[Senate Hearing 119-309]
[From the U.S. Government Publishing Office]
S. Hrg. 119-309
DEFENSE INNOVATION AND ACQUISITION REFORM
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HEARING
BEFORE THE
COMMITTEE ON ARMED SERVICES
UNITED STATES SENATE
ONE HUNDRED NINETEENTH CONGRESS
FIRST SESSION
__________
JANUARY 28, 2025
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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
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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
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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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