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[H.A.S.C. No. 108–42]







JUNE 24, 2004


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CURT WELDON, Pennsylvania, Chairman
W. TODD AKIN, Missouri
JEB BRADLEY, New Hampshire
HOWARD P. ''BUCK'' McKEON, California
WALTER B. JONES, North Carolina
JIM RYUN, Kansas
ROB SIMMONS, Connecticut
ED SCHROCK, Virginia
JOE WILSON, South Carolina

JOHN SPRATT, South Carolina
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LANE EVANS, Illinois
ADAM SMITH, Washington
MIKE McINTYRE, North Carolina
ROBERT A. BRADY, Pennsylvania
JOHN B. LARSON, Connecticut
JIM COOPER, Tennessee

Doug Roach, Professional Staff Member
Robert Simmons, Professional Staff Member
J.J. Gertler, Professional Staff Member
Jesse Tolleson, Research Assistant




    Thursday, June 24, 2004, Small-Caliber Ammunition Programs and the Associated Industrial Base
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    Thursday, June 24, 2004




    Abercrombie, Hon. Neil, a Representative from Hawaii, Ranking Member, Tactical Air and Land Forces Subcommittee

    Weldon, Hon. Curt, a Representative from Pennsylvania, Chairman, Tactical Air and Land Forces Subcommittee


    Blount, Maj. Gen. Buford C., III, Assistant Deputy Chief of Staff, G–3, United States Army; Brig. Gen. James Rafferty, Deputy Commander, Joint Munitions Command, United States Army; Brig. Gen. Paul S. Izzo, Program Executive Officer, Ammunition, United States Army; Karen B. Davies, President, Alliant Lake Small-Caliber Ammunition company and Richard Palaschak, Director of Operations, Munitions Industrial Base Task Force

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[The Prepared Statements can be viewed in the hard copy.]

Blount, Maj. Gen. Bufford C., III, joint with Brig. Gen. Paul S. Izzo; Brig. Gen. James W. Rafferty, Deputy Commander, Joint Munitions Command, United States Army

Davies, Karen B.

Palaschak, Richard G.

Weldon, Hon. Curt

[The Documents can be viewed in the hard copy.]

DOD Small-Caliber Ammunition Requirements vs. Production Chart

[The Questions and Answers can be viewed in the hard copy.]

Mr. Weldon


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House of Representatives,
Committee on Armed Services,
Tactical Air and Land Forces Subcommittee,
Washington, DC, Thursday, June 24, 2004.

    The subcommittee met, pursuant to call, at 2:20 p.m., in room 218, Rayburn House Office Building, Hon. Curt Weldon (chairman of the subcommittee) presiding.


    Mr. WELDON. The subcommittee will come to order. This afternoon, the Tactical Air and Land Forces Subcommittee meets to receive testimony from government and industry witnesses on small-caliber ammunition programs within the Department of Defense (DOD). We hope to update the Members on the status of these programs and perhaps clarify some misunderstandings based on media reports.

    Before we begin, I would like to note that large, medium and small-caliber ammunition programs represent a relatively small percentage of the defense budget, yet in the global war on terrorism, small-caliber ammunition represents a critical capability. There are 11 different sizes of small-caliber ammunition rounds and 85 various types, from blanks to armor piercing rounds, among the various caliber of rounds. Because three rounds, 5.56 millimeter, 7.62 millimeter and 50 caliber rounds represent over 95 percent of expenditures, our discussion today will focus on those rounds.
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    This subcommittee, in previous years as well as in the fiscal year 2005 defense budget under consideration, has urged the Department of Defense to do more to facilitize the ammunition industrial base and provide for more ammunition procurement. In the last three years we have added over $125 million for ammunition industrial base upgrades and increased production. Our increase this year for small-caliber ammunition procurement of $79 million represents a 30 percent increase over the President's request.

    In addition, this year we authorized an additional $22 million for increased facilitization of small-caliber ammunition production at the Lake City facility, the single government facility for small-caliber ammunition production.

    We understand that prior to 9/11 that the total DOD small-caliber ammunition requirement through the 1990's, up until 9/11 was 350 million rounds per year and that this entire production was provided by the government-owned, contractor-operated Lake City Plant in Independence, Missouri—or Missoura if Ike Skelton was here. He is not here, so it is Missouri.

