Good morning. We need to consider the nomination of Patrick Shanahan. Mr. Shanahan, we thank you for joining us today and for your willingness to save country and serve our nation at an important time. We welcome your family and friends. As is our tradition, we invite you to introduce them at the beginning of your testimony. It is important that this committee and other appropriate committees of congress be able to receive testimony, briefings and other indications of information. So as it standard for this committee to ask certain questions to exercise its legislative and oversight responsibilities, have you adhere to applicable laws and regulations governing conflicts of interest. I have. Will you ensure your staff complies with deadlines including questions for the record and hearings. I will. We cooperate in providing witnesses. I will. Will those witnesses be protected from reprisals for their testimony or briefing. Yes. Do you agree, if confirmed to testify on th request was for this committee. Yes. You agree to provide copies in a timely manner or to consult with the Committee Regarding the basis of any good faith denial in providing such document. Yes. Have you assumed any duties or undertaken any action which would appear to presume the outcome of the confirmation. No. In the interest of time, i will submit my Opening Statement for the record. I know that will come as a terrible blow to other members of the committee. I can see how upset they are in missing that and maybe with a little luck senator reid will do the same. It is your lucky day mr. Chairman. I just want to welcome mr. Shanahan. Im confident in his abilities. If i may also, senator shaheen is delayed in this weather. Since the corn is present, asked the committee to consider a list of 995 pending military nominations. All of these nominations have been before the committee. Is there motion to report these 995 military nominations to the senate to move. All in favor say i. Welcome mr. Shanahan. You are deprived of the important Opening Statement of senator reid and myself. Before we allow you to speak, senator cantwell is here and i apologize for not recognizing you to take time from your busy schedule. Thank you. Chairman mccain and distinguish members, and proud to introduce an extremely qualified candidate, Patrick Shanahan to serve as the deputy secretary of the department of defense. I want to welcome his family. They are here and im sure he will make that appropriate introduction. Mr. Shanahan has a unique experience leading reforms of highly complex programs at the boeing company. These aircraft has cutting edge technology, keeping them ahead of the global competition. His entire career has been about solving problems no one else can solve, and these skills would be invaluable at dod. He drives change by building teams that think outside the box and then convince others to think in doing things new ways. Mr. Shanahan has driven reform in management, affordability, technology and supply chain. He has had an impressive career last serving as Senior Vice President of supply chain operations. His handson leadership inspires those around him to just strive to achieve results on time and on budget. Managing the highly complex operations in washington and charleston south carolina, he has served as the head of the commercial airplane program. His attention to detail, while operating some of the largest operations in the world. He is also fearless. He understands what our country is up against when it comes to the russians and the chinese and the north koreans and wont faze him. He focuses on big Game Changing innovation and science and technology and will be deterred at the bureaucracy of dod. He also knows the department of defense operates and has served as Vice President general manager of the boeing Missile Defense system and was responsible for the u. S. Army Aviation Program in philadelphia and mesa arizona as Vice President for rotorcraft systems. He has been able to achieve positive results throughout his career. He understands the need for fiscal responsibility and for innovation of the department. Dod is the largest employer in the world with almost 3 Million People in the Largest Military budget in the world. He has the management skills from the private sector to guide dod successfully into the future. I am confident he will be an effective leader for our country. Thank you, mr. Chairman. I will excuse myself, but i think the committee for this opportunity to introduce mr. Shanahan. Thank you senator. We fully understand you have other duties in the senate and thank you for taking the time to introduce mr. Shanahan. Thank you senator cantwell. Thank you for your kind words, thoughtful introduction and endearing support. Before i begin, my thoughts and prayers go out to the families of the seven sailors killed in a tragic accident on the uss fitzgerald. Chairman mccain, Ranking Member reed, members of this committee, i greatly appreciate the welcoming time youve afforded me this morning. Im grateful to the president and secretary mattis nominating me to the position of secretary of defense, deputy secretary of defense. Id like to acknowledge my three children who have accompanied me here today. Kayla, will and jack were seated behind me. I also want to take a moment to recognize and honor my parents, joann and Michael Shanahan. I am the oldest of three boys. My father Michael Shanahan instilled in my brothers and i, from as early as i can remember, service before self. My father was an army veteran who served in vietnam. He taught his boys to love his country and value its freedoms. My father served in Law Enforcement for over 25 years. He taught us to treat people fairly, respect lawn order and the importance of protecting the community. My father cofounded a food bank in 1982 thats ongoing. To date it has distributed over 200 Million Pounds of food to the needy. He showed us that with initiative and outreach, good ideas can scale to make a big difference. At age 52, my father was afflicted with parkinsons. He battled the disease for 17 years before passing. I never once heard him complain. My father modeled for us what it means to have great, that is the ability to maintain a spirit and