 Ladies and gentlemen, welcome on behalf of Dr. John Hamery, the president and CEO of the Center for Strategic and International Studies. I want to thank you for coming to this latest in our Ground Forces Dialogue. I'm David Burto. I'm the director of the International Security Program and an occasional aide to the Ground Forces Dialogue program. Ground Forces Dialogue is actually under the purview of the Harold Brown chair at CSIS. And it's under the direction of Dr. Maheren Leed, most of you know her. She's here today and will be our questioner and our conduit for questions as we get to the end of the process. But the Ground Forces Dialogue, which was begun earlier this year at CSIS, is really a broad set of discussions and on-the-record discussions looking at a host of issues associated with US ground forces, not just army ground forces, but across the spectrum, if you will. Inside that, obviously, one of the big issues has to do with the industrial base that both supports and is supported by ground forces. This whole series of dialogues, including today's session, is made possible by generous support from both Northrop Grumman Corporation and BAE Systems. And so we're grateful for that support. And I think if I could see past the lights, I would see that there are a couple of representatives from those companies in the audience today. We're really pleased to have with us Dr. Brett Lambert. Actually, I just promoted you, right? Yes, honorary PhD from the Pentagon. The process, that'll get you a long way from the state school in Kansas, believe it. This is a new way of absolving post-employment restrictions is to grant an honorary doctorate along the way as part of your services. The process that we have laid out here this morning or this afternoon is Brett will lay out a few thoughts of his own. And he's got a handout that he'll refer to that you can use to go back and flip back and forth. Then I'll have a short dialogue with him here, in which I get to ask him a couple of easy questions. And then we'll open it up to the floor for hard questions. Each of you should have picked up a note card or a set of note cards, depending on how prolific you're feeling today. And you can write down your questions on that. You raise your card when you're ready. And we've got folks who will pick them up. And Martin Leed will collect them and will aggregate them into a series of sequential and coherent questions and fire them at Brett. So I'm going to do the easy ones. You get to do the hard ones. And we'll call time when you're done. We've got about an hour set aside for this. So we should be able to get to almost everything. So also, if I could remind you, in fact, I'm going to do this myself, to silence your cell phones. They probably don't penetrate. But on the rare momentary occasion where they might, actually, it looks like I've got more signal here than I expected. Although it's on a network I don't recognize. So much for cyber security. I might know what that means. And I actually have two of these. So I have to do this twice to make sure that I don't interrupt us with a phone call along the way. So with that, I want to welcome Brett Lambert. Brett is the Deputy Assistant Secretary for Manufacturing and Industrial Based Policy. That's a broader portfolio than it was when you arrived and one that was broadened considerably by the President and his budget announcement of two weeks ago. Prior to his service at the Pentagon, he has a long career in the financial industry, focusing both on defense and on much broader issues, going back to his early days at DRI. He also, in full disclosure, I should mention, did have a modest affiliation with CSIS a number of steps along the way. So I guess in some ways we're culpable or maybe even responsible for some of the benefits that you've brought to the department. But he has been, for the last four and a half years, really the single focus and face of the Defense Department on industrial-based policy issues across the board from the most narrow and specific questions to the broader issues. And we've been delighted that he's been there and are glad to welcome him here this afternoon to talk to us. Brett, welcome. Thank you very much. I appreciate it. It's, as David said, my roots actually were in CSIS. I'm not quite sure what it says about CSIS, but they were the, there were only two people that offered me an internship when I was a freshman at Kansas State. One was Bob Dole and he kind of had to. And the other one was CSIS. So I have a long and deep appreciation for them. It wetted my appetite for work in Washington. So I thought I'd just spend a little bit of time today talking about how we view the overall industrial base, why we feel it's important in the department. And as David said, over the last few years, it's become much more important as we continue this cycle that we're currently in, and accelerated cycle to be sure, but the cycle that we're in, and then specifically talk about the work we've been doing in ground vehicles. And that's some of the handouts. And it's unfortunate that I can't give you the specifics, but I tried to at least give you an understanding in these handouts, so we'll go through them quickly of what we're trying to do in the department. I should say, when I first came in, industrial base was not a major concern of the department. And that truly was not a political issue. I believe that with all my heart. It wasn't because the previous administration didn't care, it's because they didn't have to. We had double digit year over year growth. We were, there was really no need in many cases to have a dialogue with industry about anything other than capacity. How can you increase capacity to serve the warfighter? Cost was a secondary issue. Efficiency was a secondary issue. And frankly, rightfully so. We had men and women in the field, and it made sense for everyone to surge, both on the industry side and on the department side. So when I came in, Secretary Gates and then Deputy Secretary Lynn said, look, this isn't going to last forever. And we need to start thinking through with our industrial partners, because despite the fact we spend over a billion dollars a day, as I've said over and over again, we don't build a damn thing. The industry does. Industry builds everything from shifts to shoestrings for us. So we have to start working with industry to understand the implications of this surge and of the capacity that we're dealing with now. And it's particularly pronounced in the ground vehicles market, but of the capacity that we have accommodated in order to meet the warfighter's needs. So they ask, I was asked, my office was asked to go back and look at the four, first of all, look at the four previous downturns after World War II, after Korea, after Vietnam, and then again after the Cold War, but really the last one was more closer to what we experienced today in