    Subsequent to 9/11, the former Army chief of staff issued guidance to change the training requirements for the Army, and thus the total DOD training requirement increased to 1.1 billion rounds per year. Lake City has therefore had to significantly increase production, and the Army, on behalf of DOD users—and I would mention for our colleagues, the Army is the procurer for all of our conventional ammunition, not just itself—has gone to other sources to satisfy some near-term urgent needs.

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    In addition to the increased training requirement, the global war on terrorism has resulted in increased expenditures. As an example, operations in Iraq in the past year resulted in the expenditure of 72 million rounds, or about 6 percent of this fiscal year's production. Current expenditures in Iraq are reported as 5.5 million rounds per month.

    Some media reports have cited shortages in small-caliber ammunition. In January of this year, one reporter indicated that in response to a posting on his web site, within a 24-hour period he had 500 responses from serving Army troops in the United States preparing for deployment to Iraq and Afghanistan, as well as from soldiers all over the world, citing shortages of live and blank training rounds.

    The Army in response to a query on this indicated, and I quote, ''In the aggregate, the Army has sufficient training ammunition to resource deployed and deploying soldiers to the very highest levels and ensure their readiness for contingency operations,'' end quote.

    A May 27th UPI release was titled, quote, Army short 300 million bullets, end quote, and quoted an Army spokesperson as saying that the Army planned to increase production at Lake City to 2 billion rounds per year. In response to this and other press articles in May, an Army Support Command spokesman indicated that, quote, the military ran no risk of being depleted of ammunition, end quote.

    Further, there appear to be varying views among our witnesses today. In her prepared statement, Mrs. Davies, the president of the Lake City plant, calls the national stories reporting on the shortage, quote, a misnomer. Yet our association witness sitting next to our distinguished guest here, observes that current shortfalls of small-caliber ammunition have caused DOD to utilize off-shore production capabilities to satisfy a portion of DOD's near-term requirements and cites, quote, the serious shortfalls of small-caliber ammunition confronting this industry's government customers, end quote.
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    Mr. Palaschak also notes U.S. dependence on a foreign source for metal clad steel needed in some small-caliber bullets. That is why we are confused.

    DOD witness statements also seem to contradict official Army statements by indicating that the global war on terrorism is, quote, consuming large quantities of small-caliber ammunition and putting a strain on the associated industrial base, end quote. With annual expenditures for the global war on terrorism less than 10 percent of inventory and also less than 10 percent of monthly production, it is not immediately evident to us what the problem is.

    The DOD witnesses also cite the, quote ''urgent requirement for ammunition,'' end quote, in justifying the awarding of contracts to foreign sources. Given the 1 billion round inventory, a 100 million round per month production capability, and less than 10 million rounds per month being expended in hostilities, the subcommittee needs to better understand why some experts cite shortages while others call such characterizations misnomers.

    We hope to clarify for all concerned what the current status is and what future requirements are projected to be.

    Before we begin testimony, I would like to ask my good friend and colleague from Hawaii if there are any opening remarks he would like to make.

    Mr. Abercrombie.

    [The prepared statement of Mr. Weldon can be viewed in the hard copy.]
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    Mr. ABERCROMBIE. Thank you very much, Mr. Chairman. I think you have, as usual, stated the case clearly and with detail, and my only commentary at this stage is by way of offering a context. A little bit wider context is that this committee, especially under your chairmanship is interested in understanding what we need to do to sustain and maintain and improve an industrial base, not just in this particular instance where ammunition is concerned but across the board.

    And, second, what I have termed, as you know, the over-horizon infrastructure so that we are prepared in terms of training facilities and operational activities, testing facilities, et cetera, capable looking into the future of dealing with weapons changes and thus military platform changes so that we are ready for an infrastructure context that these weapons have to be sustained, maintained and improved.

    So I think this is part of your overall thrust in this direction, and this will not be the last hearing. It may be a different subject matter, but it is going to be out of the same desire to make sure that we have an industrial base and infrastructure capability to meet all these necessities, and I want to assure you, at least as far as this Member on the democratic side of the aisle, that we are entirely supportive of you in that endeavor.

