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H.R. 1280THE DEFENSE PRODUCTION ACT
REAUTHORIZATION OF 2003
Wednesday, March 19, 2003
U.S. House of Representatives,
Subcommittee on Domestic and International
Monetary Policy, Trade and Technology
Committee on Financial Services,
The subcommittee met, pursuant to call, at 2:00 p.m., in Room 2128, Rayburn House Office Building, Hon. Peter T. King [chairman of the subcommittee] presiding.
Present: Representatives King, Biggert, Leach, Paul, Manzullo, Kennedy, Feeney, Hensarling, Murphy, Barrett, Harris, Maloney, Watt, Waters, Lee, Sherman, Baca and Emanuel.
Chairman KING. [Presiding.] The subcommittee will come to order.
First, let me thank the ranking member, Mrs. Maloney for her cooperation putting this hearing together, Vice Chair, Mrs. Biggert for her assistance and the witnesses that will be testifying here today.
As the U.S. faces continued threats from terrorism as well as the prospect of a conflict overseas, the subcommittee convenes today to consider reauthorization of one of the most important pieces of legislation in the Administration's national security arsenal, the Defense Production Act of 1950. As you know, and as our witnesses will describe, the Act, known as the DPA, used economic tools to ensure adequate and timely delivery of materials needed for national security or in cases of national emergency.
Page 2 PREV PAGE TOP OF DOC The legislation before us today, H.R. 1280, contains the Administration's request for a multi-year reauthorization of this legislation, along with a trio of mostly technical amendments. Original co-sponsors of the bill when I introduced it were the ranking member, Mrs. Maloney, a long-time supporter of the DPA, as well as the full committee chairman, Mr. Oxley.
I would like to commend the administration for its request for a multi-year reauthorization. They requested five years. And by agreement with the minority, we today will amend that to four years. I think this is an appropriate period for reauthorization, both to ensure that it will not expire when it is most needed, as it did temporarily during the Gulf War and just a year and a half ago after the September 11 attacks. But also so that Congress can study the need for modernization of the act outside of the reauthorization framework.
I also want to again commend my ranking member for working with me on this reauthorization in such an expedited, nonpartisan basis.
Besides the four year reauthorization, the bill before us seeks to lift the program cap in DPA Title 3 for a single project involving radiation-hardened electronics, clarifies the President's authority to assess the adequacy of the defense industrial base and seeks to make permanent the section of the act that provides that no person should be held liable for damages or penalties through any act or failure to act resulting directly or indirectly from compliance with the rule, regulation or order issued pursuant to the DPA.
We have a strong panel of witnesses here today to cover the intricacies of this act. Suzanne D. Patrick, Deputy Under Secretary of defense for industrial policy, Dr. Ronald M. Sega, director of Defense Research and Engineering at the Defense Department, Karan K. Bhatia, deputy Under Secretary for industry and security at the Department of Commerce and R. David Paulison, Director of the Preparedness Division, Department of Homeland Security.
I look forward to their testimony and I recognize the ranking member, the gentlelady from New York, Mrs. Maloney, for opening remarks. I would also note that it is the subcommittee's strong preference today to have members submit any opening statements they may have, besides of course, for the ranking member.
Page 3 PREV PAGE TOP OF DOC Mrs. Maloney?
Mrs. MALONEY OF NEW YORK. Thank you so much. And I would like to thank the gentleman, the Chairman, from the great State of New York for conducting this hearing and this markup.
Today, the subcommittee meets to consider the reauthorization of the Defense Production Act, a critically important tool that facilitates the government's ability to respond to emergencies and protect the defense industrial base. Eighteen months ago, when my city of New York was attacked, the Nation responded as one with aid. Today, while individuals may have divergent rules about war, we are united in hope for the well being of our troops and the innocents in the Gulf.
In the future, our Nation may again have to respond to an earthquake in California, Florida hurricane, or random terrorist strike. In all these cases, it is critical that the President is empowered to invoke the Defense Production Act. In recent years, the Act has been used by the Armed Forces in the first Gulf War, Bosnia, Kuwait and in the present conflict. During peacetime, it has been used to fortify U.S. Embassies.
The use of the Act is not a political issue in the sense of whether or not the U.S. should use force. The importance of the act is to make sure our soldiers have the equipment they need to safely perform their mission once committed. We consider this bill today because the act expires in the end of the fiscal year and failure to reauthorize could have serious consequences given current world events.
The primary sections of the bill are Title I, authorizing the President to require priority performance of contracts or commit materials to promote national defense. Recently this authority was used to assist the newly formed Transportation Security Administration to deliver explosive detection devices for checked baggage to over 400 airports across America.
Title III provides the President tools to ensure the viability of U.S. industries essential to national security. This authority has been used to maintain domestic production in industries dominated by foreign companies where markets are too small to otherwise sustain an upstart company.
Page 4 PREV PAGE TOP OF DOC Title VII contains unrelated provisions, including anti-trust protection for companies cooperating with the government under a DPA contract. The requirement that Commerce report to Congress on trade offsets. And the Exon-Florio language prohibiting foreign investment in U.S. companies that could determine national security.
I am pleased to cosponsor this legislation and I appreciate the majority accepting my request to shorten the five-year authorization the administration requested. While I support the bill, there is no doubt this is an extremely powerful tool. Given that we have yet to measure the impact of the new Department of Homeland Security on the DPA and that a five-year extension would put expiration in the middle of the highly-charged political climate of late 2008, I suggested a three-year extension but am satisfied with the middle ground of four.
I thank the Chairman and I yield back the balance of my time.
Chairman KING. If there are no other opening statements, we will go to our witnesses.
And the first witness I would call upon would be the Honorable Ronald M. Sega, Director, Defense Research and Engineering for the Department of Defense.
STATEMENT OF HON. RONALD M. SEGA, DIRECTOR, DEFENSE RESEARCH AND ENGINEERING, DEPARTMENT OF DEFENSE
Mr. SEGA. Good afternoon, Mr. Chairman and members of the committee. I appreciate the opportunity to share with you the Department of Defense views regarding the Defense Production Act and the role it plays in helping to obtain goods and services needed to promote the national defense. With your permission, I would like to summarize the testimony I have submitted for the record.
Although enacted originally in 1950, the Act provides statutory authorities still relevant and necessary for the Nations defense in the 21st century. The DPA provides the department with tools required to maintain a strong base, responsive to the needs of our Armed Forces. I want to express the department's support for reauthorizing the act through September 30, 2008.
Page 5 PREV PAGE TOP OF DOC The key component of the DPA is Title III, which will be the focus of my testimony. The deputy Under Secretary of defense for industrial policy, Ms. Suzanne Patrick will follow a discussion with Title I and briefly touch on some key components of Title VII.
Title III provides the President unique authorities that are being used to establish, expand, and maintain essential domestic industrial capacity needed to field advanced systems for today and the future.
The primary objective of the Title III program is to work with U.S. industry to establish viable production capacities for items essential to our national security. The Title III Program also is being used to transition emerging technologies.