terms, it was motivated by financial issues, national economic issues, but then accelerated by the collapse of the wall. And then look at how we responded and how industry responded to each of those downturns and how it affected our warfighters. So we did this analysis, I worked on it just as I would approach from an industry side at any strategic planning exercise. Unfortunately, the answers we got back and we looked hard at it was we were in essence zero for four. We had gotten it wrong every time. Sometimes we got it wrong because we weren't balanced in the reductions, we hollowed out the force, and that's particularly true after World War II and the lead up to Korea, and that had the result of not just having us be more ineffectual than we would otherwise want to be, but it actually ended up costing a lot of lives, US soldiers and sailors and their lives. And sometimes we got it wrong because the threat fundamentally changed and we didn't have an industrial capacity that could respond effectively to that changing threat. And the other thing that was fundamentally different about this downturn is that everyone, people will say, and I've heard the arguments actually in CSIS forums that the downturn we're now experiencing is not that different than what happened after the Cold War as we drew down. There's a couple of fundamental different aspects. One is that the threat has not changed. In fact, it's actually increased. And the second biggest thing for the industrial perspective is that our equipment has been road hard and put up wet, it is old. And after the Cold War, if you recall, we had bright, shiny new things from airplanes to tanks, to ground vehicles, to missiles. And we weren't in the situation that we currently are in where we have to look at recapitalization and refurbishment. So comparing those two, if you're just looking at a percentage decrease, I think is a mistake because you have to look at both the threat and the capacity within the base. So with that, we were asked to go back and say, okay, well, our base is different than any of these four previous downturns. And they asked me to define that. And so our office worked hard to try to articulate what was different about the base now than it was even 20 years ago. And fundamentally, the tagline, the bumper sticker we've said, and there's a lot of data behind it, but in essence, the base is more global, it's much more commercial, and it's incredibly financially complex. And that is truer today, the statement I said, then when we came up with that tagline, it'll be truer tomorrow. We are dependent on a global supply chain, even at the second, third, and fourth tiers. They are dependent on a global supply chain, particularly as it relates to IT capabilities and silicon-based capabilities. It is much more commercial. We have a lot of firms that, frankly, when we do these analysis, and I'll talk about some of them in a second, don't even know that they're supplying the Department of Defense. Yet, if they go out of business, we can't build what we need to build for the warfighter. And it's more financially complex. And I put a great deal of emphasis, those of you who have heard me speak about this before, access to capital on a competitive basis is absolutely essential for our industrial capacity and our industrial base. And the ability for defense firms and commercial firms that wish to supply us with cutting-edge technology, we cannot forget how important access to capital is, again, on a competitive basis. And that has to do with our profit policies, our reimbursement policies. It goes to the heart of what we rolled out yesterday Mr. Kendall did in Better Buying Power 2.0. It goes to the heart of being more efficient but being fair with industries to ensure that they have the access to capital that they need to be competitive for us in the global marketplace. So with that in mind, so we had this change, we also had another fundamental change was about 10 years ago when we looked at the numbers, about 70 cents of every dollar that we gave a prime contractor stayed at the prime. So we would provide to whatever, pick your top 10 company, it would stay there, sometimes through some city areas. It is completely flipped now. And we have a couple of case examples, but in general 65 to 70 cents of every dollar that we give to a prime and a prime award flows out of that prime within 30 days. And it flows down to a completely different set of structure than we have traditionally thought about the industrial base. And so I've actually made a point over the last year or so of not referring to the industrial base because it's kind of a meaningless term these days. I talk about industrial capacity. What kind of capacity does the nation need to provide for the warfighter at a fair price for the taxpayer? I think it's an important differentiation because it's much more complex and much more nuanced. And so having companies that are capable of performing at that lower fourth and fifth tier and flow up to what in essence has become systems integrators as opposed to manufacturers in some cases is a very important distinction for all of us to understand as we're trying to provide the warfighter with the equipment that they need to perform their mission. So with that, understanding all of these kind of parameters of the general debate, our office was asked to conduct a brand new frankly assessment of the industrial base. What's it look like as Dr. Carter said at the time to don't tell me what the cells look like but I'd like to see the muscle structure and the bone structure. Give me the general anatomy of it. And we set out on something called S2T2 which is the sector by sector tier by tier which was to look across the sectors and they're defined by the normal budgetary terms and how we define them. So aircraft, missiles, we threw in UAVs, we threw in cyber and then looked down through those tiers. What's the structure of that base look like and understand the inner relationships between both the sectors but also between the tiers, understand the codependencies. And if my goal in all of this when we started this was I said the department really needs to get out of the lifeguard business which is where you have a critical sub tier supplier say in ground vehicles and we have a couple of examples there that all of a sudden one day you wake up and they're out of business. They've shut down. And so it was the lifeguard business that somebody would raise their hand they were drowning and we would jump in and how could we step back from that process and understand the base to the extent where we could get early indicators, early warning indicators. And if necessary intervene but not just intervention but look for alternatives. And those alternatives could be domestic, they could be global, it depends on the circumstance or look for the vehicles that we had in place in the department that could