The Insider

The defense industry is struggling to determine the impact of sequestration because of a dearth of guidance from the Obama administration, according to recent letters industry leaders sent to lawmakers that deride the potential defense cuts but in many cases are short on requested details.

Senate Armed Services Committee Ranking Member Sen. John McCain (R-AZ) released the letters from industry today. He and six colleagues requested details in June from 15 companies on how sequestration cuts would impact their employees, partners and suppliers; when the firms expected to issue layoff notices; and whether they have experienced a slowdown in new contract awards due to funding uncertainty. Two letters, from ATK and CSC, are still pending.

In several of the letters, defense industry officials note that they expect a reduction in contracts that corresponds with the across-the-board percentage cut expected by the Pentagon.

L-3 for example said that it anticipates the loss of about $1.1 billion in annual sales, based on the approximate 12 percent across the board annual reduction to contracts and subcontracts supporting DOD if sequestration is enacted. But the company doesn't anticipate any full contract terminations as a result of sequestration, although "partial contract terminations are possible and perhaps likely," states the Aug. 21 letter from Chairman, President and CEO Michael Strianese.

The companies were asked what the impact would be of terminating or restructuring contracts as a result of sequestration. EADS North America Chairman and CEO Sean O'Keefe states in his July 18 letter that a 15 percent reduction in revenues may "eliminate the business case for continuing the contract" and lead to termination. In comparison, a 10 percent reduction could require "redefining the business case" so the company could continue to execute the contract. He anticipates that every one of its nearly 20 DOD or Homeland Security contracts could potentially require restructuring.

O'Keefe specifically noted that EADS has made "significant, self-funded investments" to compete for the Armed Aerial Scout program. If sequestration leads to this program's cancellation, the company would have "invested tens of millions of precious research and development dollars in AAS that could have been spent creating jobs in other market sectors," he writes.

Many of the letters noted sequestration would have a detrimental impact on national security, expressing concern about how the cuts would affect the supply chain. Several of the companies noted contract awards are being delayed because of uncertainty and lack of guidance regarding sequestration implementation. Raytheon's Chairman and CEO William Swanson stated that the "consequences of sequestration are already beginning to manifest themselves."

The defense leaders urge Congress to find a solution to prevent sequestration from taking effect

Honeywell Aerospace President and CEO Timothy Mahoney writes in his July 19 letter that the company would like to see a "more thoughtful decision-making process, which prioritizes the must-have systems for the Department of Defense with deeper cuts in less critical programs, informed by the mid- and long-range defense strategy and changing threat landscape."

Lawmakers are waiting on a congressionally mandated report from the White House detailing how it would implement the cuts in fiscal year 2013.

The Obama administration is preparing a report to Congress "on the effect of existing foreign policy-based export controls in the Export Administration Regulations," according to a Federal Register notice published this morning.

Consequently, the Commerce Department's Industry and Security Bureau "is requesting public comments to conduct consultations with U.S. industries," the notice reads. Further:

Section 6 of the Export Administration Act (EAA) requires BIS to consult with industry on the effect of such controls and to report the results of the consultations to Congress. Comments from all interested persons are welcome. All comments will be made available for public inspection and copying and included in a report to be submitted to Congress.

Commerce has set the following criteria to determine whether to extend U.S. foreign policy-based export controls, according to the notice:

1. The likelihood that such controls will achieve their intended foreign policy purposes, in light of other factors, including the availability from other countries of the goods, software or technology proposed for such controls;

2. Whether the foreign policy objective of such controls can be achieved through negotiations or other alternative means;

3. The compatibility of the controls with the foreign policy objectives of the United States and with overall U.S. policy toward the country subject to the controls;

4. Whether the reaction of other countries to the extension of such controls is not likely to render the controls ineffective in achieving the intended foreign policy objective or be counterproductive to U.S. foreign policy interests;

5. The comparative benefits to U.S. foreign policy objectives versus the effect of the controls on the export performance of the United States, the competitive position of the United States in the international economy, the international reputation of the United States as a supplier of goods and technology; and

6. The ability of the United States to effectively enforce the controls.

In particular, the Industry and Security Bureau wants industry to comment on "the economic impact of proliferation controls," as well as information on:

1. Information on the effect of foreign policy-based export controls on sales of U.S. products to third countries (i.e., those countries not targeted by sanctions), including the views of foreign purchasers or prospective customers regarding U.S. foreign policy-based export controls.