    Specifically to this hearing today, in preparation for the hearing, the staff has provided us with some background, some of which you have cited in your remarks. One of the things that bothers me here, and I think helps to illuminate the, I won't say sense of confusion, but kind of dichotomy of opinion that apparently exists is that the Army officials are quoted as saying, ''We are on the road to recovery now.'' That seems to indicate that there was a shortage or had been some difficulties, but then the next quote is, ''The press is six to nine months behind the power curve,'' which presumably means that it's been resolved. And as a matter of fact it may have been resolved sometime in the past and there are no difficulties at the present time.
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    So I do think there is a bit of a schizophrenia operating here that we need to resolve today. Thank you.

    [The prepared statement of Mr. Abercrombie can be viewed in the hard copy.]

    Mr. WELDON. I thank my friend and colleague for his very pertinent comments and remarks. Before I introduce our panel, I would just say I understand the problem we have here. We are your friends. We have plussed our funding in this category continuously because we want you to be properly equipped and prepared. But we are confused. We see contradicting statements from the media and some of them from officials. Even today, witnesses have differing views that are significant and substantive. So we have got to get to the facts and have a common playing field, and that is what we hope you are going to do for us today as we go through our testimony.

    Since the Army is the primary customer of all small-caliber ammunition and the DOD single manager for these programs, the Army is our lead in providing testimony for these programs we are very pleased to have Major General Buford Blount, Assistant Deputy Chief of Staff for Operations; Brigadier General James Rafferty, Deputy Commander, Joint Munitions Command, Brigadier General Paul Izzo, Program Executive Officer, for Ammunition. Representing the primary producer of small-caliber ammunition we have Mrs. Karen Davies, president—is it Davies or Davis?

    Mrs. DAVIES. Davies.
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    Mr. WELDON. Davies. Thank you. Alliant Techsystems, Lake City small-caliber Ammunition Company. And representing the munitions industry we have Richard Palaschak, director of operations, Munitions Industrial Base Task Force.

    Without objection, all of the witnesses' prepared testimony will be accepted for the record.

    General Blount, I understand that you commanded the 3rd Infantry Division that led our forces into Baghdad just over a year ago. We want you to know we are proud of you. Proud of the great job that you did, the great way our troops responded and it is an honor and a pleasure to have you here, and we want to thank you for your service to America. We were all watching and cheering with you as you did an extremely difficult job in a very professional way. So thank you. You may begin with your opening remarks.


    General BLOUNT. Thank you, sir. Mr. Chairman, distinguished members of the subcommittee, we appreciate this opportunity to appear before you. It is our privilege today to discuss the Army's small-caliber ammunition programs and associated industrial base initiatives.
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    On behalf of the Army and our soldiers, as a former commander of the 3rd Infantry Division, I would like to take this opportunity to personally thank you and the several Members of your subcommittee who have taken the time to visit our forward-deployed soldiers. Your genuine concern and personal presence have a direct and positive impact on the morale of our soldiers. Your efforts to ensure our troops are properly equipped enabled me to better prepare the 3rd Infantry Division for attack into Iraq and rapid seizure of Baghdad.

    As you know, we are engaged in a war fighting operations in Iraq and Afghanistan. We have soldiers deployed around in the world in over 120 different countries, and we are mobilizing and training units here in the United States for deployment overseas. These activities are consuming large quantities of munitions and are putting a strain on the production capabilities of the munitions industrial base.

    The focus of our dialogue today is the production and consumption of small-caliber ammunition. This category includes 84 unique rounds that are used either for soldier training or for war fighting in Iraq and Afghanistan.

    Today, we have been asked to address three critical small-caliber ammunition rounds and our government-owned, contractor-operated production facility, Lake City in Missouri. Specifically, we are here at your request to discuss requirements, inventories, procurement, industrial-based capacity and program funding associated with the production and use of small-caliber cartridges.

    I have with me Brigadier General Izzo, Program Executive Office of Ammunition, and Brigadier General Rafferty from the Joint Munitions Command. I have submitted a joint statement for the record but would like to take this opportunity to highlight some of the key points made in my statement.
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    I will start out by saying the Army has sufficient ammunition to conduct current operations. But if we had to fight a major war in another theater in the near term, it would necessitate us to restrict Continental United States (CONUS training expenditures and apply current inventory and new production to those combat operations.

    small-caliber ammunition is not just an Army issue. We are the single manager for conventional ammunition for all of DOD and supply training and warfighting ammunition to all branches of the armed forces. The Department of Defense requirement for small-caliber ammunition has grown from approximately 600 million rounds in 1999 to over 1.5 billion cartridges today. And over the next five years it is projected to grow to 1.7 billion rounds annually.