aid that company in particular or the sub supplier to come up with a new product or a new service or a new capability and continue to be economically viable and fulfill the requirements of the department. And that was in essence the sector by sector tier by tier effort that was kicked off. It was not a study and there's some misconception there. It's not a study, it is a continuing effort kind of like better buying power. There's a 1.0 there was just now yesterday a 2.0 there's gonna be a 3.0 and a 4.0. S2T2 is exactly in that same vein where it's a continuous product improvement of understanding what the base is in understanding the interrelationships that the base has. And so that was not any, as you can imagine everyone who has worked in this sector for a long time that's not an easy thing to do for a couple reasons. First of all, the services don't necessarily like to share information as many of you in this room know. They don't even like to share it with us. So there's a roadblock, there was a hurdle to overcome there. We had to prove that this was a benefit to the services, this effort was a benefit to the services. Companies don't necessarily want to share their supplier chain, not even with their own suppliers in many cases if they're primes. And I understand that it is a competitive differentiator and you have to be careful about how you manage that those relationships. So getting to that level of specificity and detail that was useful was not an easy undertaking. In fact, it's been about three years and we're just now starting to see the results of a very concentrated three-year effort. I have a couple people here from my office, Sid Pope particularly on the ground system side who has had to live through not only the challenges of interacting with industry, but interacting with our own department to try to obtain the information that we need to make the changes that we need to make sure we can support the warfighter going forward. And that effort as now I can assure you is inculcated throughout the department. For the first time when I first got in, AT&L was asked, first time ever, to participate in the QDR. And we talked about the importance of the manufacturing industrial base in QDR. It was in our strategic guidance document. You will see it in the new documents that will be coming out probably in the May, early June about the importance of a viable, financially healthy industrial base. So it's one thing to have the words. It's another thing to actually implement what we're trying to do. So for the arcane in the audience, there's this 5062 series it's going through. Every major program review will now involve a review of the impact of the programmatic decisions on the industrial base. And this is new. It's not been an easy sell, but it's one that's important. And I have incredible support from the secretary to Dr. Carter and Mr. Kindle on down to make sure that we are considering the implications of our decisions on the industrial base. Because again, at the end of the day, we don't build anything. And we have to be cognizant of that. So with that, I don't know if you wanna walk through the, this is part of our cost-conscious savings. We have little handouts. And I won't walk through each one of them. I'll just give you a sense of what we're doing here. The first example of the survey, and again, S2TT isn't just about surveys. We have a lot of independent experts. A lot of industry has helped us with this. This is an example, and it happens to be a ground vehicle example. The centers of gravity that you see there are two major companies. I won't say who they are, but it can't be too hard to figure out who the two major companies are. And these are the inner relationships that occur between their contracting base. And so what you see on the left is a great deal of connectivity down to the second, third, and in this case, even the 10th tier. And on the right, you see an example of where that probably would be more robust, as Sid pointed out, but we've had a difficult time getting the information, frankly, from the prime contractor in this case. But then what information we have gotten from over the last year or so, the green above are their common suppliers. Our people that are supplying to both. So as you have changes or fluctuations in product from one, it doesn't necessarily mean that the sub tier all the way down is gonna go out of business. It could mean that you just need to balance it. And I can give you no better example because it's public, and a lot of them we can't talk about, but this one I can, because we've made it public before. We had a case in the solid rocket motor industry where we rely on solid rockets for all of our strategic and all of our tactical systems from the Zoomie to the D5 to the Minuteman. NASA was the largest provider or largest consumer of solid rockets. The shuttle market made up about 70% of the solid rocket motor business. We're not used to being the tail in any market. And when NASA terminated shuttle, nobody really talked to the department about what the implications would be of that. But in essence, somebody shot our dog. And we had to quickly regroup and say, hey, look, 70% of the market just went away. So you immediately go to the two prime contractors who make solid rockets, which is an important thing to do. But more important in my mind was what suppliers did they rely on? And at the end of the day, there was one remaining supplier of ammonium plachlorite in the United States, two other suppliers in the world, one in Paris and one in Beijing. But only one that was qualified to work both our strategic and our tactical systems. They had a minimum requirement of about three and a half, four million pounds of plachlorite a year. Otherwise, it wasn't economically feasible for them to stay in business and they would just shut down. We weren't the key driver in their market. They would just shut down, which means we would not have a provider of ammonium plachlorite, which means we could not produce solid rockets without re-qualifying either the French source, which I would guess is difficult to do given our strategic systems, or figuring out a way to balance the load between the Navy, the Air Force, the Marines and the Army in their buy of solid rocket motor systems that would balance that out so we could get to a minimum sustainment rate that would help this company and while also investing in this company to go to the next generation and looking for alternatives. And we did that, but it was very difficult to do. In one case, we had to get the Army because they were being pressed to save money so they could source to Europe. That would have been fine. But their sourcing to Europe would have had the result of dropping us behind that minimum threshold and it would have affected the other services and all the other programs. So I guess the point of this is that these are incredibly