[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
H.R. 1280--THE DEFENSE PRODUCTION ACT
REAUTHORIZATION OF 2003
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
DOMESTIC AND INTERNATIONAL
MONETARY POLICY, TRADE AND TECHNOLOGY
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
MARCH 19, 2003
__________
Printed for the use of the Committee on Financial Services
Serial No. 108-13
88-233 U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 2003
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpr.gov Phone: toll free (866) 512-1800; (202) 512�091800
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HOUSE COMMITTEE ON FINANCIAL SERVICES
MICHAEL G. OXLEY, Ohio, Chairman
JAMES A. LEACH, Iowa BARNEY FRANK, Massachusetts
DOUG BEREUTER, Nebraska PAUL E. KANJORSKI, Pennsylvania
RICHARD H. BAKER, Louisiana MAXINE WATERS, California
SPENCER BACHUS, Alabama CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware LUIS V. GUTIERREZ, Illinois
PETER T. KING, New York NYDIA M. VELAZQUEZ, New York
EDWARD R. ROYCE, California MELVIN L. WATT, North Carolina
FRANK D. LUCAS, Oklahoma GARY L. ACKERMAN, New York
ROBERT W. NEY, Ohio DARLENE HOOLEY, Oregon
SUE W. KELLY, New York, Vice JULIA CARSON, Indiana
Chairman BRAD SHERMAN, California
RON PAUL, Texas GREGORY W. MEEKS, New York
PAUL E. GILLMOR, Ohio BARBARA LEE, California
JIM RYUN, Kansas JAY INSLEE, Washington
STEVEN C. LaTOURETTE, Ohio DENNIS MOORE, Kansas
DONALD A. MANZULLO, Illinois CHARLES A. GONZALEZ, Texas
WALTER B. JONES, Jr., North MICHAEL E. CAPUANO, Massachusetts
Carolina HAROLD E. FORD, Jr., Tennessee
DOUG OSE, California RUBEN HINOJOSA, Texas
JUDY BIGGERT, Illinois KEN LUCAS, Kentucky
MARK GREEN, Wisconsin JOSEPH CROWLEY, New York
PATRICK J. TOOMEY, Pennsylvania WM. LACY CLAY, Missouri
CHRISTOPHER SHAYS, Connecticut STEVE ISRAEL, New York
JOHN B. SHADEGG, Arizona MIKE ROSS, Arkansas
VITO FOSELLA, New York CAROLYN McCARTHY, New York
GARY G. MILLER, California JOE BACA, California
MELISSA A. HART, Pennsylvania JIM MATHESON, Utah
SHELLEY MOORE CAPITO, West Virginia STEPHEN F. LYNCH, Massachusetts
PATRICK J. TIBERI, Ohio BRAD MILLER, North Carolina
MARK R. KENNEDY, Minnesota RAHM EMANUEL, Illinois
TOM FEENEY, Florida DAVID SCOTT, Georgia
JEB HENSARLING, Texas ARTUR DAVIS, Alabama
SCOTT GARRETT, New Jersey
TIM MURPHY, Pennsylvania BERNARD SANDERS, Vermont
GINNY BROWN-WAITE, Florida
J. GRESHAM BARRETT, South Carolina
KATHERINE HARRIS, Florida
RICK RENZI, Arizona
Robert U. Foster, III, Staff Director
Subcommittee on Domestic and International
Monetary Policy, Trade and Technology
PETER T. KING, New York, Chairman
JUDY BIGGERT, Illinois, Vice Chair CAROLYN B. MALONEY, New York
JAMES A. LEACH, Iowa BERNARD SANDERS, Vermont
MICHAEL N. CASTLE, Delaware MELVIN L. WATT, North Carolina
RON PAUL, Texas MAXINE WATERS, California
DONALD A. MANZULLO, Illinois BARBARA LEE, California
DOUG OSE, California PAUL E. KANJORSKI, Pennsylvania
JOHN B. SHADEGG, Arizona BRAD SHERMAN, California
MARK R. KENNEDY, Minnesota DARLENE HOOLEY, Oregon
TOM FEENEY, Florida LUIS V. GUTIERREZ, Illinois
JEB HENSARLING, Texas NYDIA M. VELAZQUEZ, New York
TIM MURPHY, Pennsylvania JOE BACA, California
J. GRESHAM BARRETT, South Carolina RAHM EMANUEL, Illinois
KATHERINE HARRIS, Florida
C O N T E N T S
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Page
Hearing held on:
March 19, 2003............................................... 1
Appendix
March 19, 2003............................................... 25
WITNESSES
Wednesday, March 19, 2003
Bhatia, Hon. Karan K., Deputy Under Secretary for Industry and
Security, Department of Commerce............................... 7
Patrick, Hon. Suzanne D., Deputy Under Secretary of Defense for
Industrial Policy, Department of Homeland Security............. 5
Paulison, Hon. R. David, Director of the Preparedness Division
Emergency and Response Directorate, Department of Homeland
Security....................................................... 9
Sega, Hon. Ronald M., Director, Defense Research and Engineering,
Department of Defense.......................................... 3
APPENDIX
Prepared statements:
Emanuel, Hon. Rahm........................................... 26
Bhatia, Hon. Karan K......................................... 27
Patrick, Hon. Suzanne D...................................... 33
Paulison, Hon. R. David...................................... 38
Sega, Hon. Ronald M.......................................... 42
H.R. 1280--THE DEFENSE PRODUCTION ACT
REAUTHORIZATION OF 2003
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Wednesday, March 19, 2003
U.S. House of Representatives,
Subcommittee on Domestic and International
Monetary Policy, Trade and Technology
Committee on Financial Services,
Washington, D.C.
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.
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.
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.
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.
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.
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.
