everybody else. We should all be rapid. To your previous
    point, I'm a huge believer in the networks, and we do have a
    culture of lawyers that look to everything bad about having
    conversations versus what's appropriate. I think that's an area
    where we can do much, much better as a community. In fact, we
    have to.
        Senator Rounds. Mr. Sankar, rapid acquisitions.
        Mr. Sankar. I could not agree more that everything should
    be rapid. Speed is our greatest strength. The American
    entrepreneurial spirit of, essentially, when everything is on
    the line, we throw away the rule book and we execute.
        Senator Rounds. Mr. Diller, you agree?
        Mr. Diller. One hundred percent.
        Senator Rounds. Thank you. Thank you, Mr. Chairman,
        Chairman Wicker. Mr. Sankar, if there were a round table
    and your competitors were invited and not you, you'd have a
    problem with that?
        Mr. Sankar. Well, arguably that's what's happening today. I
    mean, it happens. People need to get the best counsel they can.
    We need to move together. There are going to be lots of
    opportunities to keep competing. What we need to move away from
    is a big monolithic approach where you had one chance to get
    involved to actually every quarter we are adapting new
    technologies, and there's a constant kind of reshuffling of who
    are the performers on the work.
        Chairman Wicker. Very helpful. Senator Hirono.
        Senator Hirono. Thank you, Mr. Chairman. Mr. Diller, as one
    of the authors of the recently released Blueprint for
    Breakthroughs in Defense Innovation report, you recommend
    giving the combatant commanders, including INDOPACOM [United
    States Indo Pacific Command], the largest AOR [area of
    responsiblity], specific funding to accelerate the rapid
    fielding of new technologies to solve theater-specific
    problems.
        What advantages would such a change inject into the defense
    acquisition system, and how would you address concerns from
    those who argue the combatant commanders already have a say in
    how DOD prioritizes and procures emerging technologies?
        Mr. Diller. Yes, Senator, those recommendations were
    specifically building on the success that Chairman Calvert on
    the House Appropriations Committee championed when he added
    $220 million of colorless funding to ADIU [Advanced Digital
    Interface Unit], agile, and .enterprise fielding capability.
        There's been incredible success in being able to provide
    that flexibility directly to the combatant command, who right
    now is urgently developing capabilities to ensure the potential
    2027 risk, is deterred and to make sure that there is proper
    balance. This was specifically how do we move into 21st century
    acquisitions of making sure that there's a digital thread.
    There's digital accountability between the appropriators,
    making sure that that is tied back into a resourcing approach
    that is institutionalized in the Pentagon and is tied directly
    to that war fighter capability.
        So, it's not necessarily acquisition, it's not acquisition
    authority, but it is something that's much more stronger than
    just the combatant command, asking to actually have a say of
    where dollars go.
        Senator Hirono. I think that is an important kind of we
    looking at who gets to make these kinds of decisions and who
    gets to weigh in. I agree with you that I think the combatant
    commanders should have a greater say.
        For Mr. Geurts, everyone agrees that DODs acquisition
    workforce must manage complex requirements pathways and
    extensive reporting structures, which does create a risk-averse
    culture. It's been acknowledged that the DOD has a risk-averse
    culture. What kind of training or tools do acquisition
    professionals need to better leverage the existing innovative
    procurement pathways like OTA? It's the other transaction
    authorities or the middle tier acquisition pathway. So we've
    tried to create innovative ways for faster acquisition, but not
    if people do not take advantage of these pathways.
        Mr. Geurts. Yes, Senator. There are plenty of pathways. At
    SOCOM, I think we created 17 different ways to buy things, and
    then we empowered program managers to pick the right one and
    held them accountable to deliver.
        I think we have to get away from the idea that we're
    efficient if we pick one way to do everything, and then train
    everybody to one standard as opposed to exposing them to all
    the different opportunities and then training them what's the
    right tool to pick for what's the right job. Part of that is
    empowering the program manager so they have the authority to
    pick that tool, and it's not spread out between what legal
    thinks, what contracts thinks, what the operator thinks. I
    think that will go a long way.
        Senator Hirono. Do the other panelists agree with Mr.
    Geurts' approach?
        Mr. Sankar. Yes, I do agree. If I was to add one thing on
    top of that is it's really bringing acquisition closer to the
    operators, to the war fighters. There's a way in which, where
    we divide these things up so cleanly and expect that
    acquisition can deliver on its own.
        Another way of thinking about your question on combat
    commanders is it's the answer to the monopsony. We have 13
    SOCOMs, we can introduce a lot more demand signal. We should be
    celebrating the heterogeneity and the needs across our SOCOMs
    rather than having a unitary solution driven by the services
    that that needs to be universal.
        Senator Hirono. Before I run out of time, I wanted to
    mention the importance of SBIR, and this is a way for us to
    really support and encourage particularly small companies to be
    innovative and creative. We should be supporting it. But now,
    apparently, there's a pause on the, these initiatives, SBIR.
    Mr. Sankar mentioned, I think that you understand the
    importance of SBIR. I'd like to know if the other two panel
    members agree. Mr. Miller?
        Mr. Diller. Yes, ma'am. I, as the director of AFWERX, I
    issued thousands of them a year. There are reforms that should
    happen, but it has done incredible things to help mobilize the
    American industrial base.
        Senator Hirono. Mr. Geurts, you agree?
        Mr. Geurts. Yes, ma'am.
        Senator Hirono. Thank you.
        Chairman Wicker. Thank you, Senator Hirono. Senator Ernst.
        Senator Ernst. Thank you, Mr. Chair, and gentlemen, thank
    you for being here today. I am particularly excited about the
    discussion today, and I hope that we can take this information
    and your thoughts, and actually act on it.
        So I'll start with you Mr. Diller. I serve as the chair of
    the Senate Committee on Small Business and Entrepreneurship,
    and I'm working on a bill to actually reform SBIR. While it's
    important, I agree, it needs to be reformed. So what I'd like
    to do is revamp phase 3 acquisitions, and a number of the
    efforts you've helped create have been very successful in
    scaling technologies from innovative small businesses to the
    war fighter.
        Mr. Diller, how can we reform SBIR and expand on this work
    across the DOD innovative ecosystem?
        Mr. Diller. Yes, ma'am. First, thank you for your
    leadership and being a champion for small businesses. We talk
    about mobilizing America. This particular capability with SBIR
    is key. When we picked it up in AFWERX, it was not a perfect
    program, but it was a tool that we had, and thanks to the help
    here on Capitol Hill, it has been better year after year.
        I think there are three important things that we need to do
    in the SBIR program. One, I think expanding the number of
    companies who can get in. This frustrates to sometimes the
    venture capitalists because they can't pick easily. But this is
    a venue, the conversation about how do we bring in many
    companies for the conversation. This is the venue for that
    conversation. So, actually, more SBIRs with lower dollar
    amounts initially, but we also need to be very deliberate about
    scaling, and scaling quickly.
        Those best companies, we need to be better at judicious
    reviewers of which companies to scale. Then building on things
    like the stratify program that can literally take a company
    from a $50,000 program in 1 year to a $50 million program the
    next year through proper due diligence internal to the
    Department of Defense.
        The last piece of that is that due diligence. Making sure
    that the dollars that are going through the SBIR Program are
    actually going to American companies and are not feeding the
    adversary. That piece is making sure that that is consistent
    and rigorous across the Department with clarity for those
    companies that want to make sure they have clean capital. How
    is that conversation happening? There's more opportunity to
    build the proper relationship with industry to get everyone on
    board with that mobilization.
        Senator Ernst. That's fantastic, and making sure the
    dollars go to American companies is extremely important as
    well. I have focused on that.
        Mr. Sankar, as chair of the Senate DOGE Caucus, I couldn't
    agree more with your Defense Reformation paper where you State
    that small business program should not be welfare. I agree
    wholeheartedly. In the past decade, 25 companies they're
    notoriously known in my circles as ``SBIR Mills'' received 18
    percent of all award dollars at DOD amounting to about $2.3
    billion. That's a $92 million windfall per company in a program
    meant for small businesses.
        GAO [Government Accountability Office] reports that these
    frequent flyers have lower sales and investments and fewer
    resulting patents. We have a problem here. So, Mr. Sankar, how
    can we eliminate this waste of taxpayer dollars, and reorient
    the SBIR program to its original purpose as a source of merit-
    based seed funding?
        Mr. Sankar. I could not agree more. That's clearly an abuse
    of the intent here. One thing we could think about is time
    limiting; how long a company is eligible. It's not just about
    the size and staying below some sort of threshold. But look, we
    aspire for this small company to get big, and I don't know if
    the right threshold is 5 years or 10 years, but there's some
    amount of time that we would expect you to have the opportunity
    to get big. We're going to bet on other entrepreneurs in the
    future.
        The other part is more of a top down. As we measure the
    efficacy of the SBIR Programs, we should really be thinking
    about how many big companies were we able to create. I think
    that will help us have a clear head as we think about the next
    rounds of investments that we're going to make.
        Senator Ernst. Yes, I agree, and if you go back and you
    look at the companies that are benefiting from these programs
    right now, most of them exist on the East and West Coast. Very
    few of those dollars are actually getting spread into Middle
    America, and I do think that that this will change in the
    future and provide opportunity for more small businesses.
        Mr. Geurts, I will get back with you on questions for the
    record, but I appreciate your service to our Nation.
        Mr. Geurts. Thank you, ma'am.
        Senator Ernst. Thank you. Thank you, Mr. Chair.
        Chairman Wicker. Thank you very much, Senator Ernst. A few
    of our Members of the Committee have referred to a paper
    written by Mr. Sankar, entitled The Defense Reformation,
    consisting of 19 Pages. Some of them are just title pages, but
    I ask unanimous consent that we enter that into the record
    right after Mr. Sankar's testimony. Without objection, it is so
    ordered.
        Chairman Wicker. Senator Kaine, you are recognized.
        Senator Kaine. Thank you, Mr. Chair, and thanks to our
    witnesses. I appreciate this hearing. I think it's really
    important that we dig into this.
        If I could, Mr. Chairman, I'd like to recommend, as we're
    looking at this topic, that we also think about a hearing on
    workforce, because I think acquisition reform is needed. I
    think a lot of our challenges are also around inadequate
    workforce in the defense industrial base. I'd love to have a
    committee hearing on that topic as well. This is something Mr.
    Geurts and I have talked about before.
        Mr. Diller, you mentioned DIU, the Defense Innovation Unit,
    and I want to ask you, and then the others, if you care to
    comment. How would you assess? I've been impressed with their
    mission, and I've been impressed with some of what they've
    done, but I haven't been involved with it in a day-to-day way.
    Maybe you-all have. How would you assess both the performance
    of DIU, but maybe more importantly, the promise of DIU?
        Mr. Diller. Certainly, from a performance perspective, this
    is a startup inside a very, very complex bureaucracy. For
    years, those startups internal to the bureaucracy largely get
    eaten by the bureaucracy. You can look at the rate of hiring to
    actually be able to build the organization. Even when the top
    leadership in the Pentagon says go higher, the frozen middle
    certainly makes that a challenge. I saw the same thing when I
    was in AFWERX.
        So given those headwinds that they must address, I think it
    provides--they've been making great progress. There have been
    great companies that are getting built because of the
    collaboration. Real contracts are now turning into capability
    that is actually deterring an adversary.
        Senator Kaine. What advice would you give to the Pentagon
    today about DIU and the way they should sort of position DIU
    within the DOD?
        Mr. Diller. I think the NDAA that had been passed over the
    last couple of years of elevating specifically--the challenge
    that we've had with innovation in the past is when these new
    technologies come to the forefront. It does not necessarily fit
    in with our traditional program executive officers. It doesn't
    necessarily fit in with our training and adoption pipelines.
    Many times, it doesn't necessarily have an obvious fit in one
    of the services, and this is nothing pejorative to the service.
    It's just new, and we don't have a home for it.
        So, DIU is fit that place of actually identifying joint
    capabilities to support the joint war fighter. I think that
    elevation as it is being reported directly to the Secretary of
    Defense, so that the conversation with great companies in this
    ecosystem can be free and open, so that it is encouraging
    actual use of existing authorities. Right? Is a culture change
    that is using existing authorities to create the speed so that
    we can actually move in in a relevant pace?
        I think that structure is there. There's a lot still to
    build out in that structure. DIU is the small acquisition piece
    of this. There's an adoption piece on the back end that might
    not quite be there, and there's some questions of what specific
    problems are these organizations solving that doesn't fit into
    the beginning either. So, there's room.
        Senator Kaine. Let me switch gears. A lot of the testimony
    this morning has been about encouraging innovation and emerging
    technologies that, as you say, might not fit directly within
    the silo mentality. I want to talk about acquisition innovation
    in an ongoing area that we've had a lot of problems in that
    shipbuilding and subs.
        We had to put $5.7 billion at the end of the year into the
    Virginia-class sub program to try to move it more into on-time,
    on-budget. That was after we did a supplemental bill in April,
    putting money into the program on top of the base budget. Mr.
    Geurts and I have dealt with this. What would be a way to think
    of acquisition reform in the context of like ship and sub
    building? How should we look at different contract vehicles?
    What would your thoughts be on that?
        Mr. Geurts. Yes, sir. I think we should look at innovation
    acquisition reform in all phases. There's great technology. We
    spend over $10 billion a year on ship repair. There's state of
    art technology that could enhance that today, reduce those
    bills, get throughput up.
        I go back to this. We need a network of performers. We need
    a big ship building--you know, capital-intensive shipyards, but
    we need to have them connected to a whole network. Whether it's
    commercial service providers that's got digital data, whether
    it's Nate's rapid manufacturing and adaptable things. That's a
    piece I think we're missing.
        We have these kinds of pockets of old legacy things, new
    commercial things we haven't yet tied that together into a
    well-performing network where people can come in and out of
    that network as their performance merits.
        Senator Kaine. Others have thoughts on shipbuilding in
    particular in my last 17 seconds?
        Mr. Diller. Just briefly, if you go look at----
        Mr. Geurts. Take the whole 30 seconds. I'm
        Mr. Diller. We are living in an industrial age that does
    not match the talent pool that we have out there. We really
    must think about what the next leap is in manufacturing.
        Senator King. So back to the workforce question. I
    appreciate that. Thank you, Mr. Chair.
        Chairman Wicker. Thank you very much, Senator King. Senator
    Budd.
        Senator Budd. Mr. Geurts, thanks for your service at the
    SOCOM. So, what are some of the takeaways that you've had from
    SOCOMs approach to rapid acquisition? Do you think it's
    realistic to apply those lessons learned to military services?
        Mr. Geurts. Absolutely. I think a couple of those key
    things are rapid decisionmaking, creating venues to get exposed
    to all the technical capabilities and performance that are out
    there, like soft works. I think it is having the trust of
    Congress and the relationship to be flexible. I think it's
    empowering the program executive officers to manage a
    portfolio, not manage individual programs.
        Senator Budd. Appreciate that. Mr. Sankar, Mr. Diller. Mr.
    Sankar, we'll start with you first. So, what's been your
    company's experience having navigated the Pentagon's accounting
    and invoicing standards regulatory requirements terms of
    payment, all that. How has that affected your ability to do
    business with the DOD, and you said you've been there, I
    believe, a couple of decades, Mr. Sankar, so maybe in the early
    days as a smaller company, maybe much more intimidating at that
    point. So, if you want to go back in history a little bit, what
    was it like as a startup trying to do business with DOD?
        Mr. Sankar. It was quite complicated. I can't tell you the
    number of times we submitted invoices and somehow didn't fill
    out the right tick box somewhere. That meant the invoices would
    get kicked back. People always say you can count on the
    government to pay its bills. I think you can in the end, but
    perhaps not always on time, just given how byzantine the
    process is.
        So, I think it's not commercial. That's kind of the reality
    of it. We should be thinking about where the divergence from
    commercial standards helps the taxpayer, helps the Government,
    and where is a vestige of how we've built the system over time.
    I think it does act as a deterrent and to new entrants coming
    in.
        Senator Budd. So, as for the small business folks that are
    out there listening, what would payment terms be like for a
    small business perhaps in the early days? What would be
    expected?
        Mr. Sankar. Well, everything is paid in arrears, of course.
    So, you can't structure it any other way. Maybe the payment
    terms are quite reasonable, net 30, something like this.
        Senator Budd. Then what's the difference between that and
    reality?
        Mr. Sankar. You could probably add a couple months on that.
        Senator Budd. Ouch. Well, I'm glad you survived. Mr.
    Diller?
        Mr. Diller. Sure. We have one contract right now with the
    Government that is a cost accounting. If we can avoid it, we
    will not do that again. It does not serve--I don't think the
    Government well for this type of work, and it certainly does
    not serve the small business well. Going back to this question
    of the reviewer versus the doer, we still have failed to get
    the Department of Defense into the 21st century to digitize the
    reviewer part at a pace of relevance so that there can be more
    doers.
        That work still is lacking significantly. It's slowing down
    the Government. It is creating waste, and it is keeping us from
    getting the best technologies in the hands of our war fighter.
        Senator Budd. Thank you. Mr. Geurts, acquisition
    professionals, they often cite the high costs, the robust
    penalties, and disincentives to taking programmatic risks. I
    think it results in a culture of compliance over innovation.
    You've mentioned that a little bit this morning.
        So, in contrast, in the non-DOD world, many industry-
    leading companies, they celebrate failure and they adopt an
    iterative approach to learning quickly. How might program
    managers be able to achieve rapid iteration while minimizing
    the risks of failure?
        It seems to me, if you want to address the cultural issue
    here, and I don't know if it's a class or a--I've heard
    somebody ask, what tools do you need? I think it's more than
    that.
        Mr. Geurts. I think it's a cultural issue. So, if you agree
    or disagree, please weigh in on that a little bit, too. It is
    absolutely a cultural issue. There's training you can do to
    expose people to the tools.
        Senator Budd. Yes.
        Mr. Geurts. But if they're in the wrong culture, they won't
    take advantage of the tools. I think it goes back to being
    outcome-focused, having unity of command, who's in charge, and
    then holding that person accountable. In the SOCOM world, there
    was more of that than there was, and there was flexibility.
        You can create strategies where you'll have rivalries and
    multiple performers because you can act very efficiently. Then
    if a company performs well and has a product, the operator
    wants you buy more of them. If they don't, you buy less and go
    to a different product. That doesn't align well with a
    centrally planned, you know, 30 percent of our program elements
    are less than $10 million a year where you send 47,000 pages of
    budget documentations, and then you get hauled up in front of a
    staffer if you make a decision that's the right decision, but
    doesn't align with that bureaucracy. We've got to get to a
    better spot in that regard.
        Senator Budd. Thank you.
        Chairman Wicker. Thank you, Senator Budd. Senator King.
        Senator King. Thank you, Mr. Chairman. I'd like to go back
    to Senator Reed's opening statement at the end where he talked
    about Churchill and the necessity of thinking fast. The first
    step, it seems to me in this process is to have a better focus
    on what we need in the future and not what we needed in the
    past.
        The prime examples to me are hypersonics and directed
    energy. The ground-based interceptor program. Those missiles up
    in Alaska that are designed to hit a bullet with a bullet are
    $70 million apiece. By the way, I got that number from an AI
    app on my phone. But the point is, we have been fighting the
    last war. Instead of talking about directed energy, which costs
    50 cents a shot rather than $70 million the focus has been on
    missiles and missiles. And by the way, those missiles won't do
    anything with hypersonics. That's another technology that we
    were late on.
        So, this process has to start with acquiring the right
    things. New technologies win wars. Genghis Khan conquered the
    world because of the invention of the stirrup. The Battle of
    Agincourt was won by the longbow. World War I, the tank, World
    War II, the atomic weapon. So I think this discussion has to
    start before we get to all the processes that we're going after
    the right products.
        Mr. Sankar, do you have any thoughts on that?
        Mr. Sankar. Yes, I do. I love the tank example in
    particular because it was the Royal Navy that built the tank.
    It was widely----
        Senator King. They were called tanks because the code name
    was tankers for the Eastern front or something like that.
        Mr. Sankar. I think this shows you, I think, even before
    the tank, there was the land boat, which Churchill--you know,
    this seems to be a hearing about Churchill in many ways. But
    the reason I think that's really important is it was a
    heterodox approach. If you had asked the British Army to think
    of what they were going to need to win World War I, they
    would've been wrong. In fact, they were wrong.
        Senator King. They would have said more troops and deeper
    trenches.
        Mr. Sankar. We have to recognize that the innovation to
    fight and win the next war will come from the edges of our
    military. The people who are closest to those problems. It's
    very unlikely to come from this city.
        Senator King. We wouldn't have had a nuclear navy, but for
    Admiral Rickover.
        Mr. Sankar. As Zumwalt said, the Navy had three enemies;
    the Soviet Union, the Air Force, and Hyman Rickover. So he was
    not widely loved, but I think we need more tolerance for the
    heretics, because these heretics end up being our heroes.
        Senator King. Well, I hope that--and I don't know how you
    inject creativity into the process. Mr. Geurts, do you have any
    thoughts on that?
        Mr. Geurts. I also think, sir, that we need to invest in
    the capacity to act quickly. So back to Mr. Diller's comment,
    even if we plan much better, if we don't have the industrial
    network that can react quickly, then we're going to--if we have
    to wait to create that to decide the perfect thing we want. So,
    I'm also a fan of the plan for the unplanned, create the
    capacity to rebuild. We've lost the middle of our industrial
    base. We've got very big performers, a lot of little small
    performers, and that's where I think the commercial marketplace
    venture scaling into that middle becomes really important.
        Senator King. Speaking of acting quickly, this is a chart
    that derived from our dear departed Chairman, Jim Inhofe. It
    compares the time it takes from concept to a new product
    starting back in 1945. The dark line is military aircraft. The
    light blue line is a commercial aircraft, and the red line is
    an automobile.
        So back around in the 1960s and 1970s, those three things
    took about the same time to get to prototype and actually
    going. But something happened, and now, a military aircraft is
    like 25 or 30 years from concept to development. Commercial
    aircraft much, much faster, and an automobile has gone down.
    So, I believe that a lot of this is because of the bureaucratic
    things that we've been talking about today, the impediments to
    actually getting some of these products to market.
        The other thing that bothers me is the proclivity of the
    Pentagon to have its own product. It can't buy something off
    the shelf. Senator Tillis used to bring the spec for the
    handgun which was I don't know how many thousand pages. Instead
    of going to commercially available handgun, all of that would
    require--requirements creep as another problem. The definition
    of requirements and then requirements keep stacking up. Mr.
    Diller, do you have any thoughts on those ideas?
        Mr. Diller. Sure. The Air Force has emptied the museums and
    the boneyards for C130 hub caps. This took us days to build. It
    will take months to get it certified. It finally was to fly. It
    took months to certify. Nothing changed. The data was available
    on day one. The hardware was available on day one. It did not
    change. We have to change the pace of adoption. We must
    digitize our industrial base. We must digitize our bureaucracy.
        Senator King. With your indulgence, Mr. Chairman, one of
    the problems is the risk-averse, which has been discussed. As
    I've observed the development of hypersonics, for example, the
    Chinese seem willing to fail. They do tests and fail. We have
    to have every test work, and that has dramatically, in my view,
    slowed down our development of some of these important
    technologies. Mr. Sankar, you're nodding your head. Is that
    correct?
        Mr. Sankar. I mean, just like the Starship. Elon learns
    more from the Starship breaking up than he does from an
    inherently waiting and slowing down to get the right perfect
    launch one time around.
        You know, the value, the rate of learning. The first
    derivable learning is our competitive weapon. It's how quickly
    we are adapting, not what are we capable of doing today. It's
    how much are we changing tomorrow? I could not agree more.
        Senator King. Thank you. Thank you, Mr. Chairman.
        Chairman Wicker. Well, thank you very much. Now, before I
    recognize Senator Banks, I think we need to add to the record a
    smaller copy of that chart.
        Senator King. I'll provide it to the Committee.
        [The information referred to follows:]