interrelated decisions that we have to make and they have to be part of our budget process. As we make programmatic decisions, we have to understand the implications that those programs have, not just on the primes, but on the second, third and all the way down to the 10th tiers. So to do that, the next slide is we've created an assessment tool which is called the criticality and fragility assessment tool. And this is what every major program officer is being trained on that will go through and they will evaluate and it is a qualitative scale. I don't mean to put more science into this than it is, but it gives them a cognizant understanding of what their industrial base, particularly at the subcomponent levels are. These are the ratings that we've asked them to make. And again, there's a desk book for that. And then the third one just gives you a demonstration of the solid rocket one. For criticality, it's how critical is that particular component or industrial base capability? How critical is it to that system? And again, we're looking at the sub tiers way down below and we weight them differently. And on the fragility analysis, it's how much trouble is this company in? Do they have a good balance sheet? Are they commercially diverse? Is this their only thing that they're doing? And so that varies tremendously across our sectors. So as you can imagine, there aren't that many commercial opportunities for people that make nuclear submarine pumps. So that's one that we wanna watch very carefully. But commercial vessel pumps and belges, things that are in the Navy, then maybe that one isn't as fragile or as critical to our base as we can. So these lead us to really tough decisions. When we plot them out, and this is the next one, I guess five is an actual plot, what I'd like to do, what we're trying to institute over time is every six months, every time there's a program review or a major milestone review, we wanna track this and see who's trending right and who's trending left. Is our base getting more healthy or is it getting more endangered? And then when we do see trouble spots cropping up in the base, there's a whole variety of options we have. We work with the prime contractors. We have options and authorities that I know we'll talk about to intervene, but only as really the last resort if there are critical capabilities. But the fact is we can't intervene if we don't know what we need to do. And this gets to my, particularly in the armored or in the vehicle section is the mantra that I've started to use over and over again, which is we have to stop solving million dollar problems with billion dollar solutions. Because this data has never been collected because we haven't done it comprehensively in the past, what has happened is that we tend to just continue to build the things because we know building things keeps the supply base alive. And I would do that if we can, we can't. We are out of money. I can't build a new factory until I close an old one. It's a zero sum game. So we have to really understand at the very core level what are the critical components? What are the critical capabilities? What are the critical engineering skills? What are the critical industrial capacity elements that make up the system of the future, not the system that we've become accustomed to over the last decade? And that's a big challenge for all of us. All right, that's a good, quick tour, Brett. I appreciate that. I have a couple of specific questions about S2T2 and the criticality and fragility assessment process. And then I have a couple of general questions and then we'll open it up to the floor. So if you haven't written your questions down yet and handed them, raise your hand for them, this would be a good time to do so. As you look at your data that you've collected here through the surveys and through the application, the expertise, information from the programs, information from the companies themselves, et cetera, one of the grave concerns that I would have is that this can tend to be kind of static if you're not careful. You got snapshots in time. They're very precise and comprehensive, but they erode quickly and in some cases, faster than others. How do you compensate for that and how do you build that into your process? Well, that's a great question because we went out, everyone, when we first tried to do the surveys, which I know, I don't know how many people in this room had to fill these out or had to see them, they're daunting. It's one of those forms that comes to a company and it starts by saying this should take so many hours and having filled out many tax things, I know that whatever that number is, you triple it and it was a daunting task for companies. We tried to work with the companies through it to get the most interesting bits out of them and to assure them that it was protected and I understand this is highly proprietary. So we will be doing refresh and revisits. And one of the things that I, having come from industry, most of the surveys that go on in the department go on by company. Well, we all know in this room that this industry has changed so much, mergers acquisitions and I worked on a lot of them. So I didn't want to do it by company, I wanted to do it by facility. So that was a different approach that we took. We actually looked at the facility instead of, in some case that changes the cage code, but it was actually the physical address of these capabilities. So we will go out again this summer, we'll be going out and refreshing and to lessen the burden on industry, the first tron truly was a burden and I understand that. We will be looking at having simpler, much simpler or more simple surveys that say if nothing's changed, check this box, you don't have to fill it out again. But if something has changed, we'd like you to fill it out again and we're gonna do more sampling as opposed to vast surveys. We're also gonna concentrate in different areas and we've been working with DCMA, Charlie Williams has been particularly great because he asked a lot of questions and then the services have a lot of these surveys. So we're trying to make sure that our office becomes a single repository for all this information and that we're able to share it so that industry doesn't get burdened over and over again with the same thing, with the same questions over and over again. And so far I think industry's responded well, but if you are getting, if anyone out there is getting multiple requests for the same information, please let me know because that is something we can correct and we're anxious to do it. We're just trying to get the data. We don't want it to be an additional burden for our cost for industry. So that's good in terms of the input. In terms of your use of it as you look at critical and fragile, there are sub elements of analysis that fold into place here and I wanna probe on that a little bit, especially on