Transcripts For CSPAN3 Senator McCain Berates Deputy Defense Secretary Nominee At Confirmation... 20170620

Good morning. This morning consider the no, maam nomination of shanahan. We thank you for your willingness to serve our nation at an important time. We welcome your family and flends. This is our fredition. It is important they ree information of so in order the dper i to exercise responsibilities. Will you ensure your staff complies with deadlines established for questions for the records and haegs. I will. Will where you vid if respopts to amg thank tex pent me yes. Do you agree to pro vietd documents including electronic form of kplun case in a timely manner when requested or to consult with a committee for any good faith, delay or di nile . Yes. Have you assumed any duties or taken any a that would appear to presume the kout out ops outcome . No. I will submit my Opening Statement for the record. I with see how upset other member of the committee are missing that. Maybe with a little luck senator reed will do the same. Its yourly kick, that i would ask them to submit the state. Since her form is now president i would ask a list of 995 no, maam naegss. Motion carries. Welcome mr. Shanahan. You have deprived Opening Statements of senator reid and myself. Thank you. I to recognize you to introduce mr. Shanahan. Thank you chairman mccain. Im proud to introduce Patrick Shanahan to serve as Secretary Department of defense. I too want to welcome his family. He is here. Im sure he will make an appropriate enter there is the max and dream liner. They have Cutting Edge Technology keeping them aaide hoft global competition. Its been about are problems kwoub mr. Shanahan has driven reforms in talent management, affordability, technology and supply chain. He has had an impressive career last serving as sen your Vice President as supply clang operations. P ip misses them on time and on budget. Mr. Shanahan, he has served as as commercial aeirplane detail. He is also fearless. He understands what our country is up against when it comes and it wont phase game him. He also knows the department of defense has served adds general manager as the boeing Missile Defense system and aavailableable in dv so he has has bonn he understands the department. D. O. T. Is the largest with almost 3 Million People and the largest in the world. He has management. I am confident he will be an effective leader. I will excuse myself. Thank the committee for this opportunity to introduce mr. Shanahan. Thank you. We fully understand you have other duties in the senate. Thank you for taking the time to introduce mr. Shanahan. Thank you senator for your kind words, thoughtful int introducti introduction. My thoughts and families go out to the seven si sailors killed on the u. S. S. Fi strks ztime. I am greatful to the president that nominates the position of deputy secretary of defense. I would like to knowledge. Me here today shlgs this are. I. I also want to rock cog noise and and nor my parents. I am theest of boy i can remember service before self. My father was an army veteran who served in vietnam. He taught his boys to love their country and value its freedoms. My father served in Law Enforcement for over 25 years. He taught us to treat people fairly, respect law and order and the importance of protecting the community. My father cofounded a food bank in 1982 that is ongoing. To date itdistributed 200 pounds of food to the needy. He showed us that good ideas can scale to make a big difference. At age 52 my father was afflicted with parkinsons. He battled that savage disease for 17 years before passing and i never once heard him complain. My father modeled for us what it means to have grit. That is, the ability to maintain an indomabinable spirit and persevere no matter what the challenge. Hed say, patrick, dont screw this up. My mother joanne could not be here. She is here in spirit. My mother always supported me unconditionally. She taught my brothers and i to support others unconditionally. What i appreciate most about her is she taught me to truly believe in myself and that i could do anything i set my mind to. 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. Thats a gift i can never repay. Her words for me today were, youll do fine. Im here to earn your support. I aspire to join a strong and capable d. O. D. Team. I aspire to help them dominate and win. I aspire to usher in a new age of effectiveness in the department. I believe i was prepared myself to contribute as deputy secretary of defense. I bring over three decades of leadership honed at americas largest manufacturing exporter. Ive experienced converting technological innovation into operational capability. I bring with me a formula for leadership that has a record of delivering affordable high performing Business Systems and operations under adverse conditions. Leadership casts a long shadow and strong leadership can create teams that achieve ambitious change at scale. I believe my skill set strongly complements that of secretary mattis. Hes a master strategist with deep military and Foreign Policy experience. As his chief operating officer, i bring strong execution skills with a background in Technology Development and business management. Areas this committee in particular has identified for reforms. 