    The requirement increase can be attributed to 3 primary factors: A revised training strategy after 9/11, the mobilization demands for the global war on terrorism operations and the increased density of individual and crew-served weapons as a result of these operational needs.

    Soldiers training for war are the principal drivers of the total requirement for small-caliber ammunition. Currently, we shoot 80 percent of our small-caliber ammunition on the training ranges and in live fire exercises. Current operational expenditures account for the rest of the requirement. Expenditures to date for the war in Afghanistan are estimated at 21 million rounds, and expenditures in operations in Kuwait and Iraq currently total 72 million rounds.

    The Army has already taken action to improve our small-caliber posture over the program years and has taken steps to ensure that production levels are maintained by prioritizing small-caliber programs in the fiscal year 2006 to 2011 program objective memorandum (POM). Additional dollars will be required from supplemental funding in order to replenish operational expenditures in a timely manner and to replenish the Army's warfighting inventories. We will be asking you for help with this supplemental funding to execute this strategy.
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    In the near term, balancing training requirements with current operational needs is a manageable risk. The Army does not want to repeat its history of building capacity during wartime only to dismantle the capacity in peacetime. We plan to leverage commercial industry to meet requirements that fill the gap between our organic base and our current needs.

    Mr. Chairman, that concludes my remarks. We look forward to exploring these subjects in more detail, as directed by your questions.

    [The joint prepared statement of General Blount, General Izzo and General Rafferty can be viewed in the hard copy.]

    Mr. WELDON. Thank you, General, and I understand we are going to skip our other two Army witnesses and go right to Mrs. Davies.

    Mrs. Davies, you are recognized.

    Mrs. DAVIES. Thank you, Mr. Chairman and other Members of the committee. I appreciate the opportunity to represent Alliant Techsystems, or ATK, today and to give you our perspective on the industrial base and also particularly Lake City.

    We are very appreciative of this committee's long-time support for the munitions base. It has made a very big difference for Lake City, and it will continue to do that in the future.

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    I would like to just give you a quick summary of some of the major points from my statement and hopefully clear up any confusion I may have attributed to.

    First of all, I think we have worked with the Army to largely restore the small-caliber ammunition industrial base. As you mentioned in your opening comments, Mr. Weldon, the plant was operating at about 350 million rounds in the late 1990's, and today we are comfortably at 1.2 billion rounds. That is a very quick ramp-up in just four years, and we have been able to use some of the funding provided by Congress, some of the investment made by the Army and also ATK's own capital, about $30 million in capital, to bring the plant to that capability.

    Outside of just the equipment and the buildings there, the other important thing has been the people. We had about 650 employees when we started running Lake City, and we are at 1,950 today. So we have hired and trained 1,300 people. And that is where a lot of the industrial base knowledge really is. They are an extremely dedicated and confident group of people, and I think they are really the brain trust of the Nation on military small-calibur ammunition. It would be very difficult to replicate that knowledge anywhere else.

    The second major point is Lake City's capacity is not limited to 1.2 billion rounds, and that is in my prepared statement what I referred to as a misnomer. There actually is more rough capacity at Lake City than the 1.2 billion rounds that we are building at today. We are using about 70 percent of the floor space that exists at Lake City, which has 500 plus buildings and just under 4,000 acres, so it is a very large facility.

    The Army has asked us to be ready to surge to 1.5 billion rounds by early 2006. We can do a pretty good step of that with just adding staff in some of our operations, getting up to 1.35 billion rounds per year, and we can take the rest of that step by activating some of the equipment that is in lay-away at Lake City.
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    We have also worked with the Army to understand if the requirement does go to 2 billion what Lake City should be prepared to do to meet that requirement. And because the floor space is there, we can lay out a plan to take a look at if we entirely wanted to rely on the organic base what that would take. It could be that the best decision will be to complement Lake City's capabilities with the commercial base, and we are cooperating with the Army to define that so that we do that as cost effectively as possible.