A success story, I believe, is a good way to highlight the benefits of the program. Gallium arsenide is a semiconducting material used in the fabrication of advanced electronic devices. At the outset of a gallium arsenide Title III project, the long-term viability of the U.S. gallium arsenide wafer supply was in doubt. With the help of Title III, the U.S. producers made a dramatic turnabout.
By 2000 these contractors accounted for sixty-five percent of wafer sales worldwide. Their combined sales of gallium arsenide wafers grew by nearly four hundred percent. In addition, the wafer prices dropped by approximately thirty five percent. The reduction in wafer prices and improvement in wafer quality resulted in significant reductions in defense costs for critical electronics.
The DOD is initiating two new projects this year. One of these projects will be establishing the production capacity of Yttrium Barium Copper Oxide superconducting wire.
Projects initiated in fiscal year 2002 include a project for radiation hardened microelectronics. The project illustrates the key role for Title III that it plays in providing our Armed Forces with the technologies they need to be successful on the battlefield. We were in danger of losing our last remaining suppliers of these critical components needed for strategic missile and space systems.
Page 6 PREV PAGE TOP OF DOC Because of the small number of components that the Department buys and limited commercial demand, our current suppliers were unable to generate sufficient revenues to purchase the production equipment needed to produce radiation hardened microelectronics at feature size needed to meet future defense requirements. Title III is helping these companies, through equipment purchases and modernization, to remain viable suppliers, capable of supporting future defense requirements. Without Title III, it is likely we would have lost this critical production capability.
Most provisions of the Defense Production Act are not permanent law and must be renewed periodically by Congress. We are requesting a reauthorization of the authorities contained in the Defense Production Act until September 30, 2008. In addition, we are requesting to increase the statutory authorization limit contained in Section 303 to $200 million to correct the industrial research shortfall for the radiation hardened electronics project.
The DPA requires the Department to obtain specific authorization for any Title III project that exceeds $50 million. The expected cost of the radiation hardened electronic project is $167 million. However, we are asking for authority up to $200 million in the event of unexpected cost increases for the project.
In conclusion, the DOD needs the Defense Production Act. It contains authorities that exist nowhere else. Current world events make these authorities more important than ever. The DPA is a proven mechanism. Its array of authorities has helped us meet the challenges of the last fifty years. By judiciously applying its authorities to challenges facing us today, the DPA will see us to a more secure future.
I hope that I have conveyed to you the significant role the Defense Production Act plays in ensuring our Nation's defense. The Department fully supports the bill before the committee to reauthorize the DPA.
Thank you for the opportunity to discuss the Defense Production Act.
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[The prepared statement of Hon. Ronald M. Sega can be found on page 42 in the appendix.]
Chairman KING. Thank you, Dr. Sega.
And in answer to your question, you did make us well aware. And I appreciate your testimony and also the brevity of the testimony. We got it all in. Thank you.
Now the Chair recognizes the Honorable Suzanne D. Patrick, Deputy Under Secretary of Defense for Industrial Policy.
STATEMENT OF HON. SUZANNE D. PATRICK, DEPUTY UNDER SECRETARY OF DEFENSE FOR INDUSTRIAL POLICY, DEPARTMENT OF DEFENSE
Ms. PATRICK. Good afternoon, Mr. Chairman and members of the committee. I appreciate this opportunity to share with you the Department of Defense views regarding the Defense Production Act. As Dr. Sega has indicated, this act provides statutory authorities that are vital for DOD, both in times of contingency or conflict, as well as during peace, in helping to obtain the goods and services needed to promote the national defense.
With your permission, I would like to summarize the testimony I have submitted for the record.
Dr. Sega talked about Title III. My testimony today focuses on Title I of the Defense Production Act and I want to briefly mention Title VII of the Act, which is also very important to the Department of Defense. As you know, Defense Production Act Titles II, IV and VI have been repealed.
Page 8 PREV PAGE TOP OF DOC I particularly want to describe to you why Title I authority is so important to us and how we are using it today.
Title I, which addresses priorities and allocations, provides the President the authority to require preferential performance on contracts and orders as necessary or appropriate to promote the national defense. These authorities are important in peacetime. They are vital in the event of conflict.
During peacetime, Title I priorities are important in setting priorities among defense programs that are competing for scarce resources and industrial production of parts and assemblies. These priorities are implemented through the Defense Priorities and Allocations System, DPAS, and applied by contract clauses. The clauses are like insurance, present in all defense systems contracts, subcontracts and orders, but actually executed only when absolutely necessary.
In peacetime, delayed industrial supplies increase costs of weapons systems and affect our readiness. DPAS serves as an important tool to prioritize deliveries and to minimize cost and schedule delays for the department's orders.
Forty-one percent of our 120 DPAS cases since 1995 supported peacetime requirements. Such support has included prioritizing deliveries of components for weapons systems, to minimize delayed deliveries and readiness impact, rating the State Department's embassy security protection upgrade program worldwide, and rating selected friendly national defense contracts with U.S. suppliers that promote U.S. national defense.
Sixty-nine percent of the overall 120 cases since 1995 have supported U.S. and coalition needs during conflicts in Bosnia, Kosovo, Operation Enduring Freedom and the global war on terrorism.
During times of conflict, DPAS is vital, indeed indispensable. DPAS gives the Department of Defense the necessary power and flexibility to address critical war fighter needs involving the industrial base in an effective and expeditious way. The role of DPAS to increase interoperability and to assist our allies is also very important.
Page 9 PREV PAGE TOP OF DOC Recent DOD and Department of Commerce actions to use DPAS authorities to support Operation Enduring Freedom and the global war on terrorism have included components for precision guided munitions, global positioning system receivers and navigational processors, unmanned aerial vehicle sensors and man pack and search and rescue radios.
Two specific cases illustrate the absolutely necessary power that DPAS provides. Predator UAVs armed with Hellfire missiles were used for the first time in Afghanistan. They include an upgraded sensor package, the Multi-Spectral Targeting System. The contractor's original delivery date for three systems was this month, March 2003.
Using DPAS, we jumped this order to the head of the production queue and the contractor was able to deliver three systems in December 2001, 18 months earlier than originally promised. We all are aware of the dramatic impact unmanned Predators had in waging war in Afghanistan. Since that time, we have used DPAS to accelerate forty additional Multi-Spectral Targeting Systems.
Also in support of Operation Enduring Freedom, the U.K. Ministry of Defense needed ARC 210 satellite communications equipment to ensure secure satellite communication capabilities among U.S. and U.K. aircraft operating in and around Afghanistan. The U.K. requirements were critical to our overall war fighting effort. DPAS was used again to give the U.K. order an industrial priority rating and it was moved ahead of some U.S. orders that were not for deployed or deploying forces. The U.K. received the equipment six months in advance of the initial delivery date quoted by the manufacturer permitting vital secure communication among allied forces in theater.
I would like to conclude my remarks on Title I of the DPA by noting that it is our war fighters who are the real DPAS beneficiaries. Limiting our authority to apply these provisions to our contracts, whether by allowing the basic authorities to lapse, or by enacting an amendment limiting our ability to direct deliveries from any and all U.S. contractors when required to meet critical national defense requirements has the potential to put their lives at risk.