2. Information on controls maintained by U.S. trade partners. For example, to what extent do U.S. trade partners have similar controls on goods and technology on a worldwide basis or to specific destinations?

3. Information on licensing policies or practices by our foreign trade partners that are similar to U.S. foreign policy based export controls, including license review criteria, use of conditions, and requirements for pre- and post-shipment verifications (preferably supported by examples of approvals, denials and foreign regulations).

4. Suggestions for bringing foreign policy-based export controls more into line with multilateral practice.

5. Comments or suggestions to make multilateral controls more effective.

6. Information that illustrates the effect of foreign policy-based export controls on trade or acquisitions by intended targets of the controls.

7. Data or other information on the effect of foreign policy-based export controls on overall trade at the level of individual industrial sectors.

8. Suggestions for measuring the effect of foreign policy-based export controls on trade.

9. Information on the use of foreign policy-based export controls on targeted countries, entities, or individuals. BIS is also interested in comments relating generally to the extension or revision of existing foreign policy-based export controls.

With summer unofficially over, House lawmakers are getting back to work. The House Armed Services Committee yesterday released its hearing schedule for the next week:

Full Committee

Tuesday, September 11, 2012 –10:00am –2118 Rayburn – Open

The committee will meet to receive testimony on a framework for building partner capacity programs and authorities to meet 21st Century challenges.

Witnesses:

Mr. Michael Sheehan

Assistant Secretary of Defense for Special Operations and Low Intensity Conflict

U.S. Department of Defense

Lieutenant General Terry Wolff, USA

Director, Strategic Plans & Policy (J5), Joint Staff

U.S. Department of Defense

Ms. Janet St. Laurent

Managing Director, Defense Capabilities and Management Team

U.S. Government Accountability Office

 

Full Committee

Wednesday, September 12, 2012 –10:00am –2118 Rayburn – Open

The committee will meet to receive testimony on Operational Contracting Support: Learning from the Past and Preparing for the Future.

Witnesses:

Honorable Alan F. Estevez

Assistant Secretary of Defense for Logistics and Materiel Readiness

Brigadier General Craig C. Crenshaw, USMC

Vice Director, J-4, Joint Staff

Mr. Moshe Schwartz

Specialist in Defense Acquisition

Congressional Research Service

Mr. Tim DiNapoli

Acting Director for Acquisitions and Sourcing

U.S. Government Accountability Office

 

Subcommittee on Oversight and Investigations

Tuesday, September 11, 2012 –2:00pm –2212 Rayburn – Open

The subcommittee will meet to receive testimony on Navy shipbuilding and impacts on the defense industrial base in a time of fiscal uncertainty.

Witnesses:

The Honorable Sean J. Stackley

Assistant Secretary of the Navy

Research, Development and Acquisition

Rear Admiral Thomas J. Eccles, USN

Chief Engineer and Deputy Commander for Naval Systems Engineering

Naval Sea Systems Command

 

Subcommittee on Tactical Air and Land Forces

Thursday, September 13, 2012 –10:00am –2118 Rayburn – Open

The subcommittee will meet to receive testimony on F-22 pilot physiological issues.

Witnesses:

General Gregory S. Martin, USAF (ret)

Aircraft Oxygen Generation Study Chair

USAF Scientific Advisory Board

Major General Charles W. Lyon, USAF

Director of Operations, Headquarters Air Combat Command

U.S. Air Force

Mr. Clinton H. Cragg

Principal Engineer

National Aeronautics and Space Administration (NASA) Engineering and Safety Center

 

Subcommittee on Military Personnel

Thursday, September 13, 2012 –11:30am –2212 Rayburn – Open

The subcommittee will meet to receive testimony on the Federal Voting Assistance Program.

Witness:

Ms. Pamela S. Mitchell

Acting Director, Federal Voting Assistance Program

U.S. Department of Defense

 

Subcommittee on Strategic Forces

Thursday, September 13, 2012 –2:00pm –2118 Rayburn – Open

The subcommittee will meet to receive testimony on Y-12 Intrusion: Investigation, Response, and Accountability.

Witnesses:

The Honorable Daniel B. Poneman

Deputy Secretary of Energy

U.S. Department of Energy

The Honorable Neile L. Miller

Principal Deputy Administrator

National Nuclear Security Administration

 

Subcommittee on Oversight and Investigations

Friday, September 14, 2012 –9:00am –2118 Rayburn – Open

The subcommittee will meet to receive testimony on Department of Defense Auditability Challenges.