    The third major point I wanted to make is that the supplier base has grown along with us. We have about 1,800 suppliers who feed us, and as we look at their capabilities, there will be a few issues as the total production ramps up. But, in large part, we should be able to sustain that increase without any major difficulties.

    Fourth, we share the Army's concerns, as Major General Blount stated, on making sure that we don't overcapacitize and that we make this expansion affordable. Given the cyclic nature of ammunition in the past, we want to make sure that we do the optimum solution so that when the requirements do go down, the Nation can afford the sustainment of that base, both at Lake City or at a commercial manufacturer and also at our supply base.

    The final point that I wanted to highlight is that regardless of the surge in requirements, Lake City is in need of modernization. We build very high quality ammunition at Lake City, but we build a lot of it on 1940's vintage equipment. The last big infrastructure modification that was made in Lake City was in the 1970's, and that is a fairly automated piece of equipment. It was very well designed, but it still has the same computer system from the 70's and 80's vintage, and you can imagine what kind of challenge we have to maintain that with spare parts and with the capability that you need to support that software and also the hardware in the computer system.
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    The action that has been taken by Congress over the last two years has helped us begin on that path, and we have been able to begin those upgrades. We are working with the Army now to define exactly how much modernization is appropriate and at what levels so that we can put that whole plan in place and work toward a sustained capability at Lake City for the future.

    As you mentioned, Mr. Abercrombie, the mix of rounds and the weaponry that is going to be used is extremely critical there. The ammunition equipment that we have today is fairly well dedicated to one caliber or another. What I am encouraged about as we have laid out these plans is we are finding some new equipment that can switch more easily so that we will have some flexibility in the future as the Army's needs change to be able to adapt at Lake City.

    In conclusion, ATK is extremely proud of the role that we play in supporting our Nation with space and defense systems. And at Lake City we are particularly proud of what we have been able to do to help restore the Nation's small-caliber ammunition industrial base. Many of our Lake City employees are in the same situation as I am. We have a son or a daughter or another loved one who is in the armed forces. That is a tremendous reinforcement of just how important the product is that we build, and we know as a group of people how important it is that every round of ammunition we make serve its mission.

    I appreciate again the opportunity to speak with you today and look forward to any questions you may have.

    [The prepared statement of Mrs. Davies can be viewed in the hard copy.]
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    Mr. WELDON. Mr. Palaschak, you are recognized.

    Mr. PALASCHAK. Mr. Chairman, Mr. Abercrombie, Members of the committee, thank you for the opportunity to appear before you today. I am here representing the Munitions Industrial Base Task Force, which is a non-profit trade association of 18 companies representing a substantial cross-section of this Nation's munitions industry.

    Prior to the end of the Cold War, our military relied upon large inventories in munitions combined with orchestrated mobilization of an industrial base that was comprised of government-owned manufacturing plants and a group of proven privately owned companies.

    The end of the Cold War triggered a major change in our strategy and, not surprisingly, an ammunition war reserve requirement. For example, the Army's overall munitions war reserve requirements were reduced by nearly 75 percent. Their small-caliber ammunition requirements were only reduced by 35 percent, which closely mirrored the percent reduction in force structure.

    Several other decisions were made that would limit the ability of our industrial base. In the constrained budget environment during the 1990's, military leaders and resource managers were looking for ways to reduce the amount of funds tied up in munitions inventories. For example, the days of supply in the pipeline for training unique ammunitions were greatly reduced. Specific to small-caliber ammunitions, the Army made a conscious decision to buy only 50 percent of its war reserves because they concluded that production lines at Lake City could rapidly respond to any increased demands.
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    DOD munitions procurement budgets underwent draconian reductions as the services relied upon stocks buildup during the Cold War to support annual training and war reserve requirements. A major effort was undertaken to drastically reduce funding for production-based support in our government-owned plants, to dispose of unneeded production equipment and facilities throughout the base and to reduce the operating footprint at ammunition plants and also at privately owned facilities by consolidating operations.

    As a consequence of these actions, the overall capacity of the industrial base was drastically diminished. Much of the remaining idle equipment at facilities were not adequately maintained, and modernization or upgrading of capabilities was a low priority.