persevere the matter what the challenge. I so wish he was here today. I know exactly what he would say to me. He was a patrick, dont screw this up. My mother, joann, could not be here. She is here in spirit. I mother always supported me unconditionally. She taught my brothers and i to support others unconditionally. What i appreciate most about her and she taught me to truly believe in myself and that i could do anything i set my mind too. She taught my brothers and i that its not the size of your muscles that matter, its the size of your heart. She taught me to be a better parent and thats a gift i can never repay. Her words for me today were, you will do fine. Im here to earn your support. I inspired to join a strong and capable dod team. I aspire to help them dominate and win. I aspire to help usher in the new age of innovation and effectiveness in the department. I believe i have prepared myself to contribute as dick and jen deputy secretary of defense. I bring over three decades of leadership. I have led large geographically dispersed. I have experience converting technological innovation to operational capability. I bring with me a formula for leadership that has a record of delivering affordable highperforming Business Systems and operations under adverse conditions. Leadership casts a long shadow and strong leadership can create teams that achieve ambitious change. I believe my skill set strongly complements that of secretary mattis. He is a master strategist with the military and Foreign Policy experience. As deputy sector of defense, i bring strong execution skills with a background in technology, development and business management. Its areas this committee has identified for reform. If confirmed, i will work tirelessly with congress and the department to deliver on our commitments to our men and women in uniform and their families, to defend the nation and to be relentless stewards of the taxpayers money. I appreciate the time youve afforded me today to answer questions. Thank you mr. Shanahan. In your questions that were submitted to you, one of the questions was about providing the ukrainians with lethal weaponry to defend themselves. In explicitly you responded by saying you have to look at the issue. Its not satisfactory. Do you wish to abridge or amend your statement concerning. I support equipping their ukrainians. You supported. Yes. Providing lethal weaponry to ukraine. Yes. Okay, good, im glad to hear that, but i have to tell you mr. Shanahan, our job is advise and consent were equal branches of government. Your response to that question was very disappointing to me. You have been associated, for the past how many years with one of the five corporations that provide 90 of the defensive weaponry to defend this nation, and your answer was i would have to look at the issue. Thats not good enough mr. Shanahan. Im glad to hear you have changed your opinion from what was submitted, but its still disturbing to me after all these years that you would say you have to look at the issue. Have you not been aware of the issue and the actions of the Senate Armed Services committee . Have you not been aware . Have you missed all of that in your duties at one of the major defense corporations in this country. No chairman, i am aware of them. Ive got to tell you, its very disturbing. Im disturbed that we now have an executive from one of the five major corporations that has corralled 90 of our Defense Budgets and on one of the major issues that this committee has had hearings about, and markups about and you want to find out more information . Not a good beginning. Do not do that again or i will not take your name up for a vote before this committee. In my perfectly clear. Very clear. Senator reid. Thank you very much. One of the issues you will face is termed the third offset. Bob has done a remarkable job and has been the leader for this effort. It is trying to counter technologically otherwise our. [inaudible] we need to leap ahead with new technologies. In trying to deal with that, the congress reestablished a position under the secretary of defense for research and engineering. As deputy secretary you will play a Critical Role supporting the new or revised. But also reaching out to the whole community, the industrial community, technological community. Can you give us a sense of how you will continue his efforts with respect to the third offset. If confirmed, i will spend time with the group. I have not received classified briefings on the work that they have done. The effort i would undertake is to make sure we have a clear path to capability. When i look at the strategy exercise will be conducting to put together the fy 19 budget will be critical we have assessment of how much funding can be applied against the third offset. I believe in the restructuring will give us the concentrated skill set have a more informed recommendations. Thank you very much. I presume also because of your experience in private industry , you have some ideas of companies that are not currently involved but could be major contributors to this effort. Is that accurate. That is correct. We need to broaden our Industrial Base and its important we develop other capabilities and companies. Thank you. One of the other changes we made last year was creating and also achieves management officer. In many respects how will you work with the chief management officer . Do you have any ideas with respect to that . The chief management officer will help streamline Business Operation to as the deputy all the operations, a subset of that is the Business Operations. I will work hand in glove with the chief management officer. I have experience in this area on how to we quickly capture efficiency and the opportunities by standardizing and sharing many of these services across the department. One of the areas thats complicated and troubling daily is that we seem to be falling behind in information operations. Its ironic that the country that created madison avenue is now trying to catch up in terms of influencing individuals through media. I believe the secretary of defense will be very much involved in this. Do you see a role you will play in terms of trying to coordinate with food dod and then reaching out