the criticality question because in my experience, a lot of times we tend to assume essential from a linear analysis point of view produces criticality from a vulnerability point of view or a consequence point of view. How do you bring vulnerability and ultimate consequences into play here in that assessment? Right, and frankly we struggle with it because every time you peel away a layer, you find another layer and it's not just about being able to build the system that we have now or the system we're trying to build now but it's about the capacity to build the next one. And so if you're a program manager and you're giving us this data, there is nothing more important than your, than that particular program to you but you have to see it in the broader context of what we're trying to build as a force structure and that becomes a real challenge and so there will be trades. There will, I mean, we should make no illusions. We will identify critical and key suppliers that will go under because we will have made the assumption based on our strategy moving forward that that is no longer a critical capability to our future force and those are gonna be hard decisions and it's, as we all know in this town, they're not decisions that are arrived at easily, either politically or fiscally but those are decisions we're gonna have to make. So once we build it up from the program perspective on the critical elements, the critical suppliers, our office is then asked to look across the department and across all the programs and try to marry all of that together to identify where are their unique, particularly unique to defense, horseshoes or horse nails, if you will, in that supply chain. But that's, it's a real challenge and unfortunately there's gonna be a lot of bad news that's given out to companies because just because you're vital to one program or one capability, we may have alternatives, we may want to invest in the next generation technology or there may very well be the decision that we can't afford to support that particular effort and we look for asymmetrical competition. And obviously that's where the consequences and the trade-offs come into play here. Ultimately, this whole process is really about the department having the capability to identify risk in the industrial base to assess the consequences of that risk fairly and then to manage or mitigate that risk over time. In order to do that kind of identification and assessment and management process or set of processes, if you will, you rely on a host of statutory authorities and internal regulatory authorities, DOD directives, FAR clauses, Commerce Department authorities, et cetera. You've been in the job long enough now that you may be able to answer this question. Do you have in your position the authorities you need across the spectrum to be able to conduct this identification and assessment and risk management process? I really, I'm comfortable with the authorities we have. We have to, I think it's more important, we have to demonstrate the value. I mean, as you said, I've been there long enough to know that we start a lot of things in the department that three months after we start them, I look back and say, why we even do it? This doesn't make any sense. So I think my challenge is primarily to ensure that there's a relevant output that we are affecting an outcome in all of these deliberations and that it is contributing to the benefit of the department over the long run, not just doing it for doing it's sake. And so we have authorities, we have the ability to intervene. Congress has been frankly quite helpful. In many ways, every time we go up there and we explain what the situation is, we have found support for things like the Industrial Based Investment Fund, which they funded this year. These are small amounts of dollars, but they're really at the capacity for us once we identify a problem. We can bridge that problem with some funding until the services can come back online and take it over. We have DPA authorities, Defense Production Act authorities for manufacturing. We have the Mantec programs. All of those, basically Title I, III and VII now are all under the purview of the organization I represent. And that's been a good balance. We usually can find, if we can identify the problem, we can usually identify the solution. Our problem has been understanding what the real element of the problem is. Let me ask one more question and then I'll turn over to Dr. Lee, who has a fistful there that I've been rolling in here. So we've spent a lot of time talking about what we do in the diminishing end where you've got a critical source and they're threatened or at risk and got a business center. There are other problems in the Industrial Based as well, which particularly in an era of declining budgets tend to reflect itself in the form of excess capacity. And particularly in some ground forces systems and track vehicles for instance, et cetera, there at least is the appearance of excess capacity to today. How do you take this same approach or do you take a different approach to dealing with the question of rationalizing excess capacity because that's a different level of risk. That's a risk of wasting money. Right, and this is, and we have, when I started doing this, I was shocked as I, again, coming from the financial community doing transactions, we always used to look at the utilization rates and so forth of factories. We had factories even back when I started in this job that were operating seven, 8% capacity. And again, the industry reflects the department and so I kind of have to walk this fine line because I understand what industry is doing. They're building capacity to meet our demands. And industry would have been in a hard place if we weren't able to meet the demands and of course if there's money you want to meet the demands but now we are in a situation where we have a tremendous amount of excess capacity across all sectors, but particularly in this sector and we have to start rationalizing. But we have to do it in a manageable and logical way and not to put too fine a point on it but I have said in senior meetings that you just can't, it's like having a kid that for 10 years you gave nothing but donuts and then you woke up one day and you said, hey, this kid's really big. I'm not gonna feed him again until they get small. It's not how industry works. Industry surged because we asked them to surge and now we have to deliver on our promise to have a robust industrial capability but we have to do it in a manageable way. And I think we were well on our way to doing that with the budgets we had put in place with some of these efforts. As I said, we were on our way for an escalator down for our industrial base. Industry understood this. But then BCA hit and then, okay, so now it's an elevator down and then sequestration hits and it's really an elevator but frankly just