Page 10 PREV PAGE TOP OF DOC Turning now to Title VII, I want to briefly express support for these authorities, also very important to the Department of Defense. Title VII contains miscellaneous provisions, including enforcement mechanisms, which help protect the national security. For example, section 707 provides that no person shall be held liable for damages or penalties for any act resulting from compliance with rules, regulations or orders issued under the Defense Production Act.
This provision is necessary to protect suppliers from breach of contract claims when commercial contracts are displaced in the interest of national security. This provision should be permanently authorized in order to protect contractors during periods when the Defense Production Act has lapsed, as has happened temporarily.
As an example, the Civil Reserve Air Fleet, CRAF, was activated in February, 2003 for the second time in its 50-year history. Upon activation, 47 passenger aircraft were brought under the exclusive control of the Department of Defense until released. Both scheduled carriers and charter carriers may have to invoke section 707 to defend against breach of contract actions involving their commercial business.
During Operation Desert Shield/Desert Storm when CRAF was activated previously, the Defense Production Act expired, leaving carriers with no legal protection to defend against breach of commercial contracts. The 102nd Congress retroactively extended it. But DOD believes that section 707 should be permanently authorized in order to remove this kind of uncertainty.
Section 721 represents another example of important Title VII authorities. Section 721 allows the President to suspend or prohibit a foreign acquisition of a U.S. firm when that transaction would present a credible threat to the national security of the United States and allows us to propose remedies that eliminate that threat that are not available under other statutes. This authority is increasingly important in today's globalized industrial environment.
Page 11 PREV PAGE TOP OF DOC In closing, I would like to reaffirm that DPA authorities are a critical tool in the Department of Defense's arsenal. It would be very difficult for the department to meet its national security responsibilities without this tool. Since it was originally enacted in 1950, we have used the Defense Production Act authorities to promote our national security time and again, particularly during times of conflict.
Given the challenges we face today and the uncertain duration of our global war on terrorism, we support reauthorization of the Defense Production Act through September 30, 2008. This would help to remove the uncertainty associated with short duration authorizations.
Thank you very much.
[The prepared statement of Hon. Suzanne D. Patrick can be found on page 33 in the appendix.]
Chairman KING. Thank you, Ms. Patrick, we appreciate your testimony.
And now we will hear from Karan K. Bhatia, Deputy Under Secretary for Industry and Security from the Department of Commerce.
STATEMENT OF HON. KARAN K. BHATIA, DEPUTY UNDER SECRETARY FOR INDUSTRY AND SECURITY, DEPARTMENT OF COMMERCE
Mr. BHATIA. Thank you very much, Mr. Chairman.
Page 12 PREV PAGE TOP OF DOC I appreciate the opportunity to testify before you today on the reauthorization of the Defense Production Act. Let me start by conveying Under Secretary Juster's apologies for not being able to attend today's hearing. He had a long-standing prior commitment that required him to be out of the country.
The Commerce Department fully supports extension of the DPA. We do so because in our experience, the Defense Production Act has been a critically important tool in enabling the government to work effectively with industry to meet contemporary challenges to our security.
I have prepared a written statement, which, with your indulgence, I ask be entered into the record.
Chairman KING. Without objection.
Mr. BHATIA. My written statement discusses in detail the various ways in which the Department of Commerce is involved in the exercise of DPA authorities and provides some relevant examples. In the interest of brevity, I will not duplicate that testimony here. But I would like to briefly identify several authorities under the act that facilitate key Commerce Department activities.
First, under Title I of the DPA, the department administers the Defense Priorities and Allocations System, the DPAS. As Ms. Patrick explained, DPAS seeks to ensure the timely availability of products, materials and services that are needed to meet national defense and emergency preparedness requirements with minimal interference to the conduct of normal business activity.
It does this by creating a system of priority ratings that can be attached to procurement contracts by agencies to which the Commerce Department has delegated ratings authority, including the Departments of Defense and Energy. DPAS also provides an operating structure to support a timely and comprehensive response by U.S. industry in the event of a major national emergency.
Page 13 PREV PAGE TOP OF DOC Now, in addition to DPAS, the DPA also provides authority to the Commerce Department to collect data, perform analysis and prepare reports on critical defense industrial base issues. It requires the submission to Congress of annual reports analyzing the practice of offsets in defense trade. It is also the source of authority for the reports that Commerce prepares each year, commonly at the request of Congress or the Armed Forces, analyzing the health and viability of various sectors of the defense industrial base.
I would like to pause in this context to note the Commerce Department's support for the minor, but we believe important, amendment in the bill that would clarify that the President's investigative authorities under the DPA include the authority to obtain information necessary to produce such studies.
Finally, the DPA authorizes review of the national security implications of foreign acquisitions of U.S. companies, and if necessary, the prohibition of acquisitions when there is credible evidence that the foreign interest may take action to impair U.S. national security. The Commerce Department is one of the federal agencies that participates in the analysis of such transactions.
Now, 21 months ago when this subcommittee last convened a hearing to consider reauthorization of the DPA, none of us could have then predicted the security challenges that the U.S. would soon encounter at home and abroad, nor the important role that DPA authorities would play in meeting those challenges. But they have played precisely such a role.
Pursuant to DPA authorities, the DPAS system has worked to secure the delivery of a number of items ranging from guidance system components for smart bomb munitions to search and rescue radios for both U.S. and allied forces in Operation Enduring Freedom.
Here at home, DPA has helped facilitate a number of post-September 11 initiatives to secure the homeland. DPAS support has been provided to the FBI to upgrade its communications and data processing capabilities, and to the Transportation Security Administration to achieve the timely delivery of explosive detection systems equipment for use at commercial airports. And we are currently working with the Department of Homeland Security to review a request to provide DPAS support for the Customs Service's Automated Commercial Environments port security system.
Page 14 PREV PAGE TOP OF DOC DPA authority has facilitated the completion of a number of in-depth studies of the defense industry, including most recently a comprehensive analysis of the impact of offsets on defense trade over a six-year period. A report that has been well received by Congress and industry.
Finally, and in light of current events, perhaps most critically, DPA authority is providing support today for U.S. and allied nation forces currently deployed in the Middle East. We have worked closely with contractors and suppliers to achieve timely delivery of important supplies and materials to those forces.
In short, thanks to this committee's work in reauthorizing the DPA two years ago, we have had in place critically important statutory authority that has enabled the federal government to meet the new and diverse threats to our security. As it has over the past 50 years, the statute has again demonstrated its utility and its value. We strongly support its reauthorization.
[The prepared statement of Hon. Karan K. Bhatia can be found on page 27 in the appendix.]
Chairman KING. Thank you, Mr. Bhatia, we appreciate your testimony.
And now we will hear from R. David Paulison, Director of Preparedness Division, Emergency Response Directorate in the Department of Homeland Security.