to other agencies. We need to have the right structure so we are effective in interfacing with these other organizations and the systems must be cost effective. The proper architecture so we can upgrade them and evolve as technology changes. Thank you very much. Thank you, mr. Chairman. Mr. Shanahan, i appreciated your comments in the meeting about the Nuclear Deterrent and being a Weapon System that we use the recycled day. The fact is often overlooked but often we have those who are in Launch Control systems and submarines on alert. Secretary carter characterized our Nuclear Deterrent as the bedrock of our National Security. Do you agree with that. I do. And of the forthcoming ncr will lay out the particulars but you support the modern nation and the supporting infrastructure. I do. The vice chair of the joint chiefs of staff has testified that they put our Nuclear Deterrent as the number one priority for modernization. Thats based on the fact that weve squeezed all the life we can out of the current system. You agree with his assessment. If confirmed, i have not had a review of the priorities of the department. I understand the importance of the Nuclear Deterrent and i will take advice and make sure he gets the proper support. Thank you. When you were in my office, we talked about technology and innovation but one thing we didnt touch on is the question of risk tolerance. Its inherently risky and not all good ideas pan out but the current environment seems to be very intolerant of risk. You believe the department and the services need to be more tolerant of risk and how do you think they can better navigate that tension by effectively using scarce resources and tolerating the amount of risk thats required if we are going to have innovation take place. You have to manage risks when you take risks. I think when it comes to innovation, innovation is messy. I think thats your point around risk, we shouldnt be afraid. Organizations that pride themselves on execution tend to be afraid of failure. I am a proponent of failing fast and learning quickly. I think the faster you do that the more we end up treating people. Its about learning how to develop the technology because they know how the users can apply it. In your response to the committee advance policy questions regarding russias violation of the inf treaty, i understand the administration is reviewing a number of potential responses as part of its ongoing review of this issue, and i will be keenly interested in making sure these are translated into action. So, to be clear, for the record, do you believe your response is necessary beyond expressing concern through diplomatic channels which has already been done . Do you have any personal thoughts on what options would be available on some of those options. I do not. You also noted that russias action in violation of the inf treaty, if unchecked could lead to doubt in the stability of current and future arms control agreements and initiatives. Could you elaborate on that statement . Sometimes there is a view thats expressed that holds violators accountable for their Behavior Risk and deals collapse. I think the russians are adversarial. I think, through the whole of government, we need to deal with whether we call it aggression for thi or disruption to our interests. At this point i dont have any specific recommendations. If confirmed, i will spend a significant amount of time dealing with russia. Would you be supportive of developing options to present the president besides diplomatic or just made making statements. I would be supportive. Thank you. Mr. Shanahan, youre not making me happy. We expect straightforward answers and you just ducked a sickly every question that senator fisher has to. Im telling you, i believe in the constitution of the United States which says that the congress of the United States shall provide advice and consent. Not what you said here and watch you duck every question and expect that everything is going to go smoothly. Its not. Thank you, mr. Chairman. Welcome mr. Shanahan. Mr. Shanahan, you have limited institutional experience in the military dod or the pentagon. In my experience ive seen that deputy secretary heavily involved with running the bureaucracy will the secretary works closely with the presiden president , nsc, congress and allies, although i just heard you say you would work closely regarding russia. So, if confirmed, if you are tasked with the inner workings of the pentagon and its interagency structures, how will you overcome your lack of institutional experience to effectively operate in this environment . Senator, i have worked in environments where we have very disparate organizations. They may not be dod, but in the commercial world, with many different suppliers and agency like organizations, i believe my technical and management background will prepare me to be able to quickly assimilate the knowledge and the expertise to properly interface. What would be one of the first things you would do to get yourself to position where you can hit the ground running should you be confirmed . I think the first place that i was going to hit the ground running was on the restructuring of our and he, the ans organization, and then working the chief management officer initiative. I think that will be a good way to begin to understand the inner workings of dod and then , in the second phase of that, participating on Nuclear Posture review and ballistic Missile Defense to begin to allow me to interface with other organizations and structures. You have a lot of experience in the private sector but the dod is an entirely different entity, in order of complexity and all the people that you will be working with. I assume that should you be confirmed, you will have a list of to dos and people you will meet with c can become quickly apprised of what your responsibilities will be in running the nuts and bolts of the dod. Crossover runs and schedule delays on acquisition programs have plagued dod for many decades in this committee under senator mccain and others have tried to improve the defense acquisition system for Better Outcomes for our military. You have significant experience is one of our largest defense contractors. Based on your experience