    The recent demand for increased small-caliber ammunition production have highlighted the shortcomings in our production base that have evolved during this period. When the increased requirements for 5.56, 7.62 and .50 caliber cartridges surfaced, all of the DOD's needs for these rounds, with the exception of some small quantities of specialty rounds, were being produced at Lake City.

    Lake City is the sole remaining government-owned small-caliber ammunition plant. It is the key and essential U.S. national capability for the manufacture of small-caliber ammunition in existence today. No other facility in the free world possesses the enormous production capacity still resident at Lake City.

    Lake City is currently producing, as you heard, at a rate of about 1.2 billion cartridges per year, which is about the rate, the average rate during World War II, during the Korean War and during the Vietnam War. During the Vietnam War, privately owned companies manufactured significant quantities of small-caliber ammunition to supplement the production coming from the government-owned facilities.
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    During the defense build up of the 1980's, and, incidentally, I was the commander at Lake City at that time, private industry was again asked to produce significant quantities of small-caliber ammunition in tandem with the ongoing production at Lake City. An acquisition strategy that engages private industry's capabilities to supplement Lake City's capabilities has both historical precedent and provides insurance against some future change in requirements. It also provides a relief valve as Lake City modernizes its production capabilities and expands both its capacity and its workforce.

    The commercial production capability available in the national technology and industrial base today cannot meet the maximum annual quantity needed from it, as projected by the single manager for conventional ammunition. With modest investments, that capability could be more than doubled within a year but would still be less than the maximum quantity that might be requested. Therefore, a prudent enhancement of commercial capabilities in addition to the expansion of Lake City's capacity is needed.

    Private industry has indicated a willingness to invest in the expansion of their production capacity for U.S. military ammunition under the envisioned acquisition approach of the Army. However, without some assurance of a return on their investment, even a modest investment is a difficult decision for private industry when the government's proposed acquisition strategy offers no minimum annual production.

    Unfortunately, because of the current shortfalls of small-caliber ammunition, combined with past DOD decisions that reduced the capacity and responsiveness of the national technology and industrial base for that ammunition, the DOD has utilized existing off-shore production capabilities of a close ally to satisfy a portion of DOD's near-term requirements.
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    While Lake City is capable of some additional production above current rates within six to 12 months, as you heard from Mrs. Davies, it may be necessary to further utilize some off-shore capabilities in the near term to meet DOD's increased requirements for small-caliber ammunition. Off-shore production should not be necessary, nor should it be an option, after additional capacity is put in place at Lake City and in the other members of the national technology and industrial base.

    I am going to not discuss the gilding metal clad steel since you have already recognized that, Mr. Chairman.

    This afternoon, I have presented an assessment of the small-caliber ammunition production capabilities available to satisfy this Nation's requirements for these cartridges. While I am here representing our industry, I want to assure you that my primary focus is to most assuredly meet the needs of our military. It is in that context that I hope and trust that you will consider my testimony today.

    Thank you for your attention and the opportunity to address the subcommittee.

    [The prepared statement of Mr. Palaschak can be viewed in the hard copy.]

    Mr. WELDON. Thank you for your testimony. Thank each of you for your testimony and for your service to the country.

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    Let's try to get to some of the issues where we have discrepancies, and I will get to the one I mentioned in my opening statement.

    Mrs. Davies, you mentioned that the national shortages are a misnomer. My understanding is that we had a rather large contract that we had to go outside of the U.S. this year—I guess it was this year—to purchase ammunition. If it is a misnomer, why did we have to go outside of the U.S.—maybe the Army would want to answer this question—if in fact it is a misnomer?

    And I would ask you and your industry representative to tell me why you claim it is a misnomer and yet the industry representative maintains that we have serious shortfalls of small-caliber ammunition confronting industry's customers? They appear to be directly at odds with each other. So whoever wants to answer these.

    General, did you have a response?

    General BLOUNT. I will start out, sir. And I understand your confusion with all of the different reports.