STATEMENT OF HON. R. DAVID PAULISON, DIRECTOR OF THE PREPAREDNESS DIVISION, EMERGENCY AND RESPONSE DIRECTORATE, DEPARTMENT OF HOMELAND SECURITY
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Mr. PAULISON. Thank you, Mr. Chairman and members of the subcommittee. On behalf of Under Secretary Michael Brown, I appreciate the opportunity to appear before you today. I have submitted my written testimony and appreciate it being added for the record. And I would like to just give a very brief overview of our comments and try not to duplicate what has already been said.
The Department of Homeland Security does support a 5-year reauthorization of the Defense Production Act. We feel that this will allow us to continue our preparedness for catastrophic incidents and also allow us time to explore ways to modernize the Defense Production Act.
If we fail to reauthorize this act, there is no alternative or comparable authority for the Defense Production Act for priorities and allocations for civil emergencies. And we are talking about natural or man made disasters in this country.
The Defense Production Act authorities are critical to supporting the Department of Homeland Security's objectives and missions. We have recently used the Defense Production Act in several incidents and some were pointed out by Mrs. Maloney. And that is particularly the use of priorities and allocation authority to support TSA for acquiring explosive detection devices for over 400 airports.
We have assisted the FBI in updating their critical information systems. And we are currently working with the Bureau of Customs to use the Department of Homeland Security's priority and allocations to buy equipment to track containerized shipping arriving on our borders. An example of this is a tracking of over 9,000 tractor trailer trucks across our borders at Laredo, Texas each day in this country. And that is just one city.
The Department of Homeland Security can use the Defense Protection Act in catastrophic natural disasters and I think that is very important. I was the chief of Miami-Dade County when Hurricane Andrew swept through the southern portion of our county.
Page 16 PREV PAGE TOP OF DOC We had 90,000 homes destroyed and 250,000 homeless people. If that hurricane had landed just 10 miles further north and had moved a little slower, the catastrophic results that we saw would have been multiplied many times over. This act gives us the tools to effectively respond to these types of disasters.
A major earthquake along the New Madrid fault could cause major loss of life and significant destruction of the infrastructure. Other examples in the use of this Act is personal protection equipment used for weapons of mass destruction for our first responders, vital communications equipment and other information technology support for advanced research projects.
We are currently preparing a priorities and allocations manual that parallels the DOD system, which we will use throughout the Department of Homeland Security.
And lastly, the Secretary of Homeland Security is prepared to carry out his responsibilities under Executive Order 12919, particularly in regard to coordination and program guidance of this act.
[The prepared statement of Hon. R. David Paulison can be found on page 38 in the appendix.]
Chairman KING. Thank you, Mr. Paulison.
I just have several questions. One, I will ask the entire panel on this, as you know, the administration originally requested a five-year reauthorization of the DPA. But in agreement with the ranking member and the other minority members, we intend toI intend to offer an amendment today to make that a four-year extension. Do any of you have any comments on that? Do any of you have any objection to the amendment bringing it from five years to four years?
Page 17 PREV PAGE TOP OF DOC Mr. SEGA. From the Department of Defense, we wouldwe prefer five years as we see the DPA authorities as needed on a continuing basis now and into the future. We would prefer five.
Chairman KING. Anybody else have any comment?
Mr. PAULISON. Like I said earlier, the Department of Homeland Security also prefers five years.
Mr. BHATIA. Let me add the Commerce Department's voice as well. We, too, would prefer a five-year authorization. We consider this an extremely important statute. In our view the longer the reauthorization, the better.
Chairman KING. Thank you.
Ms. PATRICK. And I think the other thing is that given the fact that we have seen the adverse impact at times when this has lapsed. I think it is very important that we, especially given world conditions today, that we have as long a reauthorization as we possibly can just to make sure that we can deal as effectively with contingencies in the future as we have in the past.
Chairman KING. Okay. Thank you for your comments.
Also, and I see that the gentlelady from California is here. And I realize she will be offering an amendment later on, which she will be speaking on. But basically, if I can paraphrase her amendment, and she isagain, I am not speaking for her. But it is going to, as I understand it, preclude any contracting with a company that employed or had as a board member anycertain specified senior U.S. government officials. I would like to ask if you would comment on that to the extent that would impact on your departments as far as implementing the DPA.
Ms. PATRICK. I would like to take this opportunity to reiterate some of the comments that I had in my oral statement. It is very important to remember that these requests come to us based almost exclusively on war fighting requirements. These are for the warfighter to get something in a timely fashion that they need desperately to prosecute an operation or to prevent loss of lives in the battlefield. And as a consequence of that, it would really gut the utility of this Act to us if we in any way had to circumscribe its effectiveness relative to the companies to which we could apply it.
Page 18 PREV PAGE TOP OF DOC The other thing that I would like to point is that this Act comes inthe DPAS provisions come into force when we have an existing contract that has been duly rated so the provisions of DPAS supply. And it is only when those two provisions are met that DPAS comes into effect at all for us to decide as to whether we had to reallocate production on a production line to serve the interest of a warfighter.
So from our perspective, it is absolutely essential that we be allowed to provide the warfighter equipment regardless of contractor or source in a time of great need. And it would be really discriminatory against the warfighter to limit the productionor the provision of war fighting equipment to them based on other concerns that do not have to do with the urgent need, but have to do with other concerns.
So I hope that is clear.
Chairman KING. It is clear to me. Thank you, Ms. Patrick.
Anybody else have any comment on that?
Mr. PAULISON. We do not know the full impact of the amendment. But we are concerned that it will make the Act ineffective should we experience a catastrophic incident in this country, whether it is man made or natural. And so we do have concerns over it.
Chairman KING. Thank you.
Mr. BHATIA. I would echo the comments made by the other witnesses on this. I would also add that, although we have only had a chance to preliminarily review it, it would appear that the amendment would effectively carve out a category of companies from the requirements of the DPA, including requirements that they be subject to the investigative and report features of the DPA. Obviously, for those reports and investigations that we do to be complete and to be accurate, we would want responses from all companies out there, including this category of companies that would potentially be carved out if the amendment were adopted.
Chairman KING. Mrs. Maloney?
Page 19 PREV PAGE TOP OF DOC Mrs. MALONEY OF NEW YORK. Thank you, Mr. Chairman and I thank all the panelists.
First, I would like to ask Dr. Paulison, can you explain for the committee what the impact of FEMA coming under the Department of Homeland Security will be in practice? Many people say it is just moving boxes around and it is not going to really have that big an impact. But how will the DPA be used in practice now when reacting towill you react to a disaster any way differently than prior to the creation of this new Homeland Security Department?
And also, you mentioned in your statement that you would be paying attention to the ports. And as you know, New York City is one of the biggest ports in the country. I represent New York City, a very highly populated area. And can you tell the subcommittee how the DPA might be used in this area? If you could elaborate further on in port protection.
Mr. PAULISON. Thank you for the question. The first answer is, by moving FEMA into the Department of Homeland Security it gives us a tremendous amount of resources that we did not have before. FEMA's response has been primarily natural disasters. We have responded to some man made disasters, but primarily natural.