and perspective from the industry side, what would you recommend in order to get better results from our contracting and acquisition processes. There are a number of tools from a contracting standpoint that are important. Fixed price, contracts is a very effective tool to drive supplier or contractor performance, having the right incentive clauses is very important. I also believe, if confirmed, when we work the audit we will come up with a new Cost Accounting scheme so we can better understand what things should cost and understand, to the degree how much we are overpaying. To me, really understanding from a cost baseline that we have with the contractors and so important. From that, we need to renegotiate. I think with the kind of specific experience you have in dealing with the acquisitions yourself, you will be able to bring a very key element of why these overruns occur on a regular basis much to our consternation. Im going to be looking to you for those kinds of efforts. Turning to the asiapacific strategy, i only have a little time. The asiapacific area has some of the largest economies, many militaries represent 60 of gdp, et cetera. What are your thoughts on how to move forward in the asiapacific theater . I think the chinese have been modernizing quite significantly in recent years, and that threatens our ability for freedom of movement. Its really important that we find ways to maintain the Security Architecture of the pacific rim. Its very important that we support our allies and partners there and reassure them of our commitments. I would like to see a continuing focus on that area because as the rest of the world becomes unstable, if we can keep the asiapacific area stable, even with north korea and china as major players, acquisition reform and other things that you could bring to the table, i hope that will release more resources for the asia pacific arena. Thank you, mr. Chairman. Thank you. Mr. Shanahan, congratulations on your nomination. As we have discussed this morning, the deputy secretary plays a major role in managing the department while the secretary is a member of the National Security council and the public face of the armed forces of the American People and abroad. You have a long distinguished career at boeing, in particular your reputation for turning around the dream liner program. Thats something a a lot of military programs could use. However it also raises some questions i think we should address in a forthright manner of front at your hearing. How do you plan to carry out your duties as the deputy secretary while on boarding any potential conflicts of interest based on your time at boeing. I will divest all ties with boeing with the exception of my executive retirement, which is permitted under the ethics agreement for the duration, if im confirmed, i will not deal with any Matters Regarding boeing, unless cleared by the office of ethics. We will put in mechanisms so that my calendar, the meetings that i participate in, that we can screen to make sure there are no matters related to boeing that i will be exposed to. Thank you for that. Will that name specific programs . Will the ethics agreements call out specific programs . Its all matters of boeing. It would include all programs. I think chairman mccain, the next question i want to raise related to those precautions which i think are prudent, boeing obviously is a major defense contractor. There are many programs, some of which have some troubles of their own, do you think recusing yourselves from these boeing related issues could negatively impact the departments decisionmaking process. I dont believe so. In my view i believe i can provide general guidance in terms of Program Execution and techniques to drive better performance without getting into the specifics of a particular program. Thank you. In terms of your financial divestiture, you are, or will soon be fully divested from all boeing stock except for your retirement program, is that correct. If confirmed, i will divest. In your time at boeing and your success, i presume its safe to say they have made you a very wealthy man over 30 years compared to most. They have treated me well. At this point in your career, your focus and loyalty is solely on the department of defense and the soldiers, salmon, airmen and marine who are on our front lines. Senator im 1000 committed to the department and to delivering on the reforms that senator mccain, chairman mccain has outlined. Thats what i expected, but as i said i thought was important put up front the steps youre ticking to recuse yourself from boeing decisions and to ensure youre making the best interest of the men and women of the armed forces, to include men and women who will include on some boeing systems and there will be systems in place to account for that. I want to turn to one other issue and that is trying to work with smaller firms that would like to be defense contractors, as senator mccain said Something Like 90 of all acquisitions, some of this were leads to the department of defense on bureaucratic issues but some relates to the culture that you see in the tech world. Ive heard from many tech leaders and entrepreneurs that they simply dont want to do business with the department of defense even though they have very fine products and services, in part because they dont want to deal with a seven year Timeline Development program, or they dont want to deal with all the red tape. Have you given thought about how to conduct outreach to that world and make the acquisitions process more user friendly for smaller, nimble firms. I have and its confirmed, thats one of the more exciting aspects of the job. We are seeing a transformation of technology, and this is the Industrial Base we need to grow. My experience at boeing is developing supply chains so we really need to have a conscious focus on how to grow these new capabilities. I think we are onerous in terms of the requirements we put on the smaller organizations, whether its demanding their intellectual property or to go through these complicated mechanisms so, if confirmed, that is an area of importance to me. Thank you. I want to follow up on the question that senator cotten just asked. Procurement is one of the recurring