the shaft for industry. I mean, it just drops off like a cliff. So we're trying to manage our way through that just as industry's trying to manage. It's just a bad way to do business. And so what I've been promoting both in the department and every time I have a chance to say it on the hill is make it bigger, make it smaller, just please make it predictable. We can manage to predictability but you've got to get us some stability in the industrial base. Otherwise you're not gonna have the innovative third and fourth tiers that wanna play and in fact I will not be surprised. And I think this will happen certainly on my watch in the next few months where you have people that just say I'm not gonna do this anymore. We've had the benefit in the industrial base so far of companies viewing this as a growth strategy. And I think the way we have behaved in our budget environment right now for companies that aren't all in, that aren't our pure primes, defense is becoming a hedge strategy. And a hedge strategy is not where you wanna be in industry because the returns have to be a lot greater than we're gonna be able to provide. And so I worry about that balance moving forward. One thing that is predictable is that this collective group of people can come up with a lot better questions than I can. So let me turn the floor over to Dr. Lee and you can lead off with some of these. Brett, thanks so much for coming and doing this. There are a number of people who have actually written very nice things to you personally on their cards and so I'll just hand those to you. Oh nice, good, good. Which is something I've never seen in a CSIS event. I know it was a bring your daughter to work day but I don't see her out here. So again, you can just reflect on those later tonight but there are a number of different questions here about not just the purely private component of this but what's the role of the depots, what's the role of the go-co facilities particularly with things like better buying power 2.0, how do you manage profits in that context and the public private component of this. Right. So you're just gonna start with the easy question so I thought, okay. Well I mean it's a reality that we all deal with. We have a requirement that we fully intend to honor on a commitment to have an organic capability and I think as we enter this transition particularly in this sector where we're moving more from production to sustainment in terms of the total number of bases that the differentiation that we'll have to concentrate on is making sure that our organic capability is robust but not competitive in a sense that hurts the non-organic capability, the industrial base and that's gonna be a fine line. This issue, as everyone in this room is well aware has largely gone away over the last decade and it's about ready to come back real fast but I think it's gonna be a challenge but I think at the end of the day if there's an understanding that we do want and are required to have an organic capability what we wanna make sure is that that organic capability is robust but at the same time not competitive with the private sector and what we're asking the private sector to do these are very different lines and we need to be as clear as possible to both our organic base and the private sector of what we're trying to do with each of them. Good afternoon, sir. Steve Nicolucci, I'm one of the military fellows here. Rather straightforward one here. What is the impact of our export control restrictions on the industrial base? Well, I don't know even where to start there. We do so many stupid things. It's unbelievable. It's a huge contributor to our overall economic wellbeing and so I can make the economic arguments forever and we have on the hill and even in the White House and everyone buys into that and yet despite what we say we continue to really, with exports we shoot ourselves in the foot, we become non-competitive and then we examine it, we do a study, we hire somebody to do a study for us, we reload and then we shoot ourselves in the other foot and we don't seem to make much progress. I will say this administration has made a tremendous amount of progress on the exportability of items. Everything from what we're doing now to build in exportability, which is a big initiative of Mr. Kindles and the White House to these pilot programs but also understanding the importance of exports for bridging production gaps. So when I look at, so those are two different things. One is to increase our capacity for competitiveness, lower our overhead rates for the exports but I also look at gaps we have in productions particularly in this sector and how can we move production for exports to the left? Now the problem we have is if we start gapping a lot of systems, if we start terminating systems, countries won't believe us that we're gonna be able to sustain the capability or the companies will be able to. So there's a bit of an understanding that it's not just the foreign sales that we have to be in it for the long haul, we have to be able to sustain that capability and that product over time. And the other thing I would, so I think we're getting better at that but the other thing that has really changed and this is really in the last 24 months is the department is an advocate and you've seen it in some of Mr. Kindles documents, you've certainly seen it in some of the letters Mr. Dr. Carter has written, we are becoming much more like every other country we're slow to the game at advocating our systems overseas and doing it from a political level and that has made a difference and we can already tell it and we have a few high profile cases right now where you have senior US government officials advocating which was not really done in the past and it's because we understand how important it is. Again, some of it is bridging gaps that we have in production but a lot of it is good for the overall US economy, it's good for jobs, it's good for our technology development. So there's a lot of different aspects to the export issue but I think we're making progress and frankly not as much as we should be making but we're making progress. There's a question here about the S2T2 methodology and whether it is in fact, as it appears to be based mostly on physical sites and capacity and the question is really about what's the human capital component of it? Can you address that a little bit? Yeah, so S2T2 again is a process but what everyone is familiar with is the S2T2 surveys, right? That's one of I think seven components of the overall project but it is the one that everyone hears about because they're the ones that you have to, companies fill out for us. That is very much physically a physical exercise, what's your capital equipment? If you've seen the surveys, one of the questions we ask is who are your top 10 suppliers and what do they supply and do you think they're vulnerable? Then we go