By moving into the Department of Homeland Security, it gives us the ability to tap into the terrorism partterrorism protection part of the federal government we did not necessarily have before. So we are excited about the move. We think it is the right move. And we already see a lot of good things happening as far as keeping this country prepared, and also responding to the disasters.
The second partI come from a big port city, also, of Miami. We have a difficult time sometimes tracking what comes into the country and what are in these containerized cargos. The DPA will allow us to work with Borders and Transportation Security to make sure that we can track each of these cargo containers as they come in. We know what is in the cargo containers and we know where they are going.
Page 20 PREV PAGE TOP OF DOC It is going to be a tremendous opportunity for us to enhance the tracking systems we already have. If we did not have this authority, we may not have the ability to move quickly enough. As we know, we have a significant crisis on our hands at this point. And we need to be able to move very quickly to put a tracking mechanism in place to find outmake sure we understand what is in these containerscontainerized cargos as they come into the country and how we can track them once they come in.
Mrs. MALONEY OF NEW YORK. Thank you.
Secretary Bhatia, in your testimony you mentioned that the DPA requires Commerce to report to Congress on the issue of defense trade offsets. And I am wondering, is this a two-way street. Could you provide an example of a recent offset sought by a foreign country?
Mr. BHATIA. Ranking Member Maloney, the report that we provided contains a summary of different offsets that get reported to us. I am happy to get back to you with some specific examples if you want. I believe even the most recent sale of F-16 fighters to Poland has an offsets package as part of that. But I would be happy to provide some specific details afterwards if you would like.
Mrs. MALONEY OF NEW YORK. Well, does the United States ever seek offsets for goods bought from foreign countries?
Mr. BHATIA. The policy of the United States is to not participate in the formation of offsets and offset policies. We, the Commerce Department, have been devoting our resources principally monitoring the practice of offsets, the effect that it is having. It obviously is, to some extent, a trade distorting practice and it is one that concerns us. And we have sought to address it both in bilateral and multilateral fora with our allies.
Mrs. MALONEY OF NEW YORK. Is there a potential that foreign countries seeking offsets could lead to jobs moving overseas when they otherwise would have stayed in the United States? Have you studied that?
Page 21 PREV PAGE TOP OF DOC Mr. BHATIA. Yes, the most recent report does address that issue and it is obviously a concern with respect to offsets. The analysis contained in the report concludes that on balance when you look at the gains in U.S. jobs and to the U.S. economy as a result of offset packages being offered and thus contracts being won, the net is, by a fairly significant margin, a benefit to the U.S. economy and U.S. jobs rather than the loss of jobs.
Mrs. MALONEY OF NEW YORK. And as you know, the DPA contains the Exon-Florio language that authorizes the President to block foreign control of a U.S. business if the foreign business might take action that threatens to impair the national security. Can you please provide an example of how this authority has been used?
Mr. BHATIA. The authority is exercised through the Committee on Foreign Investment in the United States which has been created, I believe, by executive order. It is an interagency committee under the chairmanship of the Treasury Department that will look at filings made by foreign parties seeking to acquire effectively controlling interests in certain U.S. companies.
I believe that the regulations the Treasury Department has put out, require that information about specific transactions and investigations be provided confidentially to the committee. I would be more than happy to do that in a confidential forum.
Mrs. MALONEY OF NEW YORK. I would appreciate that.
And Ms. Patrick, finally, and my time is up, how would the DPA be used in the rebuilding of Iraq?
Ms. PATRICK. The Defense Production Act and DPAS specifically is very much used on a case-by-case basis. And soand I would like to also reiterate the point I made in my remarks, which is that we generally use DPAS authority for things that benefit the warfighter.
I think that the rebuilding of Iraq is something in the future. Wecertainly in this administration, we have not tread that ground yet. And so as a consequence, we would have to see what sorts of requests under the DPAS and DPA authority came to us in conjunction with the rebuilding of Iraq. And I would not want to guess in advance how those authorities might be used.
Page 22 PREV PAGE TOP OF DOC Although I would like to reiterate again, as I have previously, that they are typically used to benefit our warfighters and under existing contracts where the ordering or allocation of defense hardware has to be changed in a matter to meet urgent national security requirements.
Chairman KING. Ms. Biggert?
Mr. PAUL. Thank you, Mr. Chairman.
I was wondering if any member of the panel could cite the article of the Constitution that gives the Congress the authority to grant this amount of authority to the executive branch.
Okay. There's no answer. Maybe I will ask my colleagues. This next question is directed toward Secretary Patrick and it is dealing with Article I of the DPA. Part of Article I prohibits the President from exercising his priorities without first making a report to the Congress; and I understand that this administration has used this authorization. Has it always sent these reports to the Congress before making use of this authority?
Ms. PATRICK. The authority under DPAS, as I understand it, actually is delegated quite deeply into the Defense Department. And just so I might explain how it works. It, to my knowledgeit does not require any sort of additional request of Congress because, of course, the issue here is urgent national security requirements with a warfighter out at the pointed end of the spear needing something desperately; Kevlar shields, additional JDAMs, additional radios.
And so, as a consequence, that authority is delegated to me in the cases where only U.S. requirements and only U.S. production facilities are in question. In the case where it is a foreign requirement or where foreign production facilities are involved, my boss, the Under Secretary of Defense for Acquisition, Technology and Logistics, Mr. Aldridge, signs off on those DPAS requests.
Page 23 PREV PAGE TOP OF DOC But the Act does not specifically require us to come back to Congress each time we use DPAS in order to expedite something from the warfighters.
Mr. PAUL. Well, I think that would stand to, I guess, a debate because some people could read it otherwise that nothing could be done because it prohibits you doing anything unless these findings are presented to the Congress. It seems like these indirect methods would not suffice.
But on another subject as well, just on this principle of delegating this amount of authority, which to me is a tremendous amount of authority, because literally we are giving the administration power to draft an economy and dictate to economy, which can be very damaging, because it came out of the fact that nationalizing the steel industries by Truman was considered not the best way to go about things. But this is accomplishing the same thing and stands on the books as potentially very dangerous for the gravitation of power in the executive branch.
But it is also based on the assumption that the allocation of resources is best done by authoritarian procedures. We believe in the market. And when there is a shortage, the best allocation of scarce resources is through the market. And yet, as soon as we come up with a crisis, we resort to authoritarian methods which have questionable constitutional grounds for it. So I just have a lot of trouble understanding why there is such determination for all this power to be given to the executive branch, not only for an extension of two years, make sure it is for five years.
I mean, where is our confidence in the market place.
Ms. PATRICK. I think you will probably find few members of the administration who are such fervid and fervent advocates of the market economy as some of the senior members of the leadership in the Defense Department. And I would certainly count myself among them.
Page 24 PREV PAGE TOP OF DOC I think that the way to best understand the DPAS authorization is that it is used for highly extraordinary circumstances. It is intended to fine-tune the priority of production line assets. It is not in any way comparable or to be discussed in the same vein, I think, with nationalization of a major industry. These are very minor course adjustments that we do very judiciously, very prudently, once again, in order to make sure that the warfighter has what he or she needs when they are engaged in combat on our behalf.