    Mr. ABERCROMBIE. Mr. Chairman, before we give the answer, may I add an addendum for perspective, General, and we can maybe save a lot of time? The information given to the committee with respect to war reserve inventory, 5.56 millimeter, 7.62 millimeter, 50 caliber, as of 2000, now maybe there has been some difficulty with respect to what is taken place after. small-caliber inventory of 2000, 5.56 millimeter, 370 million; 7.62 millimeter, 291 million; 50 caliber, 14 million.
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    There is inventory in 2004, 5.56 millimeter, 700 million; 7.62 millimeter, 206 million; 50 caliber, 62 million. Now, that counts up to me to a billion rounds in stock right now. That is why I think we have got some confusion here, most particularly I am speaking in the context of Mr. Palaschak's statement about any kind of outsourcing at all. Does that make clear what we are asking and why and the kind of information that the chairman and I utilizing in terms of forming our questions?

    General BLOUNT. Yes, sir.

    Mr. ABERCROMBIE. Thank you.

    General BLOUNT. And I will attempt to clarify some of that. And it is a confusing picture sometimes. Our first priority is to support the warfighter in theater, and I think everyone understands that. So our priority goes to supporting their requirements. The second is then preparing units to go to war, and that is a new requirement that is consuming a lot of our resources. The almost billion rounds that we have in stock is all of our ammunition, and that is our war reserve, but it is also what we use to train our soldiers with. So we have got the training requirement plus resourcing the fight requirement out of that billion rounds.

    And so it is not a fenced war reserve that is sitting there. It is a constant turnover of ammunition, and there are claims on all of that ammunition. We have been short small-caliber ammunition, we are still short small-caliber ammunition per our requirements. We have requirements to train all of our units getting ready. All of the mobilized National Guard units, all the soldiers coming on active duty have to be trained, qualified and prepared to deploy for combat, and that will consume—that requirement consumes our billion rounds that we have.
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    And as they produce the ammunition, we are shooting it really almost as fast as they can produce it. That is why we need to increase our production through the supplemental funding. We have been able to ramp up to the 1.2 billion rounds by the end of July.

    Mr. ABERCROMBIE. Excuse me.

    General BLOUNT. That will just meet our current requirements.

    Mr. ABERCROMBIE. Chairman, if you would just a moment. I understand that. My difficulty is, and I think the origin of the question is we have demonstrated a capacity to ramp up from 2000 to 2004 despite the fact of the obvious increased use, both for training purposes, operational purposes, Iraq and Afghanistan. To ramp up from 2000 in a very brief period of time—in other words, this is not a criticism, if anything, it is actually saying, ''Look, a hell of a job has been done here despite the increased usage operationally and for training, up from, just take 5.56, from 370 million to 700 million.'' That is where I think—it is not confusion so much as if we are capable of doing that, why would there be any outsourcing necessity?

    Mr. WELDON. And along with that, General, the testimony is that we have a million units per year for training—or a billion, I guess it is, for training, and a hundred million for the war, which comes to 1.1 billion, and our production is 1.2 billion. So the question is why do we have a shortfall in any area? We don't understand that.

    General BLOUNT. Yes, sir. And then I will add—I was cautious on this earlier, the other services have a 250 to 300 million requirement, and that is what gets us up to the 1.5. billion Okay. And I will pass down to acquisition for the outsourcing answer.
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    General IZZO. Mr. Chairman, if I might, when we took a look at the requirement, which was 1.55 billion for this year, and we looked at what Lake City can do as far as capacity, the 1.2, there was a gap in there. So as the acquisition folks, as we looked at that, we saw how we are going to fill that gap and how soon can we fill it, and that is when we went out with a worldwide search to find out or to find the folks that could fill that gap.

    We had only two people that could come back and fill that gap with the right kind of ammunition that met our technical requirements in the time frame that we needed it. So it took us about six weeks to find them, to verify it and get them on contract and they are giving us the deliveries this month. We are starting to get the deliveries, about 5 million rounds a month.

    So to fill that gap, that is why we found Israeli Military Industries (IMI) over in Israel that gave us, looks like, about half of that, and then another local contractor within the United States that gave us the other half. So we filled that. That was a temporary gap fill. We went out worldwide to do that.

    Mr. WELDON. So you felt it was necessary to go outside as opposed to ramping up any additional production at Lake City?

    General IZZO. Yes, sir, because of the time frame and what the requirement is. I get the requirement and then in order to meet it, that is what we had to do to meet the requirement for this year.