issues that comes before this committee, and in fact, we had testimony from Silicon Valley confirming they just werent going to bother to even apply, and yet we dont want, as one of the generalists testified last week, we dont want our soldiers in a fair fight and that means maintaining qualitative technical edge and yet the system that we have in place seems determined to not keep up with that. Go little deeper. How are we going to think through this procurement system that is so byzantine, i hesitate to even use that term. Thats an insult to that empire. Its actually discouraging the importation into our Defense System of advanced technology. This is an area where ive had fairly good success and rather than trying to change the whole system, you have to change parts of the system. Ill give you an example. We Found Technology that will fundamentally change how we do work and what would we do is develop prototypes and we would operationalize those prototypes and the processes, this is going a little deeper, but the intent was to flush out the bureaucratic mechanisms that would say no. providers around the world trying to get into the business so you have the whip of competition over your head. When were talking about within the Defense Department, you dont have that and thats why it has to be a Major Management focus and constant attention to sort of substitute for the pressure that competition creates. I think the limits on the budget for the competition that, the analog to the competition we had with airbus. We have a competition for money in the department. There isnt enough to go around. We must find ways to innovate things so we can pay to go do these things. Slightly off by the way, on procurement, not only is there an issue of cost but an issue of time. Weve seen senator inhofe as presented information about the time it takes for boeing to get to flight and did Something Like 23 years so time is an issue as wellas money and that has to be part of your focus. Speed is everything. The shorter the time, the less the cost. And in the commercial world everything is fixedprice development so speed is the most important management element because it flushes out all the issues that prevent you from being able to perform. I would suggest that in your position its not enough to simply say were going to work harder at it. I hope that you will think about and perhaps convene a Public Private group to think about how do we structure, because i believe doctor is ultimately policy. How do we structure the view procurement system to produce at lower cost and higher speed and i urge that upon you as a possible initiative. I think just saying well, were going to try to do better is not going to be enough to change a system that is so thoroughly entrenched. Secondly, in terms of cost which is your area as the chief management officer, is the growth of staff both within the pentagon and within the services and weve had lots of talk here and there have been some cuts in staff but i believe thats also an area that has to be looked at because every dollar that goes into tale doesnt go into tooth and when were talking about scarce dollars for readiness and recapitalization of the nuclear deterrence, whatever it is, we need to find places and there have been studies that indicate significant savings in the bureaucracy or the staff both in the pentagon and in the services. I hope that area you will Pay Attention to. It will be. And finally, we need to be able to audit the department of defense. I cant keep going home and saying were spending half 1 trillion a year but it cant be audited. You take that as one of your priorities because as i recall at hearings there over the past few years, 2017 or 2018 is supposed to be the target or the department of defense to be ready for an audit. You have my commitment to start the audit in september and it is one of the highest efforts in terms of priorities for me. Would you repeat that . The audit and i believe its september or it could be october is when we will begin the audit for the department of defense. Thank you. Thank you mr. Chairman. Thank you. I appreciate that very much as well. Last week we had a hearing with the cmo, secretary stapley and the general and we talked a little bit, i want to tag onto what editor king was saying about how we procure items and going through that process. I asked if they needed additional authorities and they stated that they believed they had all the authority they needed to speed up the procurement process but there were a lot of regulations that got in the way so tagging onto his comments, will you make a commitment to go through those regulations, identify those that are unnecessary so that we can procure faster . I am committed to unwinding the system that keeps our men and women from being unable to perform. One the one thing i do know is that its not our people that are the problem, its the system weve created over time and dismantling that is the critical thing i need to do in this position. Thank you, i appreciate that very much. According to title x, the territory of defense is the departments chief management officer. Earlier you call that the operation officer which is a great description. Its clear that you are an experienced manager. You had Great Success with bowling. The law also requires you to serve in other roles as the secretary so i like to start with more of a policy question, policy discussion. Ive been calling attention to the increasing threat goes by violent extremist organizations in Southeast Asia for quite a while now. And as we speak, us forces are liberating the philippine city of malawi from a terrorist sees and secretary matus had said that ending the main counterterrorism operation in the southern philippines in 2014 was premature. I agree with him. And that doing so has made it difficult to resource our current efforts in that area. I personally think its time toreestablish a named operation. What are your opinions on that . The violent extremists, just to fall in line with where we can find them, by, with and through others, we need to defeat them. If confirmed, and this is an area where i will invest the time to understand our commitments in terms of resources and our ability