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 defense weaponry with which to defend themselves. Inexplicably you responded by saying youd have to look at the issue. Its not satisfactory, mr. Shanahan. Would you wish to abridge or amend your statement concerning go ahead. I support equipping the ukrainians. You support . Yes. Providing lethal defensive weaponry to ukraine . Yes. All right. Good. Im glad toe he hear that. But i have to tell you, mr. Shanahan, our job is advise and consent. We are equal branches of government. Your response to that question was, frankly, very disappointing to me. You have been associated for the last i dont know how many years with one of the five corporations that provide 90 of the defensive weaponry to defend this nation. And your answer was, well, id have to look at the issue. Thats not good enough, mr. Shanahan. Im glad to hear youve changed your opinion from what was submitted. But its still disturbing to me. Its still disturbing to me after all these years that you would say that you would have to look at the issue. Have you not been aware of the issue . Have you not been aware of the actions of the Senate Armed Services committee . Have you not been aware of the thousands of people that have been killed by Vladimir Putin . Have you missed all that in your duties at one of the major defense corporations in this country . No, chairman. Im aware of that. Well, ive got to tell you its very disturbing. One, im disturbed that were now having 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, has had markups about, has had reported out our bill, and you want to find out more information. Not a good beginning. Not a good beginning. Do not do that again, mr. Shanahan, or i will not take your name up for a vote before this committee. Am i perfectly clear . Very clear. Senator reid . Thank you very much, mr. Chairman. Mr. Shanahan, one of the issues youre going to face is generically termed the third offset. Bob work, who you are succeeding has done a remarkable job, i think, and hes been the leader for this effort. Its essentially trying to co t counter technologically and otherwise our adversaries, their capabilities and leap ahead with new technologies. In trying to deal with that, the congress reestablished a position under secretary of as he was for research and engineering. But as deputy secretary, youre going to play a Critical Role in supporting the new or revised under secretary. But also reaching out to the whole community, the intelligence committee, the industrial community, tech knn logic technologic community. If confirmed, i will spend time with a group that has done the third offset work. And i have not received the classified briefings on the work that they have done. The effort i would undertake is to make sure we have a clear path to being able to operationalize the capability. When i look at the strategy exercise that well be conducting to put together the fy 19 budget, it will be critical that well have an assessment of how much funding needs to be applied against the third offset. I believe the restructuring of r and e will give us the concentrated skill set so we can have a more informed recommendation. Thank you very much. I presume also because of your significant experience in private industry, you already have some ideas of companies that are not currently involved but could be major contributors to this effort, some of this software and technology companies. Is that accurate . That is correct. I think to chairman mccains point, we need to broaden our Industrial Base. Its important that we develop other capabilities and companies as well. Thank you. One of the other changes that we made in last years ndaa was creating an under secretary for acquisition and also a chief management officer. In many respects youre really the chief management officer. How will you work with the chief management officer . Do you have any ideas with respect to that issue . I do. The chief management officer, as i see it, has responsibility for helping to streamline business operations. So as the deputy, its all of operations for the department. Thats how i see my responsibility. A subset of that is the business operations. But ill work hand in glove with the chief management officer. The real intent and i have experience in this area is how do we quickly capture efficiency and the opportunities by standardizing and sharing many of these services, if you will, across the department. Very good. One of the areas that is complicated, troubling daily we seem to be falling behind is the whole concept of information operations. Its ironic that the country that created madison avenue is now sort of trying to catch up with in terms in influencing individuals through media. The department of defense has a role in this. First question is at a consumption level i would think the secretary of defense is going to be very much involved in this, but do you see a role that you will play in terms of trying to coordinate all the different aspects just within d. O. D. And then again reaching out to other agencies . Sir, i do. I think the deputy and the chief operating officer role really needs to ensure that we have the right structure so that were effective in interfacing with these other organizations and that we have the proper architecture so that the systems are cost effective, the proper architectures so we can upgrade them easily and evolve as technology changes. Very good. Again, thank you, mr. Shanahan. I think youre bringing significant experience to a very challenging job. Thank you very much. Thank you, mr. Chairman. Thank you, mr. Chairman. Mr. Shanahan, i appreciated your comments in our meetings about the Nuclear Deterrent. Being a weapons system that we use every single day, this fact is often over looked but every day we have missilers in Launch Control centers and we have submarines that are on alert. Secreta do you agree with that statement . I do. In general, do you support the modernization of our