    Commercial vs. military time-to-market trends
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Wicker. Provide it. I find it very interesting,
    and also, Mr. Diller, if you don't mind, Senator Banks, what is
    the object that you just picked up? Tell us a little more about
    that.
        Mr. Diller. So, Senator Wicker, going to your first point.
    If America goes to war tonight, we will go to war with the
    multi-trillion-dollar legacy force that we have today. When we
    talk about innovation, while there are great third offsets,
    hedge forces, replicators of autonomous robots, we must make
    sure that innovation is supporting the multi-trillion dollar
    force that we have today.
        The C-130, as the Air Forces said, did not have a supply
    chain for hubcaps. They had emptied the museums; they had
    emptied the boneyards. This is available to be 3D printed,
    literally designed by Kevin Czinger and his team at Divergent
    Technologies, and he did it in days digitally designed. You
    know, there was a degree of data available that is
    unprecedented with legacy approaches.
        But the challenge of getting this adopted into the DOD
    bureaucracy is one that--it goes back to this risk aversion; it
    goes back to how do we digitize this entire system? How do we
    use digital engineering and digital manufacturing because this
    saves the taxpayer billions of dollars, and it allows aircraft
    that are available today in a legacy force to fly tonight. Many
    of them cannot do that today because of the horrific, horrific
    debt that we have at our depots and in our sustainment
    enterprise. This means innovation. It is there and available.
        Chairman Wicker. Be a little more specific about what the
    holdup is.
        Mr. Diller. The holdup is the risk-aversion. Look, there
    are things that fail. It goes through our airworthiness
    processes as you look at this, right? In some instances, there
    are some parts that if they fail, it is a loss of human life.
    How is it that we make sure that we're using digital approaches
    to identify where are those safety critical things? How do I
    consume data in a 21st century manner that is a digitized touch
    to that engineering design, that is taking a degree of data,
    when we are certifying cars parts for Aston Martin, Bugatti,
    McLaren, we are doing that with data sets that are
    unprecedented and unconsumable today by the Department of
    Defense.
        Those companies, the highest brand name companies in the
    world, would not be offering those safety critical parts on
    their vehicles if they did not have assurance of those data
    sets.
        When we look at the Department of Defense, that's going to
    take years unless there is encouragement, and thanks to your
    team, this initial language started with the 25 NDAA, we must
    build on it. We must drive that adoption. There are incredible
    innovators in the Department of the Air Force that want to do
    this, but it is going to take a nudge to actually digitize and
    to make sure that that massive risk aversion is saving dollars
    for the taxpayer and providing war fighting capability.
        Chairman Wicker. Thank you very much. Senator Banks, you've
    been indulgent, and the chair will be indulgent with you on
    your questions.
        [Laughter.]
        Senator Banks. Thank you, Mr. Chairman.
        Mr. Sankar, what kind of a difference would it make if we
    gave the combatant commands their own acquisition authority?
        Mr. Sankar. I think it is the single biggest difference
    that we can make here. You know, the Department of Defense is
    the only institution I know of that divides up supply and
    demand. The integration of supply and demand is the beating
    heart of any company, that consensus driving process.
        The COCOMs handle the demand, real world events, the
    services, man train equipped, they provide the supply. That
    would work if we really thought every COCOM and all needs were
    perfectly knowable and unitary across space and time here. But
    actually, all of our advantage comes from the fact that we
    might need slightly different things and the signal for where
    that comes from is the combatant commander.
        So how do we give the people closest to the fight, the
    ability to express a little bit of competitive demand signal?
    Ninety percent of what you want is probably coming from the
    services, but that 10 percent gap is what's going to make or
    break us in that fight.
        How do we give them a little bit of budget, a little bit of
    authority and ability to break the monopsony and introduce
    something like a free market where there's multiple demand
    signals coming?
        If we go back to world war, like how did we have a world
    where every service was competing to build an ICBM? Well, maybe
    a COCOM commander should decide whether the Navy or the Air
    Force has the better idea and concept for their specific force
    employment or the emergent needs that they're actually seeing.
    I think that competition will get us all to be better.
        Senator Banks. It seems like common sense. Why aren't we
    doing that already?
        Mr. Sankar. I think having the luxury of having won the
    cold war, is we view that as duplication. We view that as
    wasteful. Why can't we just pick the right answer upfront? I
    think our system is exquisitely designed to solve all problems
    that can be solved, deductively, top down, we can think our way
    through it.
        But the promise of America, is that there's so much
    messiness, it's all inductive, and our system is very, very
    bad. It's poorly set up currently. To find the things you got
    to reason your way through. You got to experience it, roll up
    your sleeves, get dirty and realize new insights as a
    consequence of doing that. I think we solve that by giving a
    little bit of strategic autonomy to the COCOM commanders to buy
    what they need and to build what they need.
        Senator Banks. So, play that out. How would the services
    and the defense agencies react if they had to compete with
    another buyer?
        Mr. Sankar. Well, I think, you know, like most people don't
    really like competition. Of course, a part of that's going to
    be a threat. But I think if you get past the initial
    hysteresis, you'll have the next step from that is, okay, well,
    how do I actually change what I'm building so that the COCOM
    commander wants what I'm building? That's where we're going to
    start to get the leverage from that.
        I can think about it as this is also the idea around
    competing programs and competing program managers that I saw in
    the FoRGE deck, where if we have--what is the incentive for a
    program manager to adopt new commercial approaches that
    actually disrupts their existing program? So, I think today's
    incentive with a unitary effort is deny, deny, deny, pretend it
    doesn't exist, block it. Versus actually I'm competing against
    another great American one corridor down. I want to be the
    first person to adopt the disruptive technology so that I can
    win.
        Senator Banks. Do you have a good example where the
    combatant command's, lack of acquisition authority caused
    delays, or even hurt the mission?
        Mr. Sankar. Well, I think you could look at the success of
    Project Maven, which really didn't come from the services. You
    know, people love to derive OSD level efforts as bureaucratic
    or not sustainable. But that innovation really came from the
    18th Airborne. It came from CENTCOM. It came from EUCOM, it
    came from the Afghan NEO. It came from the emerging demand
    signal in the world, the crisis that had to be responded to,
    the learning that could only happen there, folded in
    capabilities that ultimately scaled to the Force.
        Senator Banks. Mr. Geurts, program managers in the private
    sector are obviously paid more than Government employees. They
    also get bonuses and stock options for good performance. But in
    DOD, the uniform military personnel and civilians managing our
    critical weapons programs get paid the same whether they
    deliver or not. Do you think the limited pay for performance
    system that the DOD has tried, has worked?
        Mr. Geurts. My experience both personally and
    professionally, is it's not a pay issue. The high majority of
    program managers want to deliver an operationally relevant
    capability for the war fighter. They are just mired in a bunch
    of distractions, a bunch of outside stakeholders. Many more
    people can say no than can say yes, and so, they spend 90
    percent of their time managing your bureaucracy, not managing
    the effort.
        Then I think the other piece is we've got to also get to
    the point to be innovative, you have to start things quickly,
    we also have to be able to kill things quickly. For lots of
    different reasons and I think that's one of the challenges. If
    you give COCOMs acquisition authority, we'll start a lot of
    things. But if we can't kill the things that aren't performing
    for whatever reason, then you won't have a highly functioning
    adaptive system.
        Senator Banks. Well put. I yield back.
        Chairman Wicker. Thank you very much. Senator Cramer.
        Senator Cramer. Thank you, Chairman Wicker, Senator Reed,
    thank all three of you for being here.
        I've stayed the whole time because this, frankly, this is
    why I'm here--is what you're talking about. I'm not sure of all
    the solutions, but so far, I like what I'm hearing. This is
    exactly why by the way, Senator Kelly and I stood up the
    Defense Modernization Caucus. So, thank you for your comments
    today.
        I'm going to go a completely different direction than I was
    planning to, or that my staff was planning me to. I was
    thinking back to my first days in the Senate. It was at that
    time when DOD was looking for somebody to win a contract for
    cloud computing, and the Jedi, remember the Jedi competition? I
    remember they chose Microsoft and Amazon early 2019 to compete,
    late in 2019, they awarded Microsoft. What resulted in that
    was, of course an immediate protest.
        Then they went on a while longer, flipped the script,
    chose, Amazon, then Microsoft protested, and then NSA [National
    Security Agency] took over. Anyway, about 5 years later, we
    finally have companies doing cloud computing. I was very
    frustrated by the ability for a company who didn't win the
    contract, regardless who the company is, to protest the company
    who did, and then hold up modernization by 5 years. Now a lot
    of things were happening in the meantime.
        But then we fast forward to today, where we read about now
    what I believe to be the most innovative agency within the DOD,
    the Space Development Agency. Which has been under attacks
    since the day we stood it up by, swamp creatures and legacy
    space operators and legacy acquisition of procurement
    officials, and a protest that I almost guarantee you, will slow
    up the proliferated war fighter space architecture. Which is
    the worst thing that could happen.
        It's even led as, you know, to a PIA claim that looks more
    political than it does real to me, quite honestly. I would just
    like each of your comments or opinions about the protest
    regime, and whether there's more that can be done there. Don't
    get me wrong, competition requires the ability to challenge,
    but it shouldn't provide the opportunity to make the country
    less safe. I'll just start with you Mr. Geurts, we can just go
    down from there.
        Mr. Geurts. Yes, sure. I do agree there needs to be an
    avenue, but that avenue over time has gotten abused. One thing
    I suggested early on, was you get one bite at the apple; you
    could protest the GAO or court of Federal claims you couldn't
    protest twice. I also think there should be some look at
    behavior over time and some disincentive for what I would call
    chronic protesting, particular by incumbents.
        Mr. Sankar. I agree. It's also been abused that I think
    it's a hard problem for the reasons that you've already
    articulated. But I think one way that we could really buy this
    down is by doing more bakeoffs, more things in parallel,
    getting more things fielded, because anyone can win a fiction
    writing contest. It has no correlation to your ability to
    perform.
        But when we have the satellites in space, we'll be able to
    tell one way or another, maybe we'll decide, actually, we
    should have 50-50. Maybe we should have multiple performers.
    Maybe we're working bad decisions because we're evaluating you
    through a fiction writing contest instead of empirically in the
    field.
        Senator Cramer. I thought, by the way, the examples one of
    you used a little bit ago, Elon Musk learning more from blowing
    up. I was at the Starship launch with President Trump, and it
    was very confusing for several of the business people there to
    hear Elon speak so positively about the booster that didn't
    come back, and they had to put in the water and like, but we
    learned so much.
        That's a tough culture in our business and in government
    but it's one we have to foster. Mr. Diller, your comments on
    the protest.
        Mr. Diller. Sure. It gets to that risk. I went to the
    French test pilot school and the speed that my 5-year-old was
    able to learn French compared to me, he didn't care. Right. He
    did not have this risk averse culture. It's the same with Elon
    Musk. When we look at these protests, if we take this approach
    or chairman of the joint chiefs of staff use this phrase,
    'acquire to require?, and it's exactly what Sean was saying,
    how do we slowly build trust? Because it's at the core, it's a
    trust issue. If we actually work together at the beginning in
    ways that OTs allow us to, that trust can be billed.
        Chairman Wicker. Thank you very much, Senator Cramer. Mr.
    Sankar, before I go to Senator Warren, do we have the statutory
    authority in place to have the type of bake off that you
    described?
        [Laughter.]
        Mr. Sankar. We absolutely do, and we have participated in
    just those sorts of down select processes.
        Chairman Wicker. Okay. So it's just a matter of the, folks
    in charge doing that. Senator Warren
        Senator Warren. Thank you, Mr. Chairman, and thank you for
    holding this hearing. DOD buys a lot of stuff from defense
    contractors and to protect the military and taxpayers, it's
    long been the law that defense contractors must give DOD
    contracting officers certified cost and pricing data, to help
    verify that a price that's being charged is fair and
    reasonable.
        One of the big exceptions to this though, is for
    'commercial goods and services? based on the principle that the
    market will make sure it's a fair price. If you could buy it on
    Amazon, that's a fair price. You don't have to go into all the
    background on how you got there. I get that, and I am all for
    commercial buying.
        But the fact is, this is turned into a massive loophole
    where big defense contractors withhold data, even though
    there's no market and DOD effectively, the only customer,
    doesn't have this information so that these giant companies can
    price gouge the military.
        So I want to give you an example here. For years, the Army
    was buying Chinook helicopter engines from Honeywell, and
    Honeywell successfully lobbied Congress so its engines would be
    treated as commercial, and Honeywell wouldn't have to turn over
    the certified cost and pricing data. Now, Mr. Sankar, you're
    the CTO of Palantir, a billion-dollar tech company that
    contracts with DOD. Once Honeywell got the engine moved to a
    commercial engine, what do you think happened to the price?
        Mr. Sankar. I'm not familiar, Senator.
        Senator Warren. Well, it went up, not down by a hundred
    percent, and that's the problem we've got here. Too often, DOD
    is outgunned when it is negotiating with these giant defense
    contractors, which is exactly why it needs the cost and pricing
    data to avoid being ripped off. Now, Mr. Sankar, your company
    Palantir, is looking to create a consortium with another
    defense tax company Anduril, is that right?
        Mr. Sankar. Yes.
        Senator Warren. To jointly bid for something called `other
    transactions agreements', or since we have to give everything
    initials OTAs, where the Government also waives taxpayer
    protections on how to get pricing information. I'm sure it's
    not your intent to team up with another organization in order
    to price gouge the military. So, this next question should
    probably be easy here.
        DODs Inspector General recommended requiring bid
    contractors to alert military contracting offices when the
    price of a good or service goes up by 25 percent. In other
    words, move it up so other people--and can get eyes on it. Mr.
    Sankar, do you agree with the IG's [Inspector General's]
    recommendation?
        Mr. Sankar. I do agree. I think the price signal is part of
    the competitive market and encouraging more entrants and
    capital to efficiently be allocated to improve things.
        Senator Warren. Excellent, and will Palantir agree to do
    that voluntarily?
        Mr. Sankar. I would defer to my team here, but I don't
    think we would've any conceptual disagreement with that
    approach. Okay.
        Senator Warren. So, can I treat that as a yes?
        Mr. Sankar. I would defer to my team.
        Senator Warren. Well, I want to be clear here, because----
        Mr. Sankar. As the CTO [Chief Technology Officer] we don't
    speak on the business side.
        Senator Warren. We only know about most of these
    overcharges because of the work that the Department of Defense
    Inspector General has done. This is the person who President
    Trump just illegally fired on Friday night, along with at least
    16 other IGs. I am deeply concerned that this Administration is
    removing exactly the cops on the beat, that we need to identify
    waste and to prevent these kinds of increases.
        Mr. Sankar, do you think it helps or hurts national
    security to have Senate confirmed watchdog who can be there on
    pricing questions like this to call balls and strikes?
        Mr. Sankar. As a technologist, what I can speak to is, when
    you look at Intel in the late 1960s, 96 percent of the market
    for integrated circuits was the Apollo program and the DOD, but
    Bob Noyce says the co-founder of Intel, the co-inventor of the
    transistor, always envisioned a bigger commercial market. Our
    ability to deliver a salt breaker and ultimately have an
    asymmetric threat against Soviets----
        Senator Warren. I'm sorry, can you relate that to the
    question I just asked?
        Mr. Sankar. Yes, I promise it'll get there. Our ability to
    deliver a salt breaker was because actually he could create
    integrated circuits that were thousands of times cheaper than
    when we were building Apollo. That was only possible because he
    had an eye toward the commercial market.
        I completely agree that if you have a fake commercial item
    that doesn't actually have commercial applicability, if the
    company is not able to leverage a diversified R&D base that
    goes beyond the government, that that is the promise that
    should lead to price performance improvements for the
    Government, then you're not getting the value of the commercial
    item.
        But when we look at space, for example, I grew up in the
    shadow of the Space Coast. The cost to get a kilogram into
    orbit for the shuttle was $50,000 a kilogram. So the cost with
    Starship heavy reuse will be 10 bucks. So,
        Senator Warren. Mr. Sankar, I very much appreciate that
    you're trying to push here on cost, I am too. The question I
    had asked you is whether or not we need IGs, who are the
    whistleblowers, who say people are cheating on the cost, for
    example, on the definition of commercial, are somebody who can
    help us bring these costs down.
        Pentagon is spending $440 billion this year on contracts.
    It's important for us to get better procedures in place to get
    some eyes on what they're doing, and IGs help us do that. Thank
    you.
        Chairman Wicker. Thank you very much, Senator. Perhaps Mr.
    Sankar would like to respond on the record to that last matter.
    With regard to deferring to your team, once you've had a chance
    to do that, perhaps, Mr. Sankar, you could supplement your
    question on the record along with other things.
        Chairman Wicker. Senator Schmitt.
        Senator Schmitt. Thank you, Mr. Chairman.
        I'll start where Mr. Sankar left off and ask a question,
    and all three of you feel free to chime in. I also serve on the
    Commerce Committee, and to my surprise, in my first year, I was
    named the ranking member of the Space and Science Subcommittee.
    I would not have put that on my Bingo card in coming into the
    Senate in my first 2 years. But I found it fascinating because
    of the innovation that's happening in space, driven by the
    commercial private sector, right?
        One of the things that we were able to do was to extend the
    learning period which is kind of essentially allowing these
    companies to innovate and any regulations that would come
    really sort of follow the path of what has worked.
        So not to artificially constrain the innovation on the
    front end with a bunch of bureaucrats who are just sort of
    making it up, not really knowing where the rules of the road
    really should be. I'm wondering is there a scenario or how
    would we construct something similar? I mean, we're all getting
    at this challenge of innovation, and how do you unlock it in
    what seems to be a Pentagon that has just sort of been captured
    by centralized planning.
        I mean, I think our great advantage against Communist China
    is our ability to innovate, they're really good at copying.
    We're really good at innovating, but if we hamstring our
    ability to innovate, we lose our advantage, right?
        So, this example of a learning period as it relates to
    commercial space, what would be a version in your mind that,
    that we could sort of replicate in the NDAA?
        Mr. Sankar. Well, I think the commercial SpaceX is a great
    example where SpaceX wasn't given the monopoly. They had to
    earn it. We had multiple competing approaches to get to space,
    and they thought that they could do that at a price performance
    level, no one else could. That's clearly been proven to be
    true. I think if we applied that more generally, which is like
    the inductive bottoms up innovation is the American spirit,
    that is our competitive advantage. How do we get more shots on
    goal for all the efforts we're going to? Less certainty in the
    top-down centralized planning, more space to have new
    performers, new entrants, present the heterodox ideas.
        I think for that to really take hold, you either need to
    have competitive program offices within the services or you
    need to empower the COCOMs to create that sort of demand signal
    that varies, that pushes the adoption of innovation.
        If I look at our own company, the history, all of our
    adoption came from the field. It came from Iraq; it came from
    Afghanistan. It didn't come from the program offices. It
    actually came despite the program offices. They were resistant