to undertake those type of efforts. I appreciate that because we have for a long time taken our eye off that region and they continue to grow and develop in Southeast Asia so i appreciate that. As im sure you know our aircrews continue to experience Physiological Episodes and in High Performance aircraft. The 22, 1845, and now the 35, yet we still havent found a fix for that. This morning the air force announced it was testing sensors for the f 35 alpha that actually monitor pilots inhale exhale gases and automatically activate emergency oxygen if theres a problem and this is something ive recommended to air force and navy leaders in past hearings so im glad theyve actually taken action on this item. And at boeing you were known as mister fixit and i appreciate that title. If confirmed, how are you going to fix this particular problem and more importantly, how will you guarantee that solutions are shared across aircraft and Service Branches so that we dont repeatedly see the same types of costly problems that have been undermining our work fighting readiness . The culture at boeing is safety and product integrity is the most important thing we do so issues such as the oxygen flow is, if confirmed, those are the type of safety items that will receive my highestattention. Its just, thats how weve grown up. Weve solved these problems to your point, they need to be implemented quickly. Its not good enough to have the answer, they have to be fully implemented. You have my assurance that i will support doing that. And how will you communicate that between the branches and services . I suspect, and this goes back to senator hirono, there are lots of things you have to learn in terms of navigating the department of defense. It would be through the technical leadership or service secretary. Im quite confident that when we do have a solution that we will be able to communicate it. Its going to be how quickly do we actually get the Solution Incorporated into the airplane mark that will really be about acquisition and getting these things on contract, thats the most important thing we have to do. I appreciate it, thank you for your time, thank you mr. Chairman. Thank you mister chairman and mister shanahan, thank you for being here today. My questions relate to the future of warfare and how we will be preparing for a rapidly changing battle space. Senator reid asked you a question about the third offset strategy in which as you know secretary of defense acarter introduced an overtime move, the process to take advantage of incredible advances in the commercial sector and i think thats something that has changed pretty dramatically in recent years is that most of the innovation that also have military application as occurring in the commercial side from Artificial Intelligence to 3d printing to synthetic biology, we go down the list of incredible advancements. My question for you first off is a broad question. What is your opinion of the third offset strategy . The details, majority of the details are classified so i havent seen the classified brief but from what secretary work was able to share with me, domains of technology are very important so i plan to continue to support those efforts. To me, its about how do we validate that those capabilities are the right ones conducting warfare and this is the messy part about innovation. Were going to have to make some bets and then were going to have to do some prototyping so we can test these concepts with the war fighters. But we do and that leads to the question as to whether or not he current model that we use where we have a few very large defense contractors that do the vast majority of the work as senator mccain has mentioned earlier in this hearing, versus an ecosystem of Small Companies that are doing incredible cuttingedge research and perhaps in technologies not directly related to themilitary but have dual use applications. How do you work within that environment . Do we have to rethink some of the paradigms weve operated in the past as to how we procure advanced technology . I think the procurement, senator, i think the procurement. This is how i tend to think about these things the procurement is the second step. The first step is our technical approach. The technical approach is, given these emerging capabilities whether its electrification, added to manufacturing like you mentioned, machine learning, given these emerging capabilities, how will we scale and how will we use them . Based on that we decide who to supply if we want to grow. Who are the new people that we want to scale up in our industry . So i think the third offset work will give us the foundation for those technologies and thats where we decide how to grow the tech base. Based on who we pick, i think its very straightforward to go ahead and change the procurement portion. How we give them money, how we fund them to do tests. One of the best things about working with the department of defense is the resources. We can have the test ranges and the users, i think we have to draw them into how we do our business and having them outside the fence is a real limitation they need to learn, how we do business and they will inform us on what we need to change. How do you see using some of those internal defense assets, as you mentioned. For example, part i can michigan does incredible Research Work in autonomous vehicles, working also in partnership with incredible work being done in the Auto Industry as well but how do you see that model working where you have organizations like the department of army facility working with private industry . How is that model working and where do you see that going in thefuture under your leadership western mark. The big portion of being able to pull on that technology is educating users inside the department, not the Procurement Team but the war fighters who need to think differently abouthow do we utilize this technology. Theres a lot of education that needs to take place so they can understand the potential of this new technology. It is remarkable what we will be able to do with autonomy. The people that shake the strategy, the people that help decide what capability or how we fight need to invest in educating them on what these