nuclear weapons, the associated delivery vehicles, command and control architecture and the supporting infrastructure . I do. General salva, the vice chair of the joint chiefs of staff has testified that the joint staff puts our Nuclear Deterrent as the number one priority for modernization and recapitalization and that is based on the fact, in his words, that we have squeezed about all the life we can out of the systems we currently possess. Do you agree with his assessment and the level of urgency and priority this requires . If confirmed, i have not had a review of the priorities of the department. I understand the importance of the Nuclear Deterrent. I will take advice from general sullivan and make sure he gets the proper support. Thank you. When you were in my office, we talked a little bit about technology and innovation. One thing we didnt touch on is the question of risk tolerance. Innovation is inherently risky and not all good ideas pan out, but the current environment seems to be very intolerant of risk. Do you believe the department and the services need to be more tolerant of risk . And how do you think the department can better navigate that tension between effectively using scarce resources and tolerating the amount of risk thats required if were going to have any innovation take place . In my view on risk is that you have to manage risk. So out at the pointy end of the spear we dont want really any risk. I think when it comes to innovation and this is the mindset ive developed working in the commercial world. Innovation is messy. And if you try something and it fails, i think thats we shouldnt be afraid. Organizations that pride themselves on execution tend to be afraid of failure. So im a proponent of failing, failing fast, learning quickly. I think the faster you do that, the more we end up training people. Its not about the technology. Its about our people 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, you state, i understand that 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 a response is necessary beyond simply expressing concern through diplomatic channels, which has already been done . I do. Do you have any personal thoughts right now on what options would be available to be so some of those responses . I do not. You also noted that russias action in violation of the inf treaty, if its unchecked, would lead to doubt in the stability of current and future arms control agreements and initiatives. Could you elaborate on that statement . Sometimes theres a view thats expressed that holding violators accountable for their behavior risks, deals collapse and that we should therefore suppress any suggestion that a violation has happened. I dont believe you agree with that view, do you . Senator, i think the russians are adversarial. I think through the whole of government we need to deal with their whether we call it aggression or their disruption to our interests, i at this point dont have any specific recommendations. If confirmed, i will spend a significant amount of time dealing with russia. But would you be supportive of developing options to present to the president besides diplomatic or just making statements and then letting it go by . I would be supportive. Thank you. Thank you, mr. Chairman. Mr. Shanahan, youre not making me happy. We expect straightforward answers. You just ducked at basically every question that senator fisher asked you. Im telling you, mr. Shanahan, i believe in the constitution of the United States, which says that the congress of the United States shall provided a vice and consent. Im not going to sit 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, d. O. D. Or the pentagon. In my experience ive seen the deputy secretary heavily involved with running the bureaucra bureaucracy. I just heard you say that you would work closely regarding russia. So if confirmed and if youre tasked with running the inner workings of the pentagon and its more internal and inner agency structures, how will you over come your lack of institutional experience to effectively operate in this environment . Ive worked in environments where we have. I believe that my technical and management background will prepare me to quickly assimilate the knowledge and expertise to properly interface. What would be one of the first things you would do to get yourself to a position where you can hit the ground running should you be confirmed . The first place that i was going hit the ground running was on the restructuring of r and e, 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 d. O. D. And then in the second phase of that participating on Nuclear Posture review and the National Ballistic Missile Defense review will also allow me to begin to interface with these other organizations and structures. You have a lot of experience in the private sector. The d. O. D. Is an entirely different entity in order of probably complexity and all the people that youll be working with. I assume that should you be confirmed, you will have a list of to dos and people youre going to meet with so you can become quickly appraised of what your responsibilities will be in running sort of the nuts and bolts of the d. O. D. Yes, senator. Cost overruns and scheduled delays on major system acquisition programs have plagued d. O. D. For many decades. This committee under senator mccain and previous chairman have tried to improve the defense acquisition system. You have significant experience with one of our largest defense contractors. Based on your experience and perspectives from the industry side, what would you recommend in order to get better results from our contracting and