Chairman KING. Ms. Waters?
Ms. WATERS. Thank you very much, Mr. Chairman.
Let me start out by saying that I share Mr. Paul's concerns. This is awesome authority. And I understand that there has already been some planning at the White House or the Pentagon about use of this authority not in the way that it is being described here today, but in relationship to contracts to rebuild roads, bridges and other facilities in Iraq following the war. Do you know anything about that?
Ms. PATRICK. Ma'am, I do not know anything about that other than what you have told me and what I have learned about such initiatives during the course of the day today preparing for this hearing. I can also assure you that we do not have any such request that has come to us under DPAS authority. And so the scenario that you are painting for us today is certainly new to me.
But also, as I said previously, we review very judiciously and carefully these requests under DPAS for relevance to the warfighter, for urgency in prosecution of a conflict and we do consider them on a case-by-case basis. That's very much at the center of this kind of judicious consideration.
Ms. WATERS. May I ask, has Halliburton been involvedKellogg, Brown and Root or Halliburton been involved in any of the planning for the use of this authority should theyshould you need it? Have you been involved with any planning sessions with representatives of Kellogg, Brown and Root or Halliburton?
Page 25 PREV PAGE TOP OF DOC Ms. PATRICK. I certainly have not. And just to further elaborate on how the process works, these kinds of requests come to us either, as I said earlier, from the warfighters themselves, from the combatant commanders, from members of the joint staff who see that they need something that they do not have sufficient quantities of or where the sequencing on a production line is not adequate; or, in some cases, from companies who have contracts for critical war fighting equipment who, as part of the functioning of the defense industrial base, advise us that they have a problem in executing a number of contracts that they are doing for us simultaneously.
And that they from time-to-time have advised us when there is a problem in executing a contract that they view important to the warfighter because another item of equipment is on the production line preceding this critical item.
Ms. WATERS. Who would make the final decision about the authority to use this authority? Who would make the final decisionif you have a request, as you would say, from someone out in the field and there was a need to spend $50 million to do something that you say falls within the category of this authority, who would make the final decision on that?
Ms. PATRICK. Let me answer the question in two ways. First of all, in the case where it involves a request from a U.S. entity and impacts a U.S. production line or a U.S. company, U.S. on the both sides, I sign off on those documents myself. In the cases where it involves a foreign company or an ally asking us for that help, the Under Secretary of Defense for Acquisition, Technology and Logistics, my boss, signs off on that. So these are delegated appropriately in the department so that the people who have the subject matter expertise can actually adjudicate the issues of concern.
Let me answer another point that I think was embedded in your question, which is that the DPAS authority is not a contracting authority per se. In most instances, as a matter of fact, it is revenue neutral to the companies in that the companies are not provided additional revenues as a result of the DPAS authority. They are just directed to change the order in which they provide equipment to us based on the authority.
Page 26 PREV PAGE TOP OF DOC Now under some circumstances, if we have to surge production dramatically and we decide that we do not have time to renegotiate a contract, and I think that's a big exception because we can negotiate contracts quite nimbly to meet warfighter demand. But if all that were the case, then in turn, if the company decided that they needed to be reimbursed for providing things on an accelerated schedule because, for instance, the had to put on additional shifts, they had to procure materials at rates that were not as competitive.
Ms. WATERS. If I mayI understand that.
Ms. PATRICK. Okay.
Ms. WATERS. However, you are not representing that. This authority does not include the ability to increase the original order if it is an emergency. For example, if you have negotiated a contract and it is a need to speed up the production of an item and to expand the items because there is an additional need, that authority is embedded in this also. Is that right?
Ms. PATRICK. Any sort of financial provisions having to do with the impact of DPAS would generally be negotiated as part of a contract modification or change to the contract. DPAS does not automatically provide funding at the kinds of levels you were talking about. I mean, it is just a reordering and fine-tuning of a production line.
Ms. WATERS. Well, what would happen if
Chairman KING. Gentlelady's time has expired. Just ask the question and that's it.
Ms. WATERS. I beg your pardon?
Chairman KING. I said your time is expired, but you can ask the one final question.
Ms. WATERS. What would happenexplain what would happen and how it would happen if in the exercising of this authority for any reason, there also was a need for additional dollars to be spent on a particular item? What would happen? How would it happen? And whose authority would that be?
Page 27 PREV PAGE TOP OF DOC Ms. PATRICK. Right. As I said, that would be a contracting action where the contracting officer would have to negotiate a change order to that contract to accommodate the increase in costs then that your scenario would include.
The renegotiation of the change order or the change in the price of the contract would not be automatic as a result of invoking DPAS. That would be subject to a separate negotiation. DPAS would allow the change in priority. But then whatever the financial arrangements were that would follow would have to be negotiated in a change order to that contract. In other words, a contract negotiation activity.
Chairman KING. Mr. Manzullo?
Mr. MANZULLO. Do you get involved, when you invoke the DPA, with any Berry amendment waivers?
Ms. PATRICK. You know, in the measure that DPAS, once again, is typically pursuant to an existing contract in place, the existing contract in place would have adjudicated the Berry Amendment issue. So that typically is not part of it because it is relative to an already existing contract.
Mr. MANZULLO. Okay. I ask this because President Clinton's Executive Order 12919, I am reading from a CRS report, states ''The domestic, industrial and technological base is the foundation for national defense preparedness. The authorities provided in the Act'', and that's your Act, ''shall be used to strengthen this base and to ensure it is capable of responding to all threats to the national security of the United States.''
And what we are seeing now, in fact, the Small Business Committee, of which I am the Chairman, is having a hearing on March 26 as to why the Department of Defense is allowing the purchase of titanium from Russia for Pratt and Whitney engines on military aircraft at a time when the titanium industry in this country is in dire straits.
There are literally tens of thousands of jobs, manufacturing jobs, that are being wiped out because of this waiver of the Berry amendment. But I would think that since President Clinton charged you in this executive order to make sure that the industrial and technology base are the foundation for national defense that you would look into the fact that we still have a strong domestic titanium manufacturing sector. Wouldn't that be correct?
Page 28 PREV PAGE TOP OF DOC Ms. PATRICK. We monitor the issues with regard to specialty metals of all kinds very carefully. But given that that's a fairly complex issue, let me take your question for the record and look into that in some detail and get back to you.
Mr. MANZULLO. Did anybody else want to comment on that?
I have a question on offsets because it is related to the same thing. Lockheed Martin just entered into a $25 billion agreement to sell F-16s to Poland in exchange for Poland getting $16 billion worth of business from Lockheed Martin.
I would submit to you that Poland will take away thousands, if not tens of thousands of manufacturing jobs in the United States because of the offset and continue to use offshore production to go into our fighting machines to come to just under the 51 percent buy American requirement for the Department of Defense, with the exception of the Berry amendment.
Do you think that based upon President Clinton's executive order that you should be taking a look at the long-term effect of these offsets because Poland is really itching to get into the market of tool and die and machining and manufacturing.