capabilities are and what they could do. Thank you for your response, i appreciate it. Thank you chair. Mister shanahan, Vice President pitts once said you cant add great kids and thank you for bringing your children here. It looks like you were very successful. I want to get to recapping the military. Got to be the number one crisis are going to have to deal with. I want to get at boeing first and your background there. Boeing is about 100 billion and put it in perspective for the committee, were dealing with a 600 billion dollar budget in dod across services and platforms. At boeing did you ever have a year where you missed supplying a reviewed audit . Have you ever known a fortune 500 company that ever missed an audit . Know. I want to make sure i understood your answer a minute ago, youve been through that process. Audits require people at your level to deal with them. I want to make sure i heard your answer earlier. You committed to the committee you will start this audit in october, is that correct . Weve been given testimony and asking this for several years, since 1990 when the law was put in this is not a current question. My question is, weve been given information from services that theyre not ready, that the systems dont talk to each other and the systems are ready to be committed to support an overall audit. As an audit possible to be started in october and if possible how long would it take to complete that audit . Senator, i dont know exactly how long it will take to complete the audit. At fair. The commitment is to start and we will start in october. You have my commitment to, if confirmed, get to the point where we can close the audit. To me, its hygiene. If we are going to get after cost, if were going to create a culture of affordability, we have to at least be able to do an audit. An audit doesnt get you to the place you have to do accounting which allows you to make affordability decisions. My commitment is that we will get to a place where audit isnt something we are talking about. Thank you, where it becomes like breathing, right . I want to get at the recap because this is our biggest problem. Weve got a budget problem, spending three percent of our gdp on the military and 100 points less than our average, 200 billion today. Last time we had an estimate was from secretary gates and it was over 100 billion more than what we spent last year so we got a real issue in terms of trying to meet the recap requirements of all our major platforms and the navy alone says we need 26 billion a year for the next 30 years, thats 100 billion for rebuilding the service or rebuilding the fleet from 275 to 355. The question i have is not just how do we make it quicker, shorter better, its how are we going to find the money to do that and your role as coo and thats what this job is, what will you do to help us figure that out . Two things. The first is to be able to come back to the committee with a strategy that says heres our force construct, here are our capabilities, these are the assets that we need, i think that will be the baseline to determine what do we modernize, what do we recapitalize . The second piece of this and then the strategy is so important because if we dont lock in a strategy and we just work to a budget, then we will never be able to sustain constant investment. Were you part of the Strategic Planning team at boeing . I was. I am steep in. Im sorry to interrupt, i believe that because you wouldnt have gotten to your position as vp. You have the supply chain and operations officially, is that basically the coo . You report to the ceo, is that correct . Who else reports to the ceo . The cfo, coo which is you. My role is all of operations as supplychain help me understand the perspective, who else reports to the ceo . The ceo for commercial, ceo for defense, ceo for services, chief counsel ,. You run operations across all those divisions . I have responsibility for operations across all those divisions. The question i had was as you look at this responsibility, it looks like youre going from coo of 100 business to a ceo of a 300 billion business, i want to put it in perspective, i appreciate you stepping up and being available for the service, thank you. Thank you mr. Chairman. Good morning and thank you for your willingness to serve and your families support or your willingness to serve and im glad to see they made it down yesterday i train, i understand. I know that you have discussed recently your commitment to recusing yourself from boeing related contracts and programs and the commitment also to notifying or two taking a waiver in the event of any questions in that regard. You commit to make public the recusal waiver if one is necessary . Yes. Going to the issue of fair pay, as you may know during last years nda a process i lead the site and was successful to remove harmful provisions from the final bill that sought inappropriately to limit the fair pay and workplace executive order from applying to the department of defense. Boeing lobbied in support of efforts to curb this executive order. Lobbied against having contact with disclosed labor law violations to the government, i vehemently opposed the rollback of the fair pay executive order earlier this year and i continue to feel strongly that we must do Everything Possible to continue defending American Workers in this way. One in five americans are employed in this with the federal government. Every year tens of thousands of American Workers are denied overtime wages or unlawfully discriminated against and pay half their health and safety at risk by contractors who make corners or are denied basic workplace protections. This is not to say boeing engaged in any practices, this is not directed at boeing but my question to you is do you believe we should ensure that taxpayer dollars go to Defense Companies who play by the rules and uphold traditions . I believe they should, i mean, we need that take care of our employees. We need to take care of the workforce and thats the fundamental responsibility of all companies. Would you favor reinstatement of an executive order that protected minorities, people with disabilities, veterans from discrimination in the awarding of defense contracts . I dont know