acquisition processes . You know, there are a number of tools from a contracting standpoints 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, well come one a new Cost Accounting scheme so we can better understand what things should cost and understand to the degree how much were overpaying. Understanding the cost baseline with the contractors is so important. From that we need to renegotiate. From the 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 Indo Asia Pacific strategy, i only have a little bit of time. The asia pacific area has some of the largest economies. What are your thoughts on how we should move forward in the asia Pacific 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. Id like to see a continuing focus on the indo asia specific area, because as the rest of the world becomes even more unstable, at least if we can keep the Indo Asia Pacific area stable, even more stable even with north korea and china as Major Players there, through things like acquisition reform and other things that you could bring to the table, i hope that will release more resources for the Indo Asia Pacific arena. Thank you, mr. Chairman. Thank you. Mr. Shanahan, congratulations on your nomination. As weve 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 to the armed forces and people abroad, you have a long and drish distingui year at boeing. However, that long career at boeing also raises some questions we should address in a forthright manner up front here. How do you plan to carry out your duties as the deputy secretary while avoiding 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 ill 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. That raises name specific programs. Will the ethics agreement call out specific programs . Its all matters boeing. So it would include all programs. I think chairman mccain was driving the next question that i want to raise related to those p precautions. Bowing is one of our major defense contractors. They have more programs, some of which have troubles of their own. Dhoou do you think recusing yourself from these boeing related issues could negatively impact the departments Decision Making 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 for that. In terms of your financial divestiture, you are or will soon be fully divested from all boeing stock except for your retirement . If confirmed i will divest. I presume its safe to say they have made you a very wealthy man over 30 years compared to most arkansas theyve treated me well. Your focus and loyalty is solely on the d. O. D. And the soldiers, sailors and marines out on our front lines . Yes. I am 1000 committed to the department and delivering on the reforms that chairman mccain has outlined. I thought it was important to put up front the steps you were take to reskuz yoursecuse yours boeing decisions and that youre making decisions in the best interest of the men and women of the armed forces. I do want to turn to one other issue thats been raised here as well. Thats trying to work with more smaller firms that would like to be defense contractors. Something like 90 of all acquisitions goes to five firms. Some of this relates to the department of defenses own bureaucratic issues. Ive heard from many tech leaders that they simply dont want to do business with the department of defense in part because they dont want to deal with seven year Timeline Development programs or with all the red tape. Have you given thought about how to conduct out reach to that world and make the acquisitions process more nimble . I have. If confirmed thats one of the more exciting aspects of the job. Were seeing a transformation of the technology and this is the Industrial Base we need to grow. My experience at bowing is on developing supply chains. We really need to have a conscious focus on how to grow these new capabilities. I think were onerous whether its demanding intellectual property. If confirmed thats an area of importance to me. Thank you. Thank you, mr. Chairman. I want to follow up on the question that senator cotton just asked. Procurement is one of the recurring issues that comes before this committee. In fact, we had testimony from Silicon Valley firms that they just werent going to bother to even apply. And yet we dont as one of the generals testified last week, we dont want our soldiers in a fair fight. That means maintaining a qualitative technical edge. And yet the system that we have in place seems determined to not keep up with that. Go a little deeper. How are we going to think through this procurement system that is so byzantine i hesitate to even use that term. Its an insult to the empire. Its actually discouraging the importation into our Defense System of advanced technology. This is an area where ive had some fairly good success. Rather than trying to change the whole system, you have to change parts of the system. Ill give you an example. Weve Found Technology that will fundamentally change how we do work. What we would do is develop prototypes and operationalize those prototypes. This is going a little bit deeper. The intent was to flush out all the bureaucratic mechanisms that would say no. The idea isnt can this technology work. Its that you run these prototypes. We called them path finders. It was to find all the restrictions, all the people who say no and take them out of the way. Once we had something that we could demonstrate works, then we replicate it and thats how we could get to scale. Its in doing those prototypes that you could get a quick win and also find out the limitations in the system. One of the fundamental differences between boeing and the United States