I ask that question because the largest city in my district, Rockford, Illinois, has a 25 percent industrial base. And in 1981 it led the Nation in unemployment at 24.9 percent. And so we see a very dangerous trend to which the United States is a party. Would anybody like to comment on the offsets?
Mr. BHATIA. Congressman, as I mentioned before, offsets is one of the subjects on which, under the DPA, we report to Congress. We do look at them comprehensively, relying on the authorities under the DPA to get the relevant information from companies. And, as our most recent offset report concludes, there is an increase in offset activity. We are also concerned there is an increase in the importance of offsets in being a determining factor in foreign government decisions about what contracts should be
Mr. BHATIA. granted.
Page 29 PREV PAGE TOP OF DOC Mr. MANZULLO. Well, then do you weigh that against the executive order? I mean, your job is to maintain a strategic and industrial base in the United States.
Mr. BHATIA. The ideal situation, as I mentioned before, is that there would not be any offsets. They are, however, a factor in international defense trade. There is no getting around that. And the analysis that was done in the report, and I think it is a very strong analysis, suggests that the net result to the United States economy and to the labor force is a net positive.
Mr. MANZULLO. At what point does it become not a net resource? After the loss of how many U.S. manufacturing jobs?
Mr. BHATIA. Again, there is no question that to the extent that some of these offset packages require that certain functions be performed offshore that they do result
Mr. MANZULLO. Certain manufacturing functions. Jobs are lost. So, where is there a net gain in the cities like mine that had the manufacturing base?
Mr. BHATIA. The report, again, will explain, Congressman, how all told over the period of 1993 to 1999, there has been a net gain from offsets, from the increased sales that would otherwise not have been made absent offset packages, of roughly 36,000 jobs.
Mr. MANZULLO. Well, I lost 10,000 jobs in the past two years just in my district and so has the speaker. There has been a loss of two million industrial jobs in the past three years here in the United States. Do you look at industry sectors
Chairman KING. Time has expired.
Mr. MANZULLO. I am sorry.
Mr. BHATIA. Could I clarify for the record? I think I misspoke when I said jobs. I am sorry. Export sales facilitated by offsets maintained 38,400 work years annually.
Page 30 PREV PAGE TOP OF DOC Mr. MANZULLO. No, I understand that. But what that does not show is the hollowing out of the industrial base when the export base includes foreign materials being put into items that are assembled and sold under the American name that are shown as net U.S. exports.
Do I have time for one more question?
Chairman KING. Yes, one more question.
Mr. MANZULLO. My question is, when you approve these offsets, which you have to
Mr. BHATIA. No. Perhaps there is a misunderstanding. We do not approve offsets at all. We simply, under the DPA, monitor the existence of offsets.
Mr. MANZULLO. You do not pass upon them at all?
Mr. BHATIA. No, sir.
Mr. MANZULLO. When you monitor them, do you get involved in various sectors of industry? Do you call the manufacturers of a like material and see how their business is going?
Mr. BHATIA. There is a requirement that offset packages be reported to us. They get reported to us and then we subsequently investigate the impact of the offset package.
Mr. MANZULLO. Okay. If we could meet sometime later on, I would appreciate a follow up on it.
Chairman KING. The gentleman's time has expired.
Ms. LEE. Thank you, Mr. Chairman.
Just learningas one who is just learning about the Defense Production Act, it appears and sounds like to me that there is quite a bit of money being made by some companies.
Page 31 PREV PAGE TOP OF DOC I want tothere's not. Someone is shaking their head.
But let me just askit may not be a lot of money. It may besome money is being made under this authority. So in using the authority of the Defense Production Act, I want to ask you how do the laws regarding the minority business owned community, the purchasing laws and the minority contracting laws apply and how do they work as it relates to the DPA's authority?
Ms. PATRICK. I think that it is a bit of a misconstruction of how the Defensehow the DPAS works to characterize it as a moneymaking opportunity for companies. Once again, you know, it really isit does notDPAS does not represent authority to negotiate new contracts, to buy new things, to serve the warfighter with new items. It is merely a way to reorder the sequencing and the priorities, the priority of allocation of defense equipment.
Ms. LEE. But in doing that, companies do not make additional profits?
Ms. PATRICK. In fact, in many, many cases, it is revenue neutral to the companies. It is notit does not provide additional monies. There may be some circumstances were we to use DPAS, as I said, to dramatically surge production, which we generally would prefer to renegotiate contracts. In those cases, then, a separate negotiation action would start with the original contractor.
This would not be a new RFP that would put out new business. This is a very confined authority, really, to operate under existing contracts, on existing production lines and using the existing relationships between the government and that particular contractor that was negotiated probably, you know, years ahead of the time that DPAS comes into instance. It is not new contracts.
Ms. LEE. Okay. Well, I would like toand if this is public information or information that we can receive, I would like to ask if we could request at least a list or a breakdown of those companies and what actually have the numbers been in terms of the sales. And I would like to see what the minority and women-owned business involvement in that.
Page 32 PREV PAGE TOP OF DOC Ms. PATRICK. Just one moment, please.
I think the other thing isI was hoping that our annual report on the industrial base capabilities might have had something on DPAS because we have a lot of charts that are very helpful in this regard that would have shown you over the last 12 months when we invoked DPAS and what the impact was; what the equipment was; who the contractor was and
Ms. LEE. And how much the contract was and
Ms. PATRICK. How much the original contract was and the whether or not it was
Ms. LEE. Versus under DPAS?
Ms. PATRICK. That's right.
Ms. LEE. Okay.
Ms. PATRICK. But the other thing to keep in mind is it really is an insurance policy that's in all contracts. So it certainly is not only in some contracts. So all of our contracts with minority or women-owned businesses would also have a DPAS clause in them. It is an insurance policy that's put into all defense contracts. But it is only invoked very rarely. As I said in my remarks, since 1995, we have invoked DPAS only 120 times.
Ms. LEE. Well, out of the 120 times, is there a way to find out the involvement of the 120 times how many minority and women-owned companies were part of that involvement?
Ms. PATRICK. We certainly could. They would be the contracts where, frankly, coincidentally, you know, those particular DPAS actions involved minority and women-owned companies. It is a very broad spectrum of companies that get involved. Some who are very small, the names of which you might not know because they are components.
But you know, we have very good records on whenever we have invoked DPAS because it is very important to us and it is an authority that we take very seriously. So perhaps what would be very helpful to the committee is if we take the slice, perhaps, over the last year and show you those DPAS initiative so that you can see what they were; see what the equipment was; who the companies were; whether they were revenue-neutral or not.
Page 33 PREV PAGE TOP OF DOC Ms. LEE. I would like to see that myself. But I would also like to see within that context, the breakdown of the minority and women-owned firms in that listing.
Ms. PATRICK. Yes, well, we will annotate them as to whether they are minority or women-owned firms.
Ms. LEE. Yes. Thank you very much.
Ms. PATRICK. We will be happy to provide that.
Chairman KING. Thank you.
He has left.
Okay, I am going to thank the witnesses for their testimony. Ordinarily, this is a very routine reauthorization. Obviously, today being on the eve of hostilities, it takes on an added impact. I want to thank you for your testimony. I want to thank you
Mrs. MALONEY OF NEW YORK. Mr. Chairman, can I ask a point of clarification?