to those 10, we say what are your top 10 suppliers and that's how we bridge, that's how we understand these matrix going down. The human dimension of it is handled differently and I'll give you a good example but within the same context because this again is particularly of interest to folks like Mr. Kindle and Dr. Carter is the design team capability. I use contact fuses but there aren't that many people who really still know how to do that. In fact one of the I guess fathers of that sector recently passed away. So we lose human capital and we're losing it all the time and so we need to identify those human capital resources that we need. In the case of the next generation bomber the decision was made to terminate that program of record but there was a conscious decision that was made to continue to invest in the design teams and the intellectual capability of all of the companies that were participating at that time. That is now providing huge dividends as we go into the next generation system because that intellectual capital was kept together and they're now putting together proposals that we would not have had had we not made that investment up front to sustain the human capital. So nobody should take away from the S2T2 effort that it's about loading docks and facilities. There's a very significant degree of human capital in design teams and I think you'll see in the coming months even greater emphasis on keeping design teams in place even if that means we may not be manufacturing certain things because we can't afford it but you'll see a significant emphasis on human capital. And how do you deal with that on some of the less engineering type skill sets but some of the unique maintenance skill sets for materials and things like that? I remember I did, I don't know how long ago it was, somebody in the room will know but I was asked to do a study of the industrial base for the B2, I think it was probably 15 years ago when it was coming out. And what shocked me in doing the analysis was one of the key folks that nobody, everyone thought about the receivers and the stealth plates and all that. It was the person on the line smoothing the edges before the plane took off which was a real skill. Largely taken, frankly, from the automotive. These guys were mostly automotive detailers. That was an irreplaceable skill and it wouldn't be something you would normally think of but that maintenance, that repair, that capability is essential and it factors into everything we do. We're trying to understand better not just on the budgetary side, the life cycle cost but how do you get sustainment, how do you quantify sustainment and what parts in the sustainment tail do you need to ensure we have the capacity to address throughout the life of the program? Okay, there are a couple of questions to merge here regarding emerging technology and diversity. How emerging technology, like the 3D printing, can improve the contractor diversity but there's also the advances in composite materials, the fabrication that might be beyond single companies, small, so how do you go for the diversity but also have the emerging? Well, I'd say one of the great privileges I've had in the office is we were asked by the White House to sponsor the first NNMI project, the National Technology Project that we announced in Youngstown back in August which was on adaptive manufacture, basically 3D printing. The president had it in his inaugural address, he again said it as his first item in the inaugural address this idea of building these institutes, these public-private partnerships. The department we put in $30 million, we had it matched with 45 million from the leading companies, Northrop Grumman's one of the key sponsors of that Youngstown effort for adaptive manufacturing and it truly is, I'm not R and E so I'm manufacturing so what I'm constantly instilling on my folks is unless it has a loading dock, we're not interested in putting money into it. It has to have a loading dock. It's something has to be coming out of that factory. But those we're gonna, and you will see in the near future we're gonna announce some more and DOD is again gonna take the lead on that for the administration. We are very excited about those institutes and some of them, you know the broad concept is what the Fraunhofer Institutes were in Germany but this is much more narrow, much more defined. My goal is to get the department of defense out of that business, stand them up, get them going and if they can't make it commercially, then let's shut them off. They shouldn't be institutes in perpetuity but they're important skill sets. Imagine if you will, and we're not terribly far away, a ship under sail that doesn't carry spare parts. It just carries CAD-CAM and then makes them, imagine troops that are able to manufacture even munitions on site in theater. That's what adaptive manufacturing is bringing to us, that promise of that capability and at the same time it has huge residual effects for the overall US economy. It will make us competitive. As we've said before, we should not expect to be competitive in this global marketplace by making t-shirts. That's not what we do well anymore. What we do well is have high skilled, high wage labor that does things like adaptive manufacturing and 3D printing and I know there's a lot of focus that we have on protecting our intellectual property, which is obviously very important. My focus and my office and what I've stressed to our folks is I want to continue to be able to create things that people want to steal. That should be our goal. So that's what we're doing with the manufacturing initiatives and particularly the adaptive manufacturing and several others that you'll see probably in the next week or so that will be announced. Let me follow up a little bit on that with the question that I have about whether there's any prospect of expanding Mantec in that context and then another one related to a question that David asked on the reauthorization of the DPA and whether you see opportunities to expand it and or things that you'd like to see done differently in the reauthorization next year. Well, so I think DPA is one of those jewels of the federal government that I don't like to talk about because I don't like to bring attention to it because it works so well now that I'm worried that if it gets a lot of attention it'll stop working. But it's basically the authorities, it's the loading dock. We don't invest in engineering but we're allowed under Title III, we're allowed to build facilities, actually build factories. And you have to have two criteria in essence from the 1950 law which is that it's a national security imperative and it's not being met by commercial need right now but the goal has always been to invest in programs that where we can build capacity and then again it has commercial benefit whether those are 50,000 ton presses or whether they're