[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.
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.
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.
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.
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.
Mr. Bhatia?
STATEMENT OF HON. KARAN K. BHATIA, DEPUTY UNDER SECRETARY FOR
INDUSTRY AND SECURITY, DEPARTMENT OF COMMERCE
Mr. Bhatia. Thank you very much, Mr. Chairman.
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.
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.
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.
Thank you.
[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.
Mr. Paulison?
STATEMENT OF HON. R. DAVID PAULISON, DIRECTOR OF THE
PREPAREDNESS DIVISION, EMERGENCY AND RESPONSE DIRECTORATE,
DEPARTMENT OF HOMELAND SECURITY
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.
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.
Thank you.
[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 to--I 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?
Mr. Sega. From the Department of Defense, we would--we
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 is--again, 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 any--certain 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.
The other thing that I would like to point is that this Act
comes in--the 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
production--or 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?
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 to--will 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 part--terrorism
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 part--I 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.
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 out--make
sure we understand what is in these containers--containerized
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?
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
so--and 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. We--certainly 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.
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?
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 knowledge--
it 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.
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.
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 involved--
Kellogg, Brown and Root or Halliburton been involved in any of
the planning for the use of this authority should they--should
you need it? Have you been involved with any planning sessions
with representatives of Kellogg, Brown and Root or Halliburton?
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
decision--if 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.
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 may--I 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 happen--explain 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?
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?
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.
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.
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?
Ms. Lee. Thank you, Mr. Chairman.
Just learning--as 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.
I want to--there's not. Someone is shaking their head.
But let me just ask--it may not be a lot of money. It may
be--some 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 Defense--how the DPAS works to characterize it as a
moneymaking opportunity for companies. Once again, you know, it
really is--it does not--DPAS 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 not--it 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 to--and 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.
Ms. Patrick. Just one moment, please.
I think the other thing is--I 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.
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.
Mr. Murphy?
He has left.
Mr. Barrett?
No?
Mr. Feeney?
Ms. Harris?
Mr. Hensarling?
Okay.
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.
Ranking Member?
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
clarify--it 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?
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
mentioned--Congressman 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.
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 just--I 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 not--that 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 expanding--I see, I
understand.
Ms. Patrick. That's right. They are within the confines of
the original contract. And if they--if 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----
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.
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 III--I 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.
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.]
A P P E N D I X
March 19, 2003
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