Witnesses:

Ms. Elizabeth A. McGrath

Deputy Chief Management Officer

U.S. Department of Defense

Mr. Robert F. Hale

Under Secretary of Defense (Comptroller)

U.S. Department of Defense

The Honorable Gladys J. Commons

Assistant Secretary of the Navy

Financial Management and Comptroller

U.S. Department of the Navy

Dr. Mary Sally Matiella

Assistant Secretary of the Army

Financial Management and Comptroller

U.S. Department of the Army

Ms. Marilyn M. Thomas

Deputy Assistance Secretary for Financial Management and Comptroller

U.S. Department of the Air Force

With the Democratic National Convention kicking off tonight, here's an excerpt from the party's 2012 presidential platform document:

When President Obama took office in January 2009, our armed forces were engaged in two wars. Al- Qaeda, which had attacked us on 9/11, remained entrenched in its safe havens. Many of our alliances were strained, and our standing in the world had diminished. Around the world and here at home, there were those who questioned whether the United States was headed toward inevitable decline.

Under the leadership of President Obama and the Democratic Party, the tide of war is now receding, and America is looking ahead to a new future. We have responsibly ended the war in Iraq. We have struck major blows against al-Qaeda, bringing Osama bin Laden and other senior al-Qaeda leaders to justice, and putting the terrorist organization on the path to defeat. And we have reversed the momentum of the Taliban and established the conditions to draw down our forces in Afghanistan.

These actions have enabled a broader strategic rebalancing of American foreign policy. After more than a decade at war, we can focus on nation-building here at home and concentrate our resources and attention abroad on the areas that are the greatest priority moving forward. This means directing more energy toward crucial problems, including longstanding threats like nuclear proliferation and emerging dangers such as cyber attacks, biological weapons, climate change, and transnational crime. And it means a long-overdue focus on the world’s most dynamic regions and rising centers of influence.

As we rebalance our foreign policy, we have rebuilt our relationships around the world. From Europe and Asia to the Middle East, Africa, and the Americas, we have strengthened the alliances and partnerships that are so central to global security, and we have taken steps to reinvigorate international institutions. All the while, we have built the foundation for sustained American leadership by growing our economy, preserving our unrivaled military strength, and advancing our values.

President Obama and the Democratic Party know that there is no greater responsibility than protecting the American people. We also understand the indispensable role that the United States must continue to play in promoting international peace and prosperity. And because of the steps we have taken, the United States is leading once again, and America is safer, stronger, and more secure than it was four years ago.

To view the full national security-related excerpt, click here.

And to view the Republican version, click here.

The Pentagon has decided to reestablish the charter for the National Defense University's board of visitors, according to a Federal Register notice published yesterday:

The Board shall provide independent advice and recommendations on the overall management and governance of the National Defense University in achieving its mission.

The Board shall report to the Deputy Secretary of Defense and Secretary of Defense through the Chairman of the Joint Chiefs of Staff and the President of the National Defense University. The Chairman of the Joint Chiefs of Staff may act upon the Board's advice and recommendations. The Board shall be comprised of no more than twelve members, who are appointed by the Secretary of Defense. The members are eminent authorities in the fields of defense, management, leadership, academia, national military strategy or joint planning at all levels of war, joint doctrine, joint command and control, or joint requirements and development. The Secretary of Defense may approve the appointment of Board members for one to four year terms of service, with annual renewals; however, no member, unless authorized by the Secretary of Defense, may serve more than two consecutive terms of service. This same term of service limitation also applies to any DoD authorized subcommittees. Board members appointed by the Secretary of Defense, who are not full-time or permanent part-time federal employees, shall be appointed to serve as experts and consultants under the authority of 5 U.S.C. 3109, and to serve as special government employees. In addition, all Board members, with the exception of travel and per diem for official travel, shall serve without compensation. Each Board member is appointed to provide advice on behalf of the government on the basis of his or her best judgment without representing any particular point of view and in a manner that is free from conflict of interest.

Inside the Pentagon reported last November that the Defense Department was facing shortfalls in the way it educates and trains military personnel for information operations designed to influence adversaries' decisions:

The Defense Department has "come up short" in training and educating information-operations personnel who can properly assess situations and advise leaders on how to affect enemies' decisions, Austin Branch, the Pentagon's director for information operations, said Monday at an Association of Old Crows symposium in Washington.

Branch said the United States has not generated the type of talent required in the information-operations arena.