Chairman KING. Sure, absolutely.
Mrs. MALONEY OF NEW YORK. I really would like to go back to really the questioning of my colleagues. And I would like it to clarifyit is my understanding that DPA relates to prioritizing existing contracts only. In other words, you cannot initiate a new contract. But what happens if you hear from the field that they need new walkie-talkies immediately?
Page 34 PREV PAGE TOP OF DOC Ms. PATRICK. That's a separate contracting action. That would not come under DPAS. That would be a contract that would be negotiated on an urgent, priority basis through the commands that are cognizant for the kinds of equipment that's being queried.
Mrs. MALONEY OF NEW YORK. Now, another question that Ms. Waters raised was the question whether this DPA was going to be used for the rebuilding of Iraq? And you stated earlier that it was responded to the requests from the warfighter themselves. Well, obviously, rebuilding is not a war fight. So I would like to be clarified whether DPA will be used just in a war, which is obviously an emergency? Or will it also be used in the rebuilding?
Ms. PATRICK. Well, I was certainly responding based on what the DOD DPAS authority is, which is generally quite strictly related to war fighting and the warfighter. But other departments can exercise their DPAS-type authority for things like rebuilding, which might conceivably come under the authority of USAID. But it probably would not be a DOD DPAS action. You are absolutely correct in making the distinction.
Mrs. MALONEY OF NEW YORK. So it could be used in that way. And thank you very much.
Mr. SEGA. If I could clarify, in the Title III portion, which are where my responsibilities are, we do have some contracting activities to help with what Mr. Paul had mentionedCongressman Paul had mentioned earlier, in terms of areas where the private sector is not producing through commercial demand products that we need. And one prime example is the radiation hardened microelectronics facilities.
And so in that case we are running to the point where we could not provide the Department of Defense with the RAD hard components for space and missile systems. At that point we did enter into Title III activities to provide the equipment and also looking at advanced processors to provide a segment of technology that does not have an analog into the commercial sector for the RAD hard parts.
Page 35 PREV PAGE TOP OF DOC So there is some contracting activity. And in that case, it is consistent with standard acquisition regulations.
Mrs. MALONEY OF NEW YORK. If I could ask another clarification. You testified that often when you use DPA, the private firms do not make a profit, that you, quote, modify their contracts, extend their contracts, procure more of what is needed. But usually in private commerce, many people want to do business with the United States government because they do make a profit. And they are entitled to a profit.
So when you say if they modify and prolong their contract, they are not making a profit, I justI would like a clarification. I think most companies have to make a profit in order to be in business.
Ms. PATRICK. Let me clarify that. If I said that companies working for the government on government contracts do not make a contract, that certainly was notthat was not the intention of what I said.
Mrs. MALONEY OF NEW YORK. You said for the extension of the contract. You said it often was revenue neutral. I think you used that word.
Ms. PATRICK. Right, it is revenue neutral in terms of any additional profits because of the invocation of DPAS itself.
Mrs. MALONEY OF NEW YORK. Okay. Revenue neutral, in other words, they cannot make more than the contract that they got with the government in the first place.
Ms. PATRICK. Correct, I mean, they are within the confines
Mrs. MALONEY OF NEW YORK. So you are expandingI see, I understand.
Ms. PATRICK. That's right. They are within the confines of the original contract. And if theyif there is some additional profit that the contractor would demand, because, as I said, they have to have additional workers brought in, or they cannot negotiate their materials for as competitive a rate because
Page 36 PREV PAGE TOP OF DOC Mrs. MALONEY OF NEW YORK. Okay, I understand. Revenue neutral within the context of the original contract.
Ms. PATRICK. That's right. That's exactly right.
Mrs. MALONEY OF NEW YORK. Well, New York,I was reading the Wall Street Journal yesterday and already the English were complaining that they were not on the list of the contractors to rebuild Iraq. This was a report in the press. And so I share the sentiment that I believe Ms. Waters was trying to raise. I am totally supportive of DPA. DPA helped us in New York during our emergency and bringing in supplies that we needed.
But the rebuilding is not an emergency. And in my opinion, I do not believe DPA should be extended to the rebuilding of a country. When it is supposed to be a democracy and a peaceful experiment, then we should bring in the good contracting provisions that many of us have worked on and that have been part of the history of our country.
Ms. PATRICK. Well, we really appreciate your concerns. And you know, we really do work DPAS and other prioritization programs very judiciously. As an example, for instance, all contracts have ratings for priorities, DO or DX. And we actually have turned down many of our colleagues' requests that their programs have DX ratings, which would be more urgent than DO just for reasons of priority when it was not urgent.
So you know, there have been a number of instances, not in DPAS, but in other similar authorities that my office and I have where we have actually said no. So we will take aboard what you have said and we will continue to do this as prudently and judiciously as we possibly can but having in mind the warfighter at the end. And they are really most important to all of us now.
Mrs. MALONEY OF NEW YORK. Right, thank you.
Mr. MANZULLO. Mr. Chairman?
Chairman KING. Yes.
Page 37 PREV PAGE TOP OF DOC Mr. MANZULLO. Would you mind if I asked one further question?
Chairman KING. It is always an experience to listen to your questions, Mr. Manzullo.
Mr. MANZULLO. I appreciate that. Thank you.
I, on Section IIII guess, Mr. Sega, this would be yours. This calls for the purchase of $200 million worth of radiation-hardened electronics. Is that correct?
Mr. SEGA. Not quite. The radiation hardened electronics capital expansion, the CAPEX project, is one that in fiscal 2004, the President's budget is $65.1 million. And that is primarily to establish two lines for RAD hard production. So that's the capital equipment pieces.
Mr. MANZULLO. You mean, for domestic production?
Mr. SEGA. Domestic production, yes, by two companies. So that we will have a supplier for those needed parts. The total from fiscal year 2002, 2003 and 2004 would add up to $167 million. We believe that would be the figure and that we would not anticipate cost growth. We are asking for the authorization of $200 million for the flexibility in the event of cost growth. We do not anticipate it.
Mr. MANZULLO. This is for the purpose of establishing a U.S. manufacturing base for these radiation-hardened electronics. Is that what you are saying?
Mr. SEGA. That's correct.
Mr. MANZULLO. Okay. Thank you.
Chairman KING. I want to again thank you and also for extending your time without any profit and for putting in the extra time. So again, I thank you for your testimony. It was very significant. Again, in the past, this was often a routine hearing. But in your view of the importance of the events around us, it took on an added dimension and you certainly measured up to that. So thank you very much.
Page 38 PREV PAGE TOP OF DOC Now, without objection, the record of today's hearing will remain open for 30 days to receive additional material and supplementary written responses from witnesses to any question posed by a member of the panel. This includes member statements and questions as well.
The hearing portion of the subcommittee's activities is adjourned. And the chair would ask the members if they could stick around for a few minutes as we briefly recess to set up for the markup.
[Whereupon, at 3:30 p.m., the subcommittee was adjourned.]