beryllium plants or facilities, things that we need that otherwise is not being met by the commercial market. It is coming up for reauthorization, there are the people wonder why there's only one, three and seven of the articles, the other two were over, I think two were overturned by the Supreme Court under Truman when he tried to do the steel industry, right, he tried to, so there are only three left and our group has all three of them. We don't, we're not looking for anything really new, we like the idea that it's no year, no color money. In the last authorization in 2009, they've set up something called the Defense Production Act Committee which is an all of government committee so it's all the deputies from all the departments get together and we prioritize among all of us where investments should be made on behalf of the government that can best be used for our own purposes, for the government's purposes but also to generate more effective U.S. economic competition internationally. So I think it's working pretty well right now, I'm hopeful that it doesn't get changed too much. So far it's been effective. Okay, the topic is BBP 2.0. Frank Kendall just published Implementing Directive BBP 2.0. I got it tattooed, I tattooed it, right? Excellent. All 36 pages of it. All 36 initiatives, yeah. Absent from the guidance are metrics to measure the effectiveness or cost of the various initiatives. They want to know why, those are missing. That's a very, I'll go back, that's a very interesting take on it. I will say that with Mr. Kendall, for those of you who know him and he has this great quote on the outside of his door that in God we trust, everyone else has to bring data, that that is an assumed part of everything we did in 2.0. And I can tell you how many Saturdays and Sundays walking through each of those initiatives and how we were going to measure internally the differences and there are metrics associated with each one of them but it's an interesting point that that doesn't come across in the rollout and so that's a great point and we should be more explicit that I assure you there are very explicit metrics because you have to know what you're doing better and that's the whole point of when we issue Better Buying Power 3.0, we will base it largely both on the industry input, the input from our internal folks but also on how we did with the metrics and some will drop out and some will have to accelerate but we'll make a better point of making that clear over the coming days. We're gonna have a couple of events that'll be rolling that out and I'll make sure that's addressed in the events. If I could add one thing to that as well, this is a subject that we've tracked pretty closely at CSIS since actually the initial Better Buying Power initiative that Dr. Carter put out when he was under secretary and we'll continue to track and report on that independent of your own assessment of your progress as well. I'm sure yours will be much better than ours. It may not be quite as many facts and figures in it and it certainly won't involve tattoos. Right, good. That's good to hear. Question about, you talked about how you are getting more integrally involved in the processes of the department. There's one here about whether you've yet cracked the code on getting into reprogramming decisions or not. I can't talk much about budgets but the general answer is yes. We have a series of very senior level working groups. There's the DMACC, there's the SCRIM, there's the, I can't even keep, that's the other arm I have them all tattooed on. We are involved in that from that perspective. I will say that twice now we have presented to the DMACC, the leadership if you will, the four stars and co-coms on just solely on industrial base issues. And there were some reprogramming discussions in there about things we needed to adjust or move around and again, you'll see those coming out but I just assure you that we are asked to comment. It doesn't mean we always get what we want but at least they're on the table. Discussions are on the table. I think we've got time for one last question and then we'll wrap up. Okay. Okay, final question is what is the role of broader US policies on manufacturing for preserving the defense industrial base? Well, like I said, the manufacturing part is anyone who's read the recent Time Magazine article cover story is US manufacturing back. I'd encourage you to read that. It talks a lot about the initiatives the department has taken on there. It's a priority I know personally of the president, Gene Sperly in the NEC and it certainly has been a priority of all three secretaries I've been able to work with that we need to build stuff here and we need to build really good stuff here and even though our base is more global in the supply chain, it's more commercial, we still have to have that industrial capacity and at the end of the day, if you think about what's unique about defense that sets it apart from every other government agency is that we think about something, we design it, we create it, we buy it, we use it and then we maintain it. There's not a single other federal agency that does all of that. And so from the very creation to the 30 ship that goes into Mothball's 50 years later, we have a responsibility to be able to manufacture and to support that entire supply chain. So it's a unique responsibility for us and it's one that's identified through programs like the Defense Production Act and Mantec but it's also recognized I think by the overall administration and the government to give us support that when we do need manufacturing capability here in the US whether it's foundries for certain types of advanced technologies that we're concerned about or whether it's a shipyard, we're gonna maintain those here in the US no matter what and there will be a cost associated to that but that's a commitment that we have to have because we have to be able to support the warfighter to execute the mission. Well Mr. Secretary, we've been delighted to have you here this afternoon. I've been a student of the industrial policy office over the years in DOD and it tends to swing between two pillars if you will. Pillar number one is we don't do industrial policy because that involves having the government intervene in the marketplace and it's against our philosophy to do that. Pillar number two is we don't have to worry about the industrial base because given enough time and enough money we can always recover from whatever errors we commit. You it seems have actually strived to create a third alternative one which has both analysis at its core and some rationality and focus as its objective here and so I think we thank you both for your appearance here this afternoon and for your service there. Please join me in a round of applause. Thank you. Thank you very much. Thank you. Thank you. Appreciate it. This is much nicer than my office.