the particulars of the cases that you are referring to but i support providing the protections that people need so, if confirmed, that would be something i would investigate and spend time to understand. Would you commit to conduct a review of Defense Department policies so as to take action that prevents that kind of discrimination or denial of overtime pay and so forth, on the part of defense contractors. I would take action and review. On the defense Industrial Base, you are probably more aware than any of us on the committee about the need for skilled training and education to preserve and enhance and expand our defense, you and i talked about it briefly when we met. Perhaps you can enlighten us as to what you would do as the Deputy Defense secretary to make sure that we provide that kind of skill training in places like whitney where we met some of the critical defense products. Thank you, i have, education is something im passionate around in washington, we were able to work with the superintendent of Public Education for the state to get a map equivalency credit for i School Students so they can get training to allow them to go into eithermaritime , aerospace or electrical work. We worked with the Community Colleges to set up standards programs, allow them to get certificates so employers could upon graduation and give them jobs so they would step into those new jobs without having to go through formal training so its a cost production to the companies, it was a benefit to the Community Colleges because people were taking courses that really led to highpaying jobs. I would use the position to start to, its something i really believe at a National Level we can affect. There are all these jobs due to demographics where people are going to retire out and they are highpaying so whether its electric boats or the boeing company, the demographics are i think like 80 percent of the people and retire in the next five years, its a huge opportunity. I hope youll come to connecticut and talk about this issue. Two. Thank you mister chairman. Good morning mister shanahan. Im to see in your testimony that you focus on defense reform and innovation opportunities, i dont think anyone in this room would argue the fact that the department of defense has this poor track record in acquisitions. If you tax on 9 11 for 2011, the dod has been 46 billion on it doesnt insistence that never even entered production. In fact, the 2014 pool of almost 400 acquisitions employees reveal less than 30 percent were confident in the process to deliver weapons or fighters. In a culture where its critical means months, urgent means years and requirements span decades, this is no surprise to those of us up here. All while our adversaries are operating in smaller, more agile innovation and acquisition cycles, both which are eroding the technological advantage that weve enjoyedfor generations. Theres one aircraft system right now it seems to be kind of bucking the trend from what were learning and ive been impressed with the progress and speed of the current b 21 program. I understand a large part of the programs efficiency is that it is not in the normal defense acquisitions pipeline and you may or may not have any, you may not have done any research yet but is there any opportunity to replicate some of the b 21 Program Practices in order to make the most efficient use of every taxpayer dollar that weve got and im not sure how involved youve been or how Much Research youve done in terms of the b 21 program right now but if you care to comment, great. If you dont have a background, we will move on. I dont have a background in the 21. Theyve done some things in the b 21 that i think of them on time and on target and ive been very pleased with the progress that weve seen but its an innovative approach which is a little bit different with the department of defense. Let me continue on with another strategic specific issue and you may or may not have a background in it at least ill share it with you and it might be your interest as you move forward. I understand you rose through the ranks at boeing as an engineer, a leading fabrications but you let that Fabrication Division and that you have run Aircraft Assembly lines so i think i appreciate my final thought, i think theres a third piece overlooking the conversation of how to buy and what to buy and that peace is how to build. The turnaround of innovating manufacturing techniques and capabilities are often overlooked , theres a company in california has recently 3d printed a small house and they did it in 24 hours. Another incredible engineering break was called cold spray, im not sure if youre familiar with coldspring or not. Theyve actually done some work in terms of the b1 visa l force air force base using cold spray to make some quick repairs or very efficiently save a lot of time and a lot of money as well. It shoots metal particles through a gas stream at supersonic speed to create a cross between adding the manufacturing and welding. It can be used to repair broken parts or reinforce them so they dont wear down and i see estimates that this could save the department of defense over 100 million a year in parts replacement alone. Now, a large support of coldspring is the Army Research lab where they are storing ways to use it in ballistics and manufacture and repair things faster, safer and cheaper. As i said, its kind of an ad here but it would develop in south dakota. Im looking forward to seeing if you and your team look very seriously at the unique combination of opportunities this particular new product might well offer. We will leave this hearing at this point. You can see the rest of it at cspan. Org. The senate about the gavilan to work on the highest job in the Defense Department, boeing executive Patrick Shanahan has been nominated for Deputy Defense secretary. Senators will vote at 5 30 eastern on advancing the confirmation process. Also pending is the republican care law replacement, Mitch Oconnell announcing over the weekend to date on the measure will be delayed now senator mccain recovers from surgery. Enter mcconnell may update us at the start of the session live coverage of the senate. The chaplain let us pray. Eternal spirit, today teach our