government is boeing was in an exceedingly competitive situation where you had air bus and other providers around the world. You had 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. Right. I personally think the limits on the budget are the competition that its the analog to the competition we had with air bus. We have a competition for money in the department. There isnt enough to go around. We must find ways to generate savings so we can pay to go do these things. On procurement, not only is there an issue of cost. Theres an issue of time. Weve seen graphed about the difference between the private sector, the time it takes bowing to get a new aircraft from concept to flight is Something Like seven years. In the military its 23 years. Time is an issue as well as money. That has to be part of your focus. Speed is everything. The shorter the time, the less the cost. In the commercial world, everything is fixed price development. 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 a convene a Public Private group to think about how do we structure because i believe structure is ultimately policy. How do we structure the procurement system to produce at lower cost and at 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 thats 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. 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 tail doesnt go into tooth. And when were talking about scarce dollars for redadiness w need to find places there have been studies that indicate significant savings in the bureaucracy or the staff and both in the pentagon and in the services. I hope thats an area you pay at teng attention to. It will be. We need to be able to audit the department of defense. I cant keep going home to maine and saying were spending half a trillion dollars a year but it cant be audited. In our hearings here over the last four years 2017 or 2018 is supposed to be the target for the department of defense to be ready for an audit. You have any commitment my c start the audit in september. Could you repeat that . The audit 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. Last week we had a hearing with the cno secretary stackly and general neler. We talked a little bit. I just want to tag onto what senator king was saying about how we procure items and going through that process. I asked if they needed additional authorities. They stated that they believed they had all the authorities 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 . Senator, i am committed to understo unwinding the system that keeps our men and women from being able to perform. The one thing i do know is its not our people that are the problem. Its the system that weve created over time. Dismantling that is the critical thing i need to do in this position. Thank you. I appreciate that very much. According to title 10, the deputy secretary of defense is the departments chief management officer. Earlier you kind of kau edcalle the olive operations officer, which is a great description. Its clear theat you are an experienced manager. Youve had Great Success with boeing. The law also requires you to serve in other roles in the secretarys absence. Ive been calling attention to the increasing threat posed by violent extremist organizations in Southeast Asia for quite a while now. As we speak, u. S. Forces are assisting in liberating the filipino city from a terrorist siege. Secretary mattis had said that ending the named Counter Terrorism 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 think its time to reestablish a named operation. What are your opinions . The violent extremists i think this falls in line with our policy with isis, where we can find them, by, with and threw oth through others, we need to defeat them. If confirmed, this is an area that i will invest the time to ups our commitme understand. We have for a long while taken our eye off of that region and they continue to grow and develop in Southeast Asia. As im sure you know, our air crews continue to experience Physiological Episodes in High Performance aircraft. Yet we still havent found a fix for that. This morning the air force announced it was testing sensors for the f35 alpha that actually monitor pilots inhale exhale gasses and automatically activates emergency oxygen if theres a problem. Im glad thaw eve actueyve act action on this item. At boeing you were known as mr. Fixit. 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 war fighting readiness . The culture at bowing is that safety and product integrity is the most important thing that we do. So issues such as the oxygen flow is if confirmed, those are the type of safety items that will receive my highest attention. Thats how weve grown up. We solve your problems. They need to be implemented quickly. Its not good enough to have the answer. They have to be fully implemented. How will you communicate that between the branches and the services . I suspect and this goes kind of back to senator theres many things i have to learn in terms of navigating the department of defense. It will either be through the technical leadership or the service secretaries. Im quite confident when we do have a solution well be able to communicate it. Thank you for your time. Thank you, mr. Chairman. Mr. Shanahan, thank you for being here today. My questions really 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, which as you know secretary of Defense Ash Carter introduced in order to move the innovation process forward to take advantage of incredible advances being made in the commercial sector. I think thats changed pretty dramatically in the recent years. Most of the innovation that also