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    Mr. WELDON. Do you anticipate additional contracts going outside the U.S. for production or are you satisfied with our current plan we can increase production at Lake City to handle any increased need?

    General IZZO. Okay. A couple questions there. The first question, for this year, we are satisfied for where we are today that we went outside the United States to get that ammunition. Now, for next year, our plan is we have the 1.2 billion that come from Lake City. We have given additional dollars this year to ramp up another 300 million rounds, which would give us 1.5 billion capacity within the next year to 18 months.

    In the meantime, to still fill that void, that gap in there, what we are doing is going to a prime contractor, the request for proposals will go out within the next two months, to go out to solicit wherever, worldwide, best value competition to be able to fill the gap that we need, another 350 or 300—I think it is about 350 million rounds. So to fill that gap for next year, we are going out with that contractor to get that much.

    At the same time, we are going to work with Lake City to get their production rates up. To be able to fill the need with all services in the U.S. next year is about 1.7 billion round. So that is how we are approaching that.

    Mr. WELDON. I thought the general testified 1.5 billion.

    General IZZO. Sir, that is for the U.S., and with the other services it comes to a little over 1.7 billion.

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    Mr. WELDON. Do you agree with that, General?

    General BLOUNT. That is what we will eventually grow to, yes, sir, over the POM cycle.

    Mr. WELDON. Mr. Palaschak, does the industry group that you represent agree that we should be doing this outsourcing of ammunition?

    Mr. PALASCHAK. It is necessary in the near term, sir. I called every single ammunition producer in the national technology and industrial base to find out what their current capacity was, what their availability of capacity is today, and it is absolutely necessary in the near term, and that is what I said in my statement.

    There are available capacities at several of these facilities that would be available within about a year to two years. Some of the companies have contracts, both for offshore ammunition and also for commercial contracts, that they cannot break and utilize that equipment for military spec ammunition. And there has to be some adjustments to convert some of the equipment from commercial production to military spec ammunition and get it qualified. And it is that time frame that you can't satisfy without going offshore, in my judgment.

    Mr. WELDON. Is any of our Lake City ammunition going to NATO allies or other nations that work with us?

    General BLOUNT. In theater, yes, sir. We support the ammunition requirements in Kuwait and Iraq.
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    Mr. WELDON. So in fact it is not just for our Army, we are also supplying ammunition for other nations.

    General BLOUNT. That are supporting us in the war on terrorism; yes, sir. But as you know, that is a limited number of soldiers.

    Mr. WELDON. Mr. Palaschak, are there U.S. companies supplying ammunition to other allies of the U.S. in some of these categories of ammunition?

    Mr. PALASCHAK. In the national technology base there is. The Canadian company, SNC, which is a part of our national technology and industrial base, is in fact producing ammunition and providing it to our allies. I am not aware for these three particular calibers of the other producers providing to our allies.

    Mr. WELDON. Well, what I am trying to find out is if the other part of our U.S. industrial base is actually supplying ammunition to other NATO countries and then we are going over from some of our friends overseas and buying ammunition when in fact we could buying it from our own industrial base. Is that in fact a possibility?

    Mr. PALASCHAK. I don't know that there is a one-for-one situation such as you are describing.

    Mr. WELDON. Well, maybe not one for one but are there—-

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    Mr. PALASCHAK. But, certainly, I know the Canadian company is providing ammunition to our allies. And I don't know the specific countries. That is my problem in answering your question.

    Mr. WELDON. Mrs. Davies, you testified that there are significant needs to upgrade the Lake City facility and that there has not been any money forthcoming at the Army. We appropriated $'17.5 million for that purpose for this fiscal year, and the Army maintains they have spent $14 million there. Now, you maintain there has been nothing spent, the Army maintains they spent $14 million. What is going on?

    Mrs. DAVIES. Sir, if I testified of that, I made a mistake. Certainly, the money that is been appropriated by Congress has been invested at Lake City. The Army has put some of their funding into it. ATK has also put funding into there. So I apologize if that was a misunderstanding.

    Mr. WELDON. Do you think the figure is $14 million? Yes. I think your statement was that there wasn't money being put forth, and we have records that we have. So we just wanted to make sure that money——

    Mrs. DAVIES. No. There is, sir, very definitely.

    Mr. WELDON. Okay. What do