    to this as something that was going to screw up their cost
    schedule performance.
        I think the kiss of death would be trying to create some
    sort of smooth process to go from new ideas that are innovative
    to scaling them. I promise you that is always going to be hard,
    that is always going to be messy, it's going to be
    interpersonally friction full. If we wrap that in process, we
    will kill it and smother it. But if we enable ourselves to lean
    into that friction, we will be able to field the cutting-edge
    technologies we need.
        Senator Schmitt. So, in addition--I want the other, two to
    chime in too. In our meeting, prior to this hearing, we talked
    a little bit about having the competition among services is an
    idea. Combatant commanders having some flexibility to adjust so
    whether it's sort of a separate pot of money dedicated for
    that, we've talked about in this committee about having a
    separate pot for smaller players, the disruptors, who might
    come into the marketplace, what other concrete ideas exist?
        I guess, because I won't have time to ask the second
    question, but in the context of, if we were at war right now,
    like, let's say we're at war with China tomorrow. What would we
    do differently? What would we do differently that we're not
    doing now?
        Mr. Geurts. Yes. Just quickly and happy to do a followup,
    but I think we leveraged the full, I go back to this industrial
    network. We have tremendous commercial capacity we aren't
    tapping into and leveraging. We have to rebuild manufacturing,
    but not rebuild what we used to have, rebuild it with modern
    technology that's flexible. We have to think about, let's take
    contested logistics, leveraging electric vehicles, things that
    already exist, rather than trying to recreate this giant
    purpose-built force, become really fast adopters, integrators,
    and not try and be the inventors of everything.
        There's plenty of invention around. We need to be super-
    fast at importing it, integrating it, and then getting it into
    the hands of our women and men in service.
        Mr. Diller. I think there are models that exist. They have
    been practiced over the last few years. They were not scaled. I
    don't know that we have the structure to actually scale those
    currently. We have done incredible work; the Department should
    be commended on incredible work of these multiple pilot
    projects. Eventually, that must turn into, without becoming
    overly bureaucratic, right? This is the risk, build on those
    successes of reaching out to thousands of companies.
        Speed is everything. How do you scale them in a relevant
    timeline? It's possible. It does require some flexibility. It
    requires transparency from the Department that's going to
    create the trust for speed. Thank you.
        Chairman Wicker. Thank you, Senator Schmidt. Mr. Sankar,
    I'm so glad Senator Schmidt asked that question. If we found
    ourselves at war immediately, go ahead and be the third
    response to that question.
        Mr. Sankar. I think we would lean in heavily into the
    primacy of people. Do you have the right person in charge of
    these programs? You'd stop rotating them immediately. You'd go
    deep on focus. You'd probably do a lot more with vertical
    integration of the capabilities, not reliant on thin horizontal
    supply chains.
        But I think we would organize around the most credible
    people and humans we have and limit the number of programs we
    have, concentrate our arrows behind those things. Today, we
    kind of have this bingo card approach to rotating our general
    officers around making sure in the spirit of jointness, that
    they have this array of experiences. I think that probably
    helps you in peace time, but I think it strictly hurts you.
        You haven't even been in the role long enough to learn from
    the mistakes you've made. You don't even know their mistakes
    yet. It takes a long time for these programs to get to the
    point where you're up the learning curve. I don't think you
    could just randomly replace Elon or Glenn Shotwell and expect
    these rockets to keep working. They have accumulated this
    knowledge over 20 plus years of building them.
        Chairman Wicker. Are we in peace time now?
        Mr. Sankar. In my opinion? No. but I think we got to get
    the whole country to realize that.
        Chairman Wicker. Thank you very much. Senator Rosen.
        Senator Rosen. Well, thank you, Chairman Wicker and of
    course, Ranking Member Reed. Really an important hearing. I'd
    like to thank each of you for being here to and testifying
    today. I want to build upon a little bit about what Senator
    Warren brought up on competitive pricing, because consolidation
    of our defense industrial base is concerning, to say the least.
    Because since the 1990s, the number of U.S. aerospace and
    defense prime contractors have shrunk from 51 down to 5, 51 to
    5.
        As a result, the Department of Defense is increasingly
    dependent on a small number of contractors for critical defense
    capabilities. This constrains us in many ways and I hope for a
    bigger conversation on the value of early stage research and
    what it can teach us. You've been speaking to that, but that's
    a much larger conversation we can't have in 5 minutes.
        Mr. Diller, how should DOD help support advanced
    technology?
        Our small businesses that do that, especially those who
    struggle to find private capital, we want them to be more
    attractive for investments so they can survive the infamous
    valley of death stage, accomplish technology transition, and
    become part of our defense industrial base.
        For Secretary Geurts, I'm going to ask you a followup. For
    those defense-focused small businesses who can't find the
    private capital, they don't make it across the valley of death.
    How might public private partnerships incentivize domestic
    investors to help support them? So, Mr. Diller and then Mr.
    Geurts?
        Mr. Diller. Yes, ma'am. Thank you. When we launched what we
    called AFWERX 2.0 in 2020, we created this process called
    AFWERX Prime Process. You can say what you want the particular
    marketing around that. But what it did is, it recognized that
    there are many technologies, emerging technologies, that DOD
    can actually become an incredible incubator to: one, reduce the
    technical risk, two, reduce the regulatory risk, and three,
    reduce the re adoption risk.
        We were able in a few instances to actually, I think
    establish a dual set of technologies to some degree, an actual
    market in America, because of that approach. Because very
    quickly, some of those companies at the beginning came in on a
    $50,000 small business contract that we've been talking about,
    but were given authorities to turn that $50,000 contract into a
    $50 million contract over the course of a year.
        So speed is everything. Getting the Department to
    understand the critical nature of speed, and as we are in a
    wartime footing, that is yet ever more critical. Those things
    have been piloted. There have been initial moves by the
    Department to create the flexible funding to actually get them
    to scale. We must double down and make sure that that success
    can scale.
        Senator Rosen. Mr. Geurts, what do we do if they don't make
    it across? How do we incentivize these public-private
    partnerships----
        Mr. Geurts. I think we need to be careful that I don't
    think every company is going to make it across. We want to make
    sure we don't over rotate the other way, so that if you don't
    have a product that meets a need at a price that's affordable
    and reasonable, then you may not make it across.
        Where I do think we have to focus more is how to quickly
    scale the products and services that we need, and in many
    cases, these small businesses have a piece of the solution, but
    aren't the whole solution. That's where I think there's
    opportunity to create a network where either they get together
    or they band together with either commercial or another company
    that can help get them across.
        Senator Rosen. You can connect them; they can potentiate
    their value together. Well, I want to keep a little bit on this
    potentiation, because technology supply dependent a fragile
    global supply chain from critical minerals to semiconductors.
    Nevada, of course, my home State, we mine lithium, magnesium,
    and other critical minerals.
        Well, we have a role to play in these technologies too, but
    only if we make a concerted effort to strategically leverage
    our resources, leverage our advantages to overcome our global
    supply chain challenges. So again, Secretary Geurts, what
    specific strategies can the U.S. employ to mitigate these
    vulnerabilities, investing in domestic industry to help it
    strengthen our supply chain resilience?
        Mr. Geurts. Yes, I'm really optimistic on the focus of not
    only owning our supply chain, but adding multiple sources of
    supply to build resilience, and I think, you know, 5 years ago,
    that wasn't part of the conversation. It's part of every
    conversation now, and looking at all the resources we have, and
    then how do we incentivize that is going to be critically
    important. Whether it's the rare earth and minerals all the way
    to being able to remanufacture a part that's been out of
    production for 30 years.
        Senator Rosen. Thank you, and I'll submit this question for
    the record, but as the only former software developer here in
    the U.S. Senate, I want to talk a little bit about high quality
    systems and software and how we prioritize across the
    enterprise DODs management of technical debt, which cost of
    choosing speed over quality, and when we develop software
    systems. I'll submit that for the record for you. Thank you.
        Chairman Wicker. Thank you, Senator Rosen. Senator Scott.
        Senator Scott. Thank you, Chairman. Thank you for holding
    this hearing. Mr. Geurts, when I was in business, I had a
    written purpose for everything we spent money on. When I went
    to Wall Street to raise money, they wanted to get a return on
    their investment. When I became Governor of Florida, there's
    4,000 lines to the budget, what we did was we had a written
    purpose for every line. If they didn't meet the purpose, we
    didn't continue to fund them. Is that how DOD works?
        Mr. Geurts. I would say yes and no. I would say there's a
    written purpose in about a stack of budget docs this thick,
    where there's a purpose against every budget line. Are those
    looked across and are they scrubbed the way they need to be?
    No. Is return on investment looked at as close as it needs to
    be? No, and are we good at stopping things we started, we're
    horrible at that. That's one of our biggest inhibitors to
    innovation, is we can't stop things that aren't adding value to
    fund things that we need to be working on.
        Senator Scott. Can you give me an example where it didn't
    hit a purpose and there was some accountability? Like, did they
    stop a program? Did somebody lose their job? Can you gimme one
    example of, you know, there was a written purpose for
    something, it didn't happen, and some where there was change
    made?
        Mr. Geurts. Not sure I have a clear example of that as much
    as many times we are issued sometimes through congressional
    budget changes, activities to go work on that were not in our
    original plan. Some of that can be value added. Some of that
    may not be value added. I can't give an example of where there
    was a purpose for funding that and somebody didn't execute the
    purpose. You could argue whether the purpose was the right
    purpose but I can't give an example.
        Senator Scott. So you don't have an example where anybody
    was ever held accountable for not fulfilling their purpose?
        Mr. Geurts. Well, I think there's plenty of examples of
    that. You can look at what I did as a Navy secretary and the
    Ford Program manager.
        Senator Scott. So, what happened? Did somebody get fired?
        Mr. Geurts. Yes, he did.
        Senator Scott. Why? What didn't he do?
        Mr. Geurts. Didn't execute the outcomes I expected as a
    program manager.
        Senator Scott. Good. Mr. Sankar, Mr. Dillard, do you guys
    like to compete?
        Mr. Sankar. I love it.
        Senator Scott. How about you?
        Mr. Diller. Absolutely.
        Senator Scott. Okay. So, to compete, does it make you
    better?
        Mr. Sankar. One hundred percent. Without exception.
        Senator Scott. So, have you lost?
        Mr. Sankar. Yes.
        Mr. Diller. Often.
        Senator Scott. Okay, and when you did, what'd you do?
        Mr. Sankar. Get better.
        Mr. Diller. Try harder.
        Senator Scott. Okay. So do you feel like that's the way DOD
    operates, where they're out trying to get people to go compete,
    to find out the best product service, things like that?
        Mr. Sankar. I think it attempts to, but sometimes the
    nature of the competition can be a fiction writing contest,
    like an RFP. Sometimes the competition is so constrained and
    not real world enough that it doesn't provide a long enough
    runway. Sometimes the competitions are just too short, where
    actually what you want is, you want to be able to get a bunch
    of people in continuous competition that just because you're
    winning today, I want to have an incentive to invest my private
    capital into R&D and show up next month with a better
    mousetrap, and try to win with that, and show up the month
    after that and do that again.
        Senator Scott. Are you rewarded for that?
        Mr. Sankar. Spiritually, right now we are, but I think
    we're at the beginning of a broader transition with DOD. Where
    I think that can result in the sort of rewards that make this
    sustainable.
        Senator Scott. Okay. For both of you, if you had three
    things you're going to do to, to force big change at DOD, what
    would you do?
        Mr. Sankar. I feel like I'm starting to sound like a broken
    record, but my two core suggestions, the first would be have
    competing programs. Do not give a program a monopoly on a
    certain capability area. Let multiple departments,
    organizations, units, programs within the government compete
    with each other. That's why SpaceX is so innovative right now,
    is because it is a food fight between various different
    agencies. We should embrace that when we were winning that's
    what it looked like.
        The second one is, push more authority to the combatant
    commanders to decide what they need. Use that to drive signal
    and reformation to the services and the Department broadly.
        Senator Scott. Mr. Diller.
        Mr. Diller. Digitize. The future is digital, and we are not
    there yet. Second, be clear that there are different types of
    portfolios that attract different types of companies that need
    a different culture, and make sure that there is a path of
    doing that.
        Last, make sure that we actually have the ability to
    manufacture in America. DOD could be the catalyst to actually
    shift American manufacturing. Manufacturing is not a DOD
    problem; this is an American problem. It must be solved to
    avoid the crisis that we have in building, turning ideas into
    hardware.
        Senator Scott. Thank you, Chairman.
        Chairman Wicker. Very good. Senator Scott. Senator Kelly.
        Senator Kelly. Thank you, Mr. Chairman. Thank you, all of
    you for being here today. As the Ranking Member of the Airland
    Subcommittee and the co-chair of the Defense Modernization
    Caucus, along with Senator Cramer, I'm focused on maintaining
    our competitive edge over our adversaries. To achieve this,
    we've got to ensure that our military is not only equipped with
    cutting edge technology, but also as the infrastructure to
    remain effective in contested environments, where supply chains
    and sustainment could be disruptive.
        I don't know if the three of you saw an order from OMB from
    the White House last night or yesterday, an expansive order
    with repercussions across the country. It's unprecedented in
    this order and I'll explain here in a second where I think the
    defense impact could be. But this is cutting, pausing Medicaid
    health plans, Pell Grants, Meals for Kids, nutrition programs
    for pregnant mothers, programs to help homeless veterans.
        It appears that it also may freeze Federal funding and
    grants for Department of Defense Research in manufacturing
    technology and other small business innovation programs.
        So, I want to ask each of you, starting with Mr. Geurts,
    have you looked at this memo that was issued last night? Are
    you concerned that a blanket freezing of these funds--how would
    it impact our readiness and ability to compete with China and
    other adversaries? I want to start with Mr. Geurts.
        Mr. Geurts. Sir, I have not seen the exact memo you
    referenced. But more globally, one of the challenges with the
    DOD as a customer is there's lack of trust that they'll be
    there and they will start, stop, start, stop. I think that
    could send a bad signal to business, and then also, if we stop
    a bunch of research and are not staying on the technical edge,
    that could be detrimental to the force.
        Senator Kelly. Mr. Sankar, for Palantir specifically, let's
    just say in a couple days, you find out that that contract
    payment that you were about to receive, you're not going to
    receive it, and you're not going to receive it next month or
    the month after that. Could you talk specifically about how it
    would impact your company?
        Mr. Sankar. I think you can imagine that it causes quite a
    bit of heartburn, particularly for services already rendered.
    But it's a difficult environment.
        Senator Kelly. Where are your employees?
        Mr. Sankar. All over.
        Senator Kelly. All over how many?
        Mr. Sankar. Four thousand total.
        Senator Kelly. If you didn't get paid by the Federal
    Government for the next 3 months, how many of them do you think
    you'd have to lay off?
        Mr. Sankar. I would rather not think about it.
        Senator Kelly. You'd rather not think about it. Okay. Mr.
    Diller, for Divergent, what would be the impacts if your
    Federal dollars contract payments were to stop?
        Mr. Diller. As a dual use company that really is just
    starting into the defense space, certainly, it would deter us
    from continuing that. I think, you know, we've seen this over
    the years, and this is one of the many things that creates risk
    for companies. In some instances when I was a director of
    AFWERX, you simply could not convince some commercial companies
    to go do business with the Department of Defense. So obviously,
    trust is key on these things, and understanding continuity of
    agreements made is important.
        Senator Kelly. Yes. So you're going to find out in the next
    probably 24 hours if it's going to impact you and your company
    and your employees and people who live in those communities.
    But this is an unprecedented overreach from the White House,
    with a directive from OMB to freeze programs that folks on this
    Committee, in the U.S. Senate authorized money to be
    appropriated for very specific programs.
        Programs--I'll get back to, that help homeless vets,
    nutrition programs for moms, but also programs that affect our
    safety, our readiness, and our troops to make sure that they
    have the combat power that they need to win, win in a very
    tough environment.
        So I'm very concerned about this action that the White
    House took without, I guess they notified us. They say it goes
    into effect at 5 p.m., I suggest when you get back to your
    companies that you take a close look and see what the impact is
    going to be to you and your employees and our readiness. Thank
    you, Mr. Chairman.
        Chairman Wicker. Thank you. Senator Kelly. Senator
    Sullivan.
        Senator Sullivan. Thank you, Mr. Chairman. I'll comment on
    followup on Senator Rosen comment about critical minerals, I'll
    actually comment on a really good executive order. The critical
    mineral issue, is the good news is Biden's out Trumps in,
    especially for my State. We have incredible resources of
    critical minerals for our military.
        Joe Biden spent 4 years shutting down Alaska because
    radical environmental groups said, don't mine in Alaska, get it
    from China. So that's what we did for 4 years, and Donald Trump
    is changing that on day one.
        Senator Rosen asked about critical minerals, the good news,
    the most important news for critical minerals for America is,
    Biden's gone and Trump's in. That is really good for the people
    in my State who have been sanctioned more than fricking Iran
    and Venezuela by the last Administration.
        But let me, I'm venting here a little bit, Mr. Chairman.
    Sorry. Let me get to the point of the hearing. Thank you for
    holding this hearing. This is really something all three of
    you're going to have experience on. So I really want to get a
    sense of it. Mr. Sankar, you might remember at the lunch that
    you and I were at recently, where Admiral Paparo was talking
    about contracting officers who are in the middle of their
    careers, don't want to rock the boat. This idea of a frozen
    middle in the Pentagon.
        We all love our military, I think Mr. Diller, you actually
    served as a contracting officer, acquisition officer. What are
    some of the ways that we can best incentivize contracting
    officers in the Pentagon to take risks on newer companies as
    opposed to always default to Lockheed and Raytheon and, you
    know, take the easy route.
        Because I think the culture in the Pentagon is one thing we
    got to work on, and you all have experience on that so I'd love
    to get your sense quickly, because I have some other questions,
    but culture contracting officers, how do we incentivize risk
    taking without people being scared in the big bureaucracy of
    the Pentagon? Go ahead. All three of you take a crack at it.
        Mr. Sankar. I'll offer a thought here. First is get them
    out of the Pentagon. Maybe we need to have our contracting
    officers or acquisition folks forward deployed closer to where
    the problems are, understanding the ways viscerally, there's a
    reason SpaceX locates their R&D engineers on the production
    floor. That is a heterodox approach that we certainly would not
    see in the defense industrial base. But that's where you
    observe the problems, you change your design, you're able to
    close those loops very quickly.
        Chairman Wicker. We could do that now. Could we?
        Mr. Sankar. We could. The second part is, have another
    American, one corridor down that they're competing against.
    Yes, you know, that the risk of disrupting your schedule is
    outweighed by the fact that that person's going to win, and
    you're going to lose that.
        Senator Sullivan. I love that idea. Anyone else, Mr.
    Diller?
        Mr. Diller. Incentivize speed. In AFWERX, we went from no
    contracting shop, and we deliberately were saying we are
    establishing a different culture. There are people in the
    Department of Defense, I would say most of them actually, that