has military applications is occurring in the commercial side from Artificial Intelligence to 3d printing to synthetic biology. My question for you first off is just a broad question. What is your opinion of the third offset strategy . The majority of the details are classified. I havent received the classified brief. From what secretary work was able to share with me, the domains of technology are very important. What i plan to continue to support those efforts. You know tor, to me its about do we validate that these capabilities are the right ones in terms of conducting warfare. This is the messy part about innovation. Were going to have to make some bets and do some prototyping so we can test these concepts with the user, with the war finders. Well, we do. That leads to the question as to whether or not the 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 Cutting Edge Research and perhaps in technologies not directly related to the military 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 where and how we procure advanced technology . Senator, i think the procurement this is how i tend to think about these things. The procurement is the second step. I think the first step is our technical approach. The technical approach is given these merging capabilities, whether its electrify case, added manufacturing like you mentioned, machine learning. Given these emergie ining capabilities how will we scale and how will we use them. Based on that, we decide who are the suppliers we want to grow, who are the new people we want to scale up in our industry. So i think the third offset work will give us the foundation for those technologies. Thats where we decide how to grow the tech base. Based on who we pick, i think its very straightforward to go and change the procurement portion, how we give them money, how they how we fund them to do tests. One of the best things about working with the department of defense is the resources. We think of 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 then theyll inform us on what we need to change. How do you see using some of those internal defense assets. T tardeck in my state does incredible Research Work and autonomous vehicles. How do you see that model working where you have organizations like tardeck which is a department of army facility working with private industry . How is that model working . Where do you see that going in the future under your leadership . The big portion of being able to pull on that technology is educating the users inside the department. Not the procurement team, but the war fighters who need to think differently about how to utilize this technology. You know, drawing them theres a lot of education that needs to take place so they can understand the potential of this new technology. It is remarkable what well be able to do with autonomy, the people that shape the strategy, you know, 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 can do. Thank you for your responses. Appreciate it. Thank you, chair. Mr. Shanahan, Vice President pence once said that you cant fake great kids. I think hes right. Thank you for bringing your children here. Looks like you were very successful. I want to get to recapping the military. I think that ought to be the number one crisis youre going to have to deal with in this job. I want to get at boeing first and your background there. Boeing revenue is about 100 billion right . Right. Were dealing with a 600 billion plus budget in d. O. D. At boeing did you ever have a year where you missed supplying a reviewed audit . No. Have you ever known any fortune 500 company that ever missed an audit . No. Youve been through that process. Audits require people at your level to deal with them. The question i have for you, you committed to the committee that youll start this audit in october. Right. Weve been asking this for several years obviously, since 1990. This is not a current question only. Weve been given information from services that theyre not ready, that the systems dont talk to each other, that the systems arent ready to be committed to support an overall audit. Is an audit possible to start in october . If so, how long would it take to complete that audit . So i dont know exactly how long it will take to complete the audit. Thats fair. The commitment is to start and we will start in october. You have my commitment if confirmed to get to the point where we can close the audit. To me, its hygiene. If were going to get after cost f 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 where you can actually do Cost Accounting where you can then make affordability z decisions. We will get to a place where audit isnt something were talking about. Where it becomes like breathing. Right. Weve got a budget problem obviously. Were spending about 3 of our gdp on the military. Its about 200 billion today. The last time we had an estimate was from secretary gates that it was over 150 billion more than what we actually spent last year. Weve got a real issue in terms of trying to meet the recap requirements of all of our major platforms. The navy alone says we need 26 billion a year for the next 30 years. Thats 800 billion doll 800 bil rebuilding the fleet. The question is how in the world are we going to find the money to do that . In 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 here is our force construct, here are the kab kab capabilities. What do we modernize . The strategy is so important because if we dont lock in a strategy and we just work to a budget, then well never really be able to sustain constant investment. Were you part of the Strategic Planning team at boeing . Yes, i was