"This is Ph.D. level work," Branch said. "We can't leave that up to amateurs, though we've had amateurs do it. So that's why we have to focus on the brain power of the people who are involved in putting this together and advising our senior leaders on what decisions we recommend them to make."

To correct this deficiency, the Pentagon has placed an increased focus on beefing up that capability through reviewing defense courses and curriculum, a defense official said on condition of anonymity. Leaders are also gearing up to finish and implement a specific force development policy, the official added.

DOD hopes to execute this policy within months, the official said. The official could not put a date on when it would be finished, but said it is "moving pretty quickly because we want to implement."

DOD has held a series of force-development seminars and meetings with the services and defense officials to "determine exactly what the requirements are, what have we already been doing. What's been effective or not, how do we improve this," the official said. "It's about getting super-smart folks trained and educated in this space instead of amateurs."

Acting Under Secretary of State for Arms Control and International Security Rose Gottemoeller this week announced an effort to crowd-source ideas to solve current proliferation problems.

In a blog entry posted on her department's website, Gottemoeller writes:

Through this Challenge, we will collect new ideas about how innovation and technological advancement can affect the implementation of arms control, verification, and nonproliferation treaties and agreements. Can innovation bring about creative ways to prevent "loose nukes" from falling into the hands of terrorists? Can smart phone and tablet apps be created for the purpose of aiding on-site inspectors in verifying and monitoring treaty commitments? How can we use commonly available technologies in new and creative ways to support our arms control policy efforts?

. . . As an arms control policy wonk and negotiator, I see great value in incorporating innovative ideas across the whole spectrum of our arms control initiatives. As we look to the future of arms control, new thinking to face the challenges of the 21st century is vital to our success.

This Challenge is an experiment in that thinking. It seeks creative ideas from across the general public, from garage tinkerers and technologists; to gadget entrepreneurs and students, to support the U.S. arms control and nonproliferation agenda. Are there new ways that we can use existing data, such as Twitter streams, to generate information that will be useful to arms control and nonproliferation verification and monitoring? Are there ways that we can help our inspectors to do their jobs better, by having better tools available? Are there ways that governments and citizens can work together to ensure better monitoring and verification of treaties and agreements?

These are the types of questions that we are asking contestants to consider. We are looking for creative ways to tackle the long-standing problems of arms control and nonproliferation verification and monitoring, keeping in mind the big challenges that come about as we move to reduce nuclear weapons to lower numbers, and look for ways to monitor smaller units of account, such as chemical munitions in storage facilities. No matter how big the challenges, when we attack problems with all the brainpower that is available, we can solve them more effectively together.

The contest is open until Oct. 26, and has a "guaranteed award" of up to $10,000, Gottemoeller writes.

For more info, click here.

The Defense Department is just days away from awarding a Bell-Boeing team a new contract to provide performance-based logistics and supply chain management services for the V-22 Osprey, Boeing officials said today.

Bell-Boeing, the Osprey tiltrotor's manufacturing team, is already working under a PBL arrangement that covers touch labor, spares and repair services, tech publication updates and a variety of other support activities known as Phase 1 of the V-22’s sustainment, and the companies are now in the fourth year of that five-year framework. But DOD and the companies have reached a "handshake" agreement to add supply chain and obsolescence management to that portfolio, Marty Anderson, Boeing’s V-22 sustainment director, told reporters at a company aircraft modification facility in Millville, NJ, this morning.

Those supply chain and obsolescence-management activities will be covered under a new deal known as the V-22's Phase 2 PBL, and its period of performance is set to begin this Saturday, Sept. 1. It is slated to run until December 2016, for a full duration of 51 months, and DOD and Bell-Boeing plan to extend the Phase 1 contract to cover that same time period, Anderson said. He added that the new agreement would provide demand forecasting and warehousing services, among a handful of new capabilities not covered under Phase 1.

Boeing officials declined to discuss the value of the Phase 2 contract, but its details could be revealed this week if the contract is signed by Friday as expected. Both PBL arrangements will cover logistical support for all of the V-22s in the field, regardless of operating service.

The vast majority of delivered Ospreys, 154 out of 181, are owned by the Marine Corps, and 26 are owned and operated by the Air Force, primarily its special operations forces. The remaining V-22 is used as a technology demonstrator.

For more information on the V-22’s forthcoming PBL announcement and details on Boeing’s plan to improve the quality and cost of Osprey sustainment into the future, be sure to check Friday’s issue of Inside the Air Force.