    want to move at speed. As Mr. Geurts mentioned, this is not
    necessarily about money. It is a mission that they actually
    want to engage in.
        When leadership actually takes on the risk themselves and
    unlocks the people working for them, you can attract incredible
    contracting officers. There are so many of them out there, and
    they're ready to move with speed to buy the right things.
        Senator Sullivan. But they need to be told from the top-
    down percent, Hey, it's okay to contract with this up and
    coming upstart versus the big guy who's going to take 15 years
    to get his product out. Correct? Yes.
        Mr. Geurts. Yes, sir. One, you got to get them aligned with
    the program manager so that they're not on an island of their
    own. Then that team puts together the strategy and is held
    accountable for looking across the entire thing. The second
    thing, which the--is helping, the burden we put on a contract
    officer to award a contract, the number of things they have to
    sign, the number of certifications is ungodly. Yes, and so,
    this Committee could really help by scrubbing a bunch of that
    underbrush----
        Senator Sullivan. Is that not in statute, is it?
        Mr. Geurts. Yes, sir. I mean its statute, which then we
    propagate in implementation and processes, and then well----
        Senator Sullivan. Maybe for the record, if you have some
    ideas on that real quick, I want to just ask one final
    question.
        Mr. Sankar, you did a great job on your Defense Reformation
    piece published in October, but there's and I love the idea of
    competition between programs. But how do you envision the
    acquisition system working when the services have a lot of,
    you're very focused on the combatant commands, and I get that,
    that makes a lot of sense, but the services also have a lot of
    skin in the game and is there a challenge that if you're moving
    it to combatant commands, the services are going to be, hey,
    that's my piece of the territory. What do we need to do and how
    do you make them work together better?
        Mr. Sankar. Well, I think if we thought about it at the
    margin, a little bit of overlap is actually what gets them to
    rise to the occasion.
        Senator Sullivan. That's your competition thesis.
        Mr. Sankar. Yes, and so I think, you know, I'm not sure
    you'd say Air Force, please go build me an aircraft carrier,
    you know, but it's really like, where are we on the margin? One
    example, when we were trying to build JADC2, we have Overmatch,
    we have a BMS and we had Project convergence, but each of those
    was just trying to build software or JADC2 within their
    service, which you could argue is a little bit of a
    contradiction on the concept of JADC2 to begin with.
        Maybe a more productive frame would've been, each of them
    is actually seeking to field software and capabilities to the
    combatant commanders across components, across services, and
    that's going to create the productive tension to win. That
    would also force interoperability, it would force a lot of the
    things that we aspire for. It would be MOA in practice instead
    of MOA on paper, and so I think we forget that first you have
    to be effective before you can focus on efficiency.
        Chairman Wicker. Members can supplement their answers.
    Thank you. Thank you very much. Senator Slotkin.
        Senator Slotkin. Thank you, Chairman. Thank you for holding
    this hearing. I was glad that our first official hearing beyond
    a confirmation hearing was on something where we should have
    very bipartisan approach to this issue. I'm a former CIA
    [Central Intelligence Agency] officer and Pentagon official, so
    I feel like I saw a lot of this up close.
        I think the most important stat for me that I think about,
    that I measure our success or failure at is someone told me
    that to go for the Chinese Government, to go from concept to
    fielding a program in their military is a 1-year string. For
    the United States, it's a 3-year string, right? I can't imagine
    all the man hours in between those, those 3 years.
        To me, I mean, we hope we never have a conflict with China
    or anybody else, but we have to have the speed of
    decisionmaking to change on a dime.
        I have seen in three tours in Iraq, particularly with some
    special authorities the special forces have, to really innovate
    in the field. The most exciting stuff I've ever seen was just
    where the flash to bang was like, boom, we got a problem, we
    have authority to go do it, let's go do it.
        So I would describe, I did 6 years on the House Armed
    Services Committee, that our Committee in a bipartisan way was
    ready to hurl authorities at the Pentagon if we thought it
    would actually help move things.
        You have an open you know, sort of door, I think with
    Democrats and Republicans. I have come to believe that culture
    is critical. The idea that a mid-level contracting officer is
    going to break out and do something new when they're not
    getting their pressure in a chain of command organization is
    like saying that, Senator Wicker's mid-level staff should be
    doing something on his behalf. At the end of the day, the buck
    stops with him.
        So I think a Reform-minded Secretary of Defense, again, I'm
    not talking about party, is the most important thing to taking
    this on and prioritizing it. I hope that the Secretary of
    Defense again, gets through what I see as really sort of side
    issues and gets back as he says, he wants to, war fighting.
    Which is the speed of decisionmaking and taking a home hold of
    that acquisition system and changing it.
        But to me, this is about culture, and until we get that
    right, we're just going to be spinning our wheels. I would also
    note that you guys in the private sector, you get to gamble
    with your shareholders or with your investors', money, gambling
    with taxpayer dollars is just a higher threshold, right? It's
    going to be a higher threshold. It's never going to be like the
    private sector. We all complain when the F-35 goes over budget
    and all these things because they're wasting taxpayer dollars.
        So there's a conundrum there that doesn't make DOD perfect
    as an analogy for the private sector. But we're in violent
    agreement that we need to do something to speed things up. I
    just think it has to be top down. I hope we can push that
    agenda in a bipartisan way together.
        In the meantime, I do have to say, following on what
    Senator Kelly just said, Senator Wicker, we have a
    constitutional issue going on right now, where this body has
    appropriated money for defense programs and a million other
    things. The Trump administration has come in and contravened
    your own and all of our guidance on programs in the past, I'm
    not talking about programs in the future, every president gets
    to decide how they want to create programs that they want to
    implement.
        But for things that have already been appropriated, right
    now, the military health system as, research projects are all
    on hold. Talk about servicemembers safety and health, funding
    for the Fisher House, wounded Warriors on hold, all Army
    contracts on hold. Okay. I don't see how this isn't just purely
    throwing the baby out with the bath water.
        I get that Mr. Trump is going to make change. I won on the
    same ballot as Mr. Trump. I understand that, but this is to me
    breaking the constitutional rules that we have set up here. So,
    I would assume we're going to see some serious action from this
    body, I hope, on a bipartisan basis.
        I've filibustered my entire time but all this to say Mr.
    Chairman, you have a friend in this cause. I want to make it a
    top-down cause so we actually move the needle, otherwise, we're
    just giving scraps at the margins for contract officers who are
    going to do what their boss says, If their boss demands action.
    I'll leave it at that.
        Chairman Wicker. Thank you, Senator Slotkin. Let me just
    respond very briefly. I think all three of these witnesses have
    not had a chance to read the memo to which you and Senator
    Kelly referred and questions are being asked around Capitol
    Hill at this very moment about that and they'll be more
    visiting about that issue.
        So it is almost the end of the first round, and I'm the
    last questioner. Let me ask a thing or two.
        Mr. Sankar, you said the stockpile is not the deterrent,
    the flow of mass production is the deterrent, and Mr. Diller,
    you say the factory is the weapon, and if we need more
    factories for sustainment and war, we should be buying that
    capacity. Now you're both saying the same thing there, are you
    not nodding?
        Now, Mr. Diller, when you say we should be buying that
    capacity now, you're not talking about ownership of the
    factory, are you?
        Mr. Diller. No, Senator. But what I'm suggesting is that
    today we have a crisis in sustainment. There is an instance
    because of the--both from a national industrial based
    perspective and because of some of the challenges in defense
    innovation, we have locked our depots and our sustainment out
    of being able to actually create the parts that are needed
    today to fill the multi-trillion-dollar portfolio we have.
    Those depots could actually field today, factories as a
    service, that would have incredible agility to ensure that the
    legacy force that we must have, that we've invested trillions
    of dollars in, is ready to fight tonight. That needs to be a
    wildly agile factory as a service.
        That same factory, as honorable Geurts had mentioned,
    becomes this network then, so that small companies are able to
    go build entirely new things. If we call these hedge
    portfolios, right? The autonomous light, a charitable mass, the
    agility of these factories that are available in an entirely
    new step of American manufacturing, that is possible today.
        Our depots could be an incubator for that type of thing to
    actually go through digital certification processes for tools
    like this to be able to save the taxpayer dollars, to be able
    to drive information.
        Chairman Wicker. As Mr. Diller holds up the hubcap.
        Mr. Diller. Yes, sir. Yes.
        Chairman Wicker. Now, Mr. Geurts, shall we make it
    unanimous on that point?
        Mr. Geurts. Yes, sir, and I'd also add we are really
    enthusiastic about prototyping and we're completely
    underperforming in production. We are actually not producing
    much new capability, and in the cases in replicator we have, we
    may spin up a production and then shut it down 6 months later.
    So I do think a focus on production, both in terms of capacity,
    how to network that production, how to digitize that production
    and get to producing more and getting our iteration speed up,
    would do two things.
        One, it would allow us to grow this manufacturing capacity.
    That in itself is deterrence. Second, it would allow us to
    field new things to the field versus just doing one-off
    prototypes and doing one-sie two-sies.
        Chairman Wicker. Mr. Sankar, in your white paper, you say
    on page 9, that our centralized predictive program budgeting
    management and oversight process values time spent rather than
    time saved. Will you elaborate on that? And then we'll let our
    other two witnesses give their views,
        Mr. Sankar. The way that we want to provide resource is
    based on how expensive is it to do something. But that is a
    complete disincentive for reimagining things. My critique
    around production versus stockpile is really that we do not
    have the necessary incentive to design for manufacturability.
        You know, we are so proud of the exquisite weapon that we
    made as a prototype to honor this point here, but we didn't
    think through, can I make 10,000 of these? How long will it
    take, if it takes 2 years to build a single munition, that's
    not going to scare sheep, so really, we need to be thinking
    about manufacturability from the very beginning here.
        That I think then leads us to thinking about entirely
    different classes of weapon systems and different ways of
    organizing ourselves and our industrial base to go accomplish
    that.
        Chairman Wicker. Mr. Hondo Geurts, time spent versus time
    saved.
        Mr. Geurts. I would agree with that. I do think we have to
    differentiate the market. So the DOD buys a lot of stuff. We
    need lots of different ways to do things, not try and pick one
    that's, you know, we'll do everything well. I think that's an
    opportunity. I think the second piece is, we need to get to
    continuous competition on many of our products, so that we can
    bring in new entrants and continually drive the system.
        Because right now, because of the time to budget for a
    program and the rigidity of all the planning, it's kind of a
    big bang theory. We have one big contract award, and then
    you're stuck with that for 15 or 20 years versus what I would
    say, continuous competition, which then incentivizes all the
    kind of behaviors we're looking for.
        Chairman Wicker. Mr. Diller, anything to add?
        Mr. Diller. The technology is there. It is available to
    rapidly transform our Department of Defense today. It's
    adoption, adoption, adoption. We have to engage with this
    bureaucracy, accelerate this at bureaucracy, so that we are
    actually mobilizing that entire industrial base because it is
    urgent. This is a critical time and I am very, very optimistic
    that America is going to be able to build together.
        Chairman Wicker. Thank you very much. Senator Slotkin, do
    you have other questions? I do. We'll begin round two, and its
    only Senator Wicker participating.
        Gentlemen, Mr. Sankar thinks it's a shame that companies
    that used to make other products, non-defense related, are no
    longer in that business, only 6 percent. Chrysler used to make
    cars and missiles. Ford made cars and satellites. General Mills
    made cereal and artillery and guidance systems. Does he have a
    point there, Mr. Geurts?
        Mr. Geurts. Absolutely. The second I would add to that is
    that we've also systematically lost the middle of our
    industrial base. This is where I think a lot of the venture
    backed companies, we need to scale him quickly so that we've
    got companies that are agile enough to move quickly, right? But
    big enough to move at scale, and that's one of the things I
    think as we build this industrial network of the future, we've
    got to build back the middle of the industrial base.
        Chairman Wicker. Mr. Sankar, there's a reason that
    happened, and can it be reversed?
        Mr. Sankar. Yes, it can be reversed. I think we have to
    remember the industrial base we had today; we think of it as
    Northrop Grumman, but it was Jack Northrop. It was Leroy
    Grumman, it was Glen Martin, not Lockheed Martin. You had these
    difficult founders. We would recognize them as Elon Musk type
    personalities who were interested in doing something big.
        It was not about this quarter's results. It was actually,
    they were dual purpose, not just dual use. You know, it wasn't
    about the cereal. It was everything I learned building
    machinery to process cereal, I could turn into artillery to
    defend the Nation.
        We have those founders back, $120 billion of private
    capital has been deployed into national security companies.
    That's funding founders. It's funding the Palmer Luckys of the
    world, the Sang brothers of the world. We need to empower them.
    I think that's how we get back this long-term commitment to the
    problems and challenges our Nation actually face, the
    reindustrialization of the Nation.
        We can't have an anodyne view of capital. Europe has
    created zero companies worth a hundred billion dollars or more
    in the last 50 years. We created all of our trillion-dollar
    companies in America in the last 50 years, with founders.
        Chairman Wicker. Is that a mindset or a statute that needs
    to be changed?
        Mr. Sankar. I think it's a mindset. It's, recognizing that
    within our buyers in the Pentagon as well. Why did these people
    leave the industrial base? As much as we want to point at the
    Last Supper, as the moment, it actually, those conversations
    started in the boardrooms of America in the 1970s and the
    1980s.
        What was slowly building up, is where I started with my
    oral, is that the Pentagon is a bad customer. It doesn't
    actually--if you just look at it purely financially, it makes
    more sense for Ball to sell aluminum cans than to build
    satellite buses. As a monopsonist, the Pentagon needs to look
    at that and say, how do we fix that? I want Ball building
    satellite buses. I want the American industrial base, not a
    group of yes men in the defense industrial base who have
    permuted their businesses to serve just me.
        Chairman Wicker. On that issue, Mr. Diller, do you wish to
    weigh in?
        Mr. Diller. Certainly, look for all the pejorative things
    that we've said about the Department of Defense. It has done
    incredible things, and it has actually an opportunity to do
    something that I don't know that any other institution can. It
    has created incredible things. I was a program manager in the
    global positioning system. It drove adoption of one of the most
    incredible networks in the world.
        There are instances where DOD has been the catalyst for
    wild change. With all the great things that we've said about
    commercial, you cannot look at a downward trend for many
    decades now, of the loss of not defense industrial
    manufacturing, but of American industrial manufacturing.
        Now, Chairman, is the time for DOD to be that catalyst
    again. It is possible to do exactly what Shyam has said.
    Divergent is today manufacturing cars. We are today printing
    missiles. We are today printing satellite buses in the same
    exact factory floor.
        If we look to a future that is going to actually counter an
    adversary, there are people who dislike change. There are three
    groups of people that very much dislike change. One, they're
    the bureaucrats. They like to continue doing what they have
    done in the past. I would say industry to some degree, doesn't
    like change, because we have built ourselves on legacy
    approaches to manufacturing. They, look at this and they don't
    want the uncertainty.
        The last group that doesn't like change is the enemy. The
    enemy hates change. If we want to deter, we must be agile. We
    must force the bureaucracy to be agile. We must force the
    industry to be agile. That can happen today, but America cannot
    afford $200 million facilitation cost for every new munitions
    factory, especially when it's a legacy munitions factory.
        It is possible today to create a network of 21st century
    AI-driven industry 5.0, pick your buzzword, but it does not
    look like anything that has ever been manufactured in the
    history. It is a step change. It literally is going from the
    stone age to the bronze age. It could happen today. It's the
    only way that you can afford real deterrence. Where you have a
    dual use factory, you have dual use capabilities that come out
    of that factory. You have dual use capital that is coming from
    an incredible source of American strength, and most
    importantly, it is dual use talent.
        We can't talk about a workforce problem; we're telling our
    sons and daughters to go back and pound rivets and weld in the
    same way that their great grandparents did. Children have grown
    up playing Lego robotics, playing in AI [artificial
    intelligence]. That is not what our factories look like today.
        It could be, this Committee could be the catalyst for that
    change, and is the only way that we are going to create real
    deterrence in a timely manner that must happen for America to
    remain in its lead. Both from a manufacturing perspective, from
    an economic perspective, from a technological perspective, and
    from a military perspective.
        Chairman Wicker. By the same token, Mr. Diller, we hate it
    when our enemies engage in change.
        Mr. Diller. One hundred percent.
        Chairman Wicker. Yes, absolutely. Well, a couple more
    questions and you've been most helpful to us. Mr. Geurts, let's
    talk about the requirements process. Does it often overly
    specify solution that then gets turned over to industry? Should
    programs be able to develop multiple capabilities within a
    requirements portfolio broadening the scope of the acquisition
    management?
        Mr. Geurts. Yes, sir. I think we need to transform our
    thinking into--we've got a problem statements, not requirement
    statements. Then you empower a portfolio acquisition executive
    to go tackle those problems with close association to their
    operator.
        Back to your previous question, we have program managers
    that want to go out and meet need, right? They want to go drive
    change. They have not been incentivized or rewarded for moving
    outside the system. With the top cover of this Committee is
    putting forth in the FoRGE Act, with those actions, I think
    you'll see that culture Senator Slotkin talked about. That's
    what we've got to go off and attack.
        Chairman Wicker. Thank you, and, finally, Mr. Sankar, do
    you sometimes find yourself competing not with other
    businesses, but with the Government itself?
        Mr. Sankar. I would say quite often. More often do we find
    ourselves competing with the Government than with other
    industries. Sometimes that takes the form of FFRDCs, where they
    have a privileged position. You could say there's maybe even a
    conflict of interest where they're deciding what needs to be
    built and then specifying how it's going to be built in a way
    that is structurally anti-commercial.
        I'd say the very beginning of our company, we were a threat
    to certain programs of record. The way that they were doing it.
    I don't think the industrial players were resisting us so much
    as the acquisition community was resisting us, despite the
    signal from the war fighter. I think we solved these problems
    by embracing the fact that there were going to be heterogeneous
    approaches. There was going to be constant new technology
    insertion, and that actually you as a program of record, don't
    have a monopoly. There's someone, a corridor down who could
    move faster on this new capability, and that provides you the
    incentive to move faster.
        Chairman Wicker. Thank you, gentlemen. This has been one of
    the most informative, 2\1/2\ hours that I've ever had as a
    Member of this Committee. Also, I'm proud of the Members of
    this Committee, and I hope you are. There's a lot of talent and
    a lot of brain power and a lot of thought that has gone into
    this hearing, and I appreciate the participation. We had a 100
    percent attendance today, and I appreciate that.
        Now, let me check and see if I need to make an announcement
    with regard to the record remaining open or anything of that
    nature. There will be questions for record, and we'll notify
    the witnesses as to the time constraints, and with that, the
    hearing is adjourned.
        [Whereupon, at 12 p.m., the Committee adjourned.]

        [Questions for the record with answers supplied follow:]

                   Questions Submitted by Senator Tom Cotton
                               acquisition reform
        1. Senator Cotton. Mr. Sankar, what Department of Defense (DOD)
    regulations or processes have you seen block nontraditional contractors
    from engaging with DOD?
        Mr. Sankar. The defense procurement process is a byzantine system
    that intimidates nontraditional contractors and imposes immense
    administrative burdens on them. A major problem is DOD's reluctance to
    purchase commercial items, which it is required to prioritize over
    custom products under the Federal Acquisitions Streamlining Act of 1994
    . DOD acting more like a commercial customer would go a long way to
    attracting commercial vendors. A related problem is the proliferation
    of requirements for contracted items, which dictate what contractors
    must build instead of letting contractors use their considerable domain
    expertise to determine how best to build the item in question.
    Inability to quickly attain security clearances and access SCIFs and
    classified networks is another hurdle. Delays in receiving payment can
    damage nontraditional contractors, particularly small businesses that
    often live hand to mouth. Finally, CPFF contracts reward companies or
    overruns, while boxing out risk takers that are willing to bet on their
    solutions via FFP.
                       leveraging artificial intelligence
        2. Senator Cotton. Mr. Sankar, how can DOD leverage battlefield
    data acquired through artificial intelligence (AI) tools, like those
    provided by Palantir, to improve its acquisition processes?
        Mr. Sankar. The proliferation of sensors on the battlefield has
    created a goldmine of data that DOD could use to improve its
    acquisition processes. In particular, data about the accuracy,
    lethality, and reliability of weapons systems could be used to drive
    timely shifts in procurement toward weapons that perform well and away
    from weapons that perform poorly. Such data could also inform, in real
    time, the design and manufacture of weapons systems and munitions by
    suggesting design improvements and enabling rapid iteration to stay
    ahead of enemy countermeasures. AI tools equipped with this data can
    effectively create an integrated view from the foxhole to the factory
    floor, giving decisionmakers in DOD and warfighters in the field
    greater awareness, for example, of which munitions are most effective,
    how many are being expended, how many are in the stockpile, and how
    quickly they are being produced. Decisionmakers could then use this
    system to remove blockers and mobilize resources to the highest-value
    use.
                                     china
        3. Senator Cotton. Mr. Sankar, the current administration has
    committed to investing in American jobs and industry to grow our
    defense industrial base. How can DOD ensure that American technology
    does not end up in China?
        Mr. Sankar. DOD must modernize its IT infrastructure to prevent
    espionage and technology transfer to China and other hostile State
    actors. The DOD is a patchwork of different systems, with varying
    levels of security and sophistication. Rectifying this serious problem,
    and ensuring IT modernization is a priority not just in government but
    in the DIB and DIB sub-base, is essential so that hackers and spies
    cannot exploit weak links to access government networks. Relatedly, DOD
    must modernize its personnel processes so that individuals with
    extraordinary abilities in software engineering and cybersecurity are
    aggressively recruited, hired, and retained.
                                private capital
        4. Senator Cotton. Mr. Sankar, we know that one of the reasons we
    risk falling behind China is its ability to leverage all areas of
    domestic spending to meet its defense needs. Given this, can you
    explain the importance of private capital in driving innovation at DOD?
        Mr. Sankar. China's Military-Civil Fusion strategy allows it to tap
    the considerable resources and talents of its commercial companies for
    defense purposes. The United States, by contrast, does not adequately
    integrate commercial companies into the DIB.
        Private capital is a force multiplier that the United States can
    use to facilitate R&D and innovation in defense technology. Palantir
    alone has invested over $2 billion in our platform to provide the best
    suite of software for our clients, including DOD. The platform we've
    developed today would not be what it is if we relied on incremental
    upgrades via CPFF contracts and IRAD. We invested where we saw gaps,
    before those gaps were readily apparent to the rest of DOD, because of
    our conviction that such investment creates the best software.
        Right now, DOD often pays for R&D performed by traditional
    contractors. This cost-reimbursed independent R&D is a poor use of
    scarce public funds, because it creates little incentive for the
    recipients to conserve money or innovate. If their experiments fail,
    they do not pay the cost--the taxpayer does. Private capital is a
    better source for R&D because it aligns the incentives of funders and
    researchers.

        5. Senator Cotton. Mr. Sankar, why does private capital drive
    innovation in a way that money spent by Congress does not?
        Mr. Sankar. Generally speaking, a company that invests its own
    money in R&D will be more motivated to ensure its experiments succeed
    than a company performing R&D with public funds. Private R&D also gives
    companies maximum control of their technology roadmap, which is
    critical to success in the commercial market. Intel's Bob Noyce, for
    instance, rejected most government-funded R&D precisely so he could
    stay in control of Intel's technology roadmap. This decision was far
    sighted and allowed Intel to be the dominant chipmaker for both
    commercial and defense applications in the 20th century.

        6. Senator Cotton. Mr. Sankar, what policies can DOD implement to
    attract private capital to the defense space?
        Mr. Sankar. The most important thing DOD can do to attract private
    capital is to ensure private funders and companies can achieve an
    adequate return on their investment when performing work for DOD. Cost-
    plus contracting is an impediment to this goal. Venture-backed
    companies, in particular, cannot succeed in a cost-plus domain; they
    need outsized returns, justified by outsized growth and innovation.
    Cost-plus contracts cannot provide such returns by definition. Shifting
    to fixed-fee and other alternative models that reward innovation is
    essential to getting sustained commitments of private capital in the
    defense space.
        Second, DOD must make it easier for new entrants to obtain
    clearances, SCIFs, and network access. Right now the process for
    obtaining such things is opaque and time consuming. This process serves
    as a barrier to entry for new entrants and an undeserved boon for
    incumbents. If you want to attract private capital and commercial
    companies, the process for doing business with DOD must be intuitive
    and inviting.
                                   __________
                  Questions Submitted by Senator Dan Sullivan
               firm fixed price vs. cost plus contracts software
        7. Senator Sullivan. Mr. Sankar, can you please explain why firm
    fixed price contracts are better than cost-plus contracts for software
    acquisition with special emphasis on the economics behind it?
        Mr. Sankar. The business model of a technology company is to invest
    R&D dollars to produce new and innovative products, such as software.
    These R&D costs are amortized across a large number of customers to
    create affordability and scale. The customer benefits by paying a small
    fraction of the actual cost of development and operations rather than
    covering the company's entire development costs. The company benefits
    from economies of scale and higher margins as its user base expands,
    allowing the company to re-invest in R&D.
        Cost-plus contracts make it impossible for technology companies to
    establish this virtuous cycle. No matter how large their user base,
    their profit margin is fixed. This ends up limiting the companies'
    ability and incentive to reinvest in R&D to drive future innovation. It
    also harms the customer (in this case, the government and by extension
    the taxpayer) by eliminating incentives for cost control.
          incentivizing contract officers in the department of defense
        8. Senator Sullivan. Mr. Sankar, can you please explain at least
    two ways in which you believe we can better incentivize contracting
    officers at the Pentagon to take risks and shorten procurement
    timelines to help companies avoid the ``valley of death'' where they
    run out of money while waiting on the process to play out?
        Mr. Sankar. First, we should encourage competition within
    government so that contracting officers have a visible and immediate
    incentive to move faster, procure a better product, and beat their
    competitor down the hall. Giving combatant commands a purchasing budget
    would be one way to introduce healthy competition; creating multiple,
    competing program offices for each capability would be another way.
        Second, we need to reorient small business programs like SBIR so
    they are judged by how many of their small businesses get big, not how
    many get follow-on funding in perpetuity.
        getting ahead of technology evolution with slow planning cycles
        9. Senator Sullivan. Mr. Sankar, right now, our planning cycles for
    acquisition programs run roughly 2 years, with DOD likely already
    beginning to plan for fiscal year 2027. However, the speed of
    innovation in the world has contracted significantly. For example, just
    a week before your hearing, we thought China was 2 or 3 years behind us
    in AI development, and now many are questioning that assumption given
    the evolution of the AI app Deepseek.
        By the time DOD has planned years ahead, found the money in the
    budget to fund a program, and fielded the program, the technology used
    for that program could be years or even decades behind the latest and
    greatest.
        Can you talk about how DOD's long lead times differ from the
    planning and budgeting cycles you've seen in the private sector?
        Mr. Sankar. Planning and budgeting cycles in the private sector
    have gotten much shorter and faster in response to competitive pressure
    in the market. Most companies do not act in terms of one-or 2-year
    budgets, they act from quarter to quarter, by necessity. Technology has
    accelerated the pace of change and made it possible to reprogram funds
    to meet opportunities with astonishing rapidity. The government's
    planning and budget cycle is excessive by comparison. No company could
    survive if it took 2 years to POM budget for projects internally, yet
    that is the norm in government.

        10. Senator Sullivan. Mr. Sankar, what is the private sector doing
    to keep up with the pace of technology change in terms of how companies
    organize themselves and what does DOD have to do to emulate those
    cycles?
        Mr. Sankar. Increasingly, companies are recognizing the importance
    of founders, or leaders with considerable control over the company's
    technology roadmap and direction. The DOD must identify ``founder-
    like'' figures and give them meaningful, long-term ownership of
    important programs, instead of cycling program managers every few
    years. DOD must also empower the subordinates under these leaders so
    they, too, act as ``founders'' on a smaller scale within their domain.
    Risk taking and initiative should be encouraged rather than forbidden
    or punished. Speed and agility in procurement are the only ways to
    prevent obsolescence.
                           flexible budgeting cycles
        11. Senator Sullivan. Mr. Sankar, do you believe that creating a
    system for agile budgeting whereby budget line items are consolidated
    into capabilities portfolios and the Department of Defense has the
    ability to shift funds around within a capability portfolio to support
    separate capabilities is the right way to gain flexibility in
    budgeting? Please explain.
        Mr. Sankar. Yes, I think that would be an improvement on the
    current, inflexible system. Funds should be tied to capabilities
    instead of discrete projects and reprogrammed within those categories
    as projects succeed or fail. PPBE favors incumbency, even for programs
    that manifestly are not working. Flexibility and competition are
    essential to fixing this problem.

        12. Senator Sullivan. Mr. Sankar, how would you change the current
    way we budget for software cycles in DOD to aid in faster software
    development?
        Mr. Sankar. First, the government must appropriately value
    software. The DOD currently spends less than 1 percent of its budget on
    software, including AI. The United States has a massive qualitative
    edge in software that DOD simply is not tapping. Beyond dollars spent,
    DOD needs to stop budgeting based on billable hours and engineer head
    count and start budgeting for capability. At its best, software
    eliminates complexity and integrates systems with a minimum of
    manpower. DOD should alter its purchasing practices for software to
    play to the unique strengths of the technology.
                             stockpiling technology
        13. Mr. Sankar, do you believe that the U.S. Government should
    consider stockpiling high-end graphics processing units (GPU) in the
    short to medium term until chip fabrication and GPU assembly can be
    done here in country? Please explain.
        Mr. Sankar. The U.S. Government should consider stockpiling many
    things, including GPUs, but should exercise caution before doing so.
    Stockpiles are not the deterrent. Industrial capacity--the ability to
    make materiel in sufficient quantities on a relevant timeline--is the
    deterrent. DOD's first priority must be increasing industrial capacity,
    including surge capacity. This is perhaps especially true for
    microelectronics that quickly become obsolete. A stockpile of such
    microelectronics would depreciate in value quickly, and could be put to
    better use (whether in business or government) during their lifespan.
    DOD must consider these factors when determining what to stockpile, and
    in what quantities.

        14. Senator Sullivan. Mr. Sankar, other than munitions or weapons
    systems, are there any particular technology you believe the United
    States should consider stockpiling that allow for design and
    construction of higher end technology in the United States?
        Mr. Sankar. Denied, Degraded, Intermittent or limited communication
    environment hardware is critical to prepare for potential conflict with
    near peer or peer adversaries. We should be investing in this type of
    hardware to host software in the event our SIPR/NIPR/JWICS environments
    aren't available due to interference.
                                    training
        15. Senator Sullivan. Mr. Sankar, what skill sets do you think we
    should most be incentivizing or prioritizing for people to learn to
    reinvigorate the defense industrial base?
        Mr. Sankar. DOD and DIB personnel should be strongly encouraged to
    learn the fundamentals of coding so that they understand the full
    extent and limits of what software can accomplish. Software plays a
    central role in cutting-edge industrial production, helping manage
    supply chains, reduce down time, and increase throughput. Knowing
    whether a feature request will take 1 hour, 1 day, 1 week, or 1 year to
    implement is critical. Software in the right hands is a weapon, so our
    warfighters, particularly officers, should train on it just like they
    do their rifles. Expertise is not necessary, nor would attaining it
    likely be a good use of scarce time. But learning the fundamentals of
    the craft would make DOD personnel more effective.
        The acquisition workforce should also be encouraged to learn about
    the economics and business models of the companies with which they
    interact. Learning, for example, why markets value commercial
    technology companies more highly than traditional defense companies, or
    why commercial technology companies command high margins by delivering
    outsized value to their customers, could make the acquisition workforce
    more amenable to working with nontraditional contractors.
                                   __________
                    Questions Submitted by Senator Ted Budd
      barriers to small businesses working with the department of defense
        16. Senator Budd. Mr. Sankar, how was Palantir able to make it
    across the ``valley of death'' and what specific recommendations would
    you have for small businesses seeking to do the same?
        Mr. Sankar. Palantir crossed the Valley of Death in part by
    creating a commercial business that ensured we were not wholly reliant
    on government customers to stay alive. That commercial business started
    small in 2010, but grew into roughly half our business today. I
    encourage small businesses to adopt a similar, hybrid model. Creating
    commercially viable products is a sign that a company is on the right
    track, and provides revenue to help the company scale as it learns how
    to do business with the government. DOD policy should encourage
    startups to establish a presence in the commercial market.

        17. Senator Budd. Mr. Sankar, once a small business bids on its
    first contract with the Department of Defense, what is DOD's
    notification process to the small business?
        Mr. Sankar. When small businesses submit bids, DOD acknowledges
    receipt, evaluates the contractor and its bid, and, when the evaluation
    concludes, announces the award. This process is simple on paper but
    painful in practice. The evaluation process can last anywhere from a
    few months to well over a year, during which time the company is
    trapped in bureaucratic limbo. Often, companies are not adequately
    notified of business opportunities, compliance requirements, and
    obstacles to winning a given contract. Deals do not take this long to
    execute in the private sector. If they did, many companies would fail.
    Deals shouldn't take this long in government, either, if we want small
    business contractors to succeed. Deregulation, digitization, and
    simplification of requirements are necessary to solve this problem.

        18. Senator Budd. Mr. Sankar, how can DOD modernize, digitize, and
    leverage artificial intelligence to improve DOD's notification process
    to businesses on contract, contract awards, and payment status?
        Mr. Sankar. DOD can use AI as a sherpa for small businesses so they
    can navigate the incredible complexity of government programs, systems,
    and requirements. To do this, DOD should create a unified repository of
    relevant data for small businesses, connecting stovepiped government
    systems and programs. Working within this data base, an LLM (or LLMs)
    can automate workflows, identify blockers, and keep small businesses
    informed about opportunities and requirements. Just as small businesses
    have human points of contact at DOD, they should have access to a suite
    of AI tools that unearth opportunities, demystify complexity, and help
    them achieve compliance and mission success.
                                   __________
                 Questions Submitted by Senator Mazie K. Hirono
                              fast follower model
        19. Senator Hirono. Mr. Sankar, the 2022 National Defense Strategy
    stated that DOD will be a ``fast follower'' where market forces are
    driving the commercialization of military-relevant technology. In a
    rapidly changing market environment, how can DOD more effectively act
    as a ``fast follower'' to leverage commercial innovation while still
    meeting unique and often complex military requirements?
        Mr. Sankar. DOD can act as a ``fast follower'' by increasing its
    purchasing of commercial technology, instead of defaulting to custom
    products with onerous requirements. DOD can perform an important
    function by issuing a steady and credible demand signal to industry
    about the types of systems it is looking to buy. Industry will respond
    to such signals, potentially in surprising and novel ways that DOD
    would never have specified in a requirements document. In furtherance
    of this goal, DOD should rely more heavily on Other Transaction
    Agreements (OTAs) and Commercial Solutions Openings (CSOs), which are
    more rapid, flexible, and friendly to nontraditional contractors than
    typical contracting vehicles.

        20. Senator Hirono. Mr. Sankar, what role does industry play in
    supporting DOD in meeting these requirements?
        Mr. Sankar. Industry can support DOD's ``fast follower'' mission by
    serving as a font of specialized knowledge and private risk capital. If
    DOD indicates the types of systems it is willing and ready to buy,
    using streamlined methods like OTAs and CSOs, commercial industry will
    respond with privately funded R&D and proposals to win those contracts.
    Commercial companies have the added advantage of moving quickly, as
    speed is a precondition of success if not survival in the commercial
    market.
                         allies/partners and innovation
        21. Senator Hirono. Mr. Sankar, the Department of Defense's 2024
    National Defense Industrial Strategy states DOD ``must work with allies
    and partners . . . to boost defense production, innovation, and overall
    capability.'' How should DOD be optimizing its own procurement and
    acquisition reform to improve our ability to scale and field
    capabilities with our allies and partners, particularly in the Indo-
    Pacific?
        Mr. Sankar. Coordination starts with communication. DOD should
    invest in tools to facilitate communication and data sharing with
    allies and partners in the Indo-Pacific. These systems must be secure,
    interoperable, and capable of functioning in DDIL environments. The
    United States should also reform its stringent ITAR requirements to
    make it easier for U.S. defense companies to rapidly equip allies and
    partners in the Indo-Pacific.
        Security partnerships focusing on technological exchange and
    manufacturing hold great promise in facilitating greater coordination
    between the United States and pivotal allies. AUKUS's Pillar 2, for
    instance, focuses on advanced capabilities and DIB coordination, and
    could generate productive cooperation between high-technology firms in
    the United States, United Kingdom, and Australia if it is given
    adequate attention and funding.
                       industry and indo-pacific strategy
        22. Mr. Sankar, as outlined in the last National Defense Strategy,
    maintaining a free and open Indo-Pacific requires strategic investments
    in advanced capabilities that deter aggression and pursue regional
    security and stability.'How can U.S. industry better align with DOD's
    strategic goals to ensure technological superiority in the Indo-
    Pacific, and what DOD policies do you think would encourage deeper
    industry engagement?
        Mr. Sankar. DOD should invest far more in advanced capabilities
    like AI, which currently account for a fraction of a percent of the
    overall DOD budget. It should also expand the use of alternative
    acquisitions processes, which give DOD greater flexibility and freedom
    to acquire technology that is advancing at a faster clip than the
    traditional PPBE process can accommodate. Finally and perhaps most
    important, DOD needs to deliver a clear signal about what advanced
    capabilities it wishes to purchase, and follow through on those
    commitments. Industry can contribute to this effort by investing
    private capital in R&D of capabilities that respond to DOD's guidance.
                    fair federal contracting for commercial
        23. Senator Hirono. Mr. Sankar, Federal contracting practices have
    implications not only for how efficiently agencies are spending
    taxpayer dollars but also for how the United States can acquire
    cutting-edge technologies, maintain a healthy industrial base, and
    address national security objectives. DOD is responsible for
    negotiating the best deal for the Government when contracting for goods
    and services. How do we know DOD is getting the best price when
    contracting with nontraditional contractors?
        Mr. Sankar. Because commercial companies are exempt from the
    requirement to provide certified cost and pricing data, DOD must assess
    alternative metrics to determine if they are paying a fair price for
    commercial items. For example, the government can identify identical or
    comparable products sold to commercial customers and assess the price
    paid for such products. Government can also determine whether
    commercial contractors are delivering products at commercial scale and
    speed, which of course is the point of doing business with such
    contractors. Finally, the government can assess the performance of
    commercial products and user satisfaction to determine if the price
    paid is worth the value received.

        24. Senator Hirono. Mr. Sankar, would this sector be willing to
    share with DOD cost data and certify your costs are current, accurate,
    and complete?
        Mr. Sankar. Palantir is not required to have, and does not have, a
    cost-accounting system that would allow us to adhere to this request.
    As a commercial company, Palantir is exempt in accordance with FAR
    15.403-1(b)(3).
                                   __________
                Questions Submitted by Senator Elizabeth Warren
                                  overpayments
        25. Senator Warren. Mr. Sankar, in order to avoid paying
    unreasonable prices, an October Department of Defense Inspector General
    report recommended the Air Force require companies to notify
    contracting officers ``of price increases of 25 percent or higher than
    the proposed price.'' Do you agree with this recommendation?
        Mr. Sankar. Yes. It is difficult to think of a scenario where a
    commercial company could increase pricing 25 percent without an
    increase in contract scope or a dramatic change in market conditions
    that warranted an equitable adjustment.

        26. Senator Warren. Mr. Sankar, if you do not agree with that
    recommendation, do you think companies should be required to notify
    contracting officers of price increases that are 100 percent or higher
    than the proposed price?
        Mr. Sankar. Yes.

        27. Senator Warren. Mr. Sankar, should companies doing business
    with the Government be able to provide certified cost and pricing data
    to justify to the Department of Defense price increases that are
    significantly higher than the proposed price?
        Mr. Sankar. Companies should be able to provide some form of
    justification for cost and pricing, but the systems that support the
    ability to produce certified cost and pricing data are not typically
    present in the commercial marketplace and providing such data is not
    possible or appropriate for every contract. If a company bids FFP, for
    instance, it should be prepared to honor its bid. The risk is on the
    vendor in FFP, and while vendors may submit requests for equitable
    adjustment, those requests must be reviewed by the government and
    deemed reasonable to be approved. If they are not reasonable, the
    government should not pay for overages in an FFP arrangement.

        28. Senator Warren. Mr. Sankar, you said that you ``don't think we
    would have any conceptual disagreement'' with Palantir voluntarily
    disclosing to Department of Defense contracting officers when there's a
    price increase of 25 percent or higher than the proposed price. Will
    Palantir voluntarily disclose this information for any contract or
    agreement it receives from DOD? Please expand on your answer.
        Mr. Sankar. Palantir will always adhere to all DOD requirements,
    including any requirement to report price increases above a certain
    threshold. However, as a matter of fairness, we cannot agree to
    unilaterally disclose sensitive financial information that our
    competitors for government work do not disclose. Reporting of this
    information by a single or several firms, but not all firms, would give
    DOD contracting officers an incomplete and skewed picture of industry
    performance.

        29. Senator Warren. Mr. Sankar, what performance metrics and
    oversight measures should the Department of Defense have in place to
    assess the performance of nontraditional contractors?
        Mr. Sankar. The relevant metric for nontraditional contractors is
    whether they deliver promised goods and services on a fast enough
    timeline to serve the warfighter. DOD's contracting problems stem, in
    large part, from a lack of emphasis on speed. Centering oversight and
    performance metrics around speed, both to deliver and update products,
    is therefore essential to reform.
        Another highly relevant metric is user experience and satisfaction.
    Some of DOD's highest profile custom-development failures, like DCGS-A,
    continued for years despite widespread user dissatisfaction and a clear
    preference for commercial alternatives (in this case, Palantir). DOD
    should create a feedback loop that takes into account the views of
    users, who are best positioned to provide relevant information about
    the success or failure of various offerings.

        30. Senator Warren. Mr. Sankar, you suggested that cost-plus
    contracts make the Nation ``dumber, slower, and poorer''. Will Palantir
    and Divergent Technologies commit not to use cost-plus contracts?
        Mr. Sankar. Yes. We've been committed to this for more than two
    decades. It's our ethos.
                                right-to-repair
        31. Senator Warren. Mr. Sankar, do you believe providing DOD with
    technical data rights needed to repair products and services could
    advance the military's readiness?
        Mr. Sankar. Yes. As a SaaS software company at our core, this
    doesn't apply to the vast majority of our work. However, as we take the
    lead in software primed hardware procurements, we do think technical
    data rights are critical to reduce the total cost of ownership for our
    hardware and weapon systems.

        32. Senator Warren. Mr. Sankar, do you believe providing DOD with
    technical data rights needed to repair products and services could help
    reduce sustainment costs?
        Mr. Sankar. Yes.

        33. Senator Warren. Mr. Sankar, will your company commit to
    delivering technical data rights to the military when the contract
    requires or allows it?
        Mr. Sankar. Yes.

        34. Senator Warren. Mr. Sankar, what do you believe is the best
    method for servicemembers to repair or conduct modifications on a
    product or service when in a contested logistics environment?
        Mr. Sankar. In contested logistics environments, particularly in
    the heat of battle, servicemembers should be empowered to repair and
    modify their equipment quickly, efficiently, and, when necessary,
    independently. ``Right to repair'' does not apply neatly to SaaS, given
    the nature of software and how it is modified and distributed, but
    Palantir is committed to giving warfighters the tools and flexibility
    they need to succeed, including in DDIL and contested environments.

        35. Senator Warren. Mr. Sankar, if DOD had the technical data
    rights to repair or conduct modifications on a product or service when
    servicemembers are in a contested logistics environment, could that
    make it easier and less costly for DOD to repair or modify its
    equipment and services?
        Mr. Sankar. Potentially yes, though I will refrain from speculating
    on a question that principally concerns hardware and is of limited
    applicability to software, which is Palantir's business and area of
    expertise.
                          other transaction agreements
        36. Senator Warren. Mr. Sankar, under what circumstances would your
    companies seek to contract with DOD using Other Transaction Agreements
    (OTAs) rather than a typical procurement contract?
        Mr. Sankar. Palantir will contract with DOD using Other Transaction
    Agreements (OTAs) in any case where DOD deems them to be the
    appropriate contracting vehicle.

        37. Senator Warren. Mr. Sankar, please provide a full list of all
    OTAs your company has entered into with DOD in the last 10 years. For
    each OTA, please provide the purpose of the agreement, the estimated
    cost to DOD provided by your company at the initiation of the
    agreement, and the actual cost to DOD at the completion of the
    agreement. Please also provide the text of any provisions related to
    intellectual property rights included in each OTA.
        Mr. Sankar. A full list of Palantir's publicly available OTA awards
    is available in real time on https://www.defense.gov/News/Contracts/.

        38. Senator Warren. Mr. Sankar, last year Palantir received a $178
    million OTA with the Army for the next phase of its Tactical
    Intelligence Targeting Access Node (TITAN) ground station program.
    Could this agreement have been reached using DOD's typical procurement
    processes, rather than an OTA?
        Mr. Sankar. It is possible that this agreement could have been
    reached using typical procurement processes, but it certainly would
    have required more time and pain. Typical procurement processes are
    only possible for commercial technology providers like Palantir if they
    do not include requirements (such as the requirement to have a cost
    accounting system for eligibility) that are incompatible with our
    business model.

        39. Senator Warren. Mr. Sankar, last month Palantir announced the
    formation of a consortium with Anduril and other technology companies
    to jointly bid for DOD contracts. What protections is Palantir putting
    in place to ensure that the arrangement does not violate Federal
    antitrust law, including the Sherman Act?
        Mr. Sankar. All of Palantir's partnerships undergo a thorough
    review for a number for factors, including potential antitrust
    violations. Palantir's announcement of an intention to partner with
    Anduril when appropriate based on the opportunity does not constrain
    the market or competition in any way.

        40. Senator Warren. Mr. Sankar, will companies that are not members
    of the consortium have the opportunity to see requirements for upcoming
    consortium projects Palantir participates in?
        Mr. Sankar. Neither Palantir nor this consortium have any control
    or power over the dissemination of requirements by the Government.

        41. Senator Warren. Mr. Sankar, will the products developed by
    Palantir's consortium limit the ability of other technology companies
    to interoperate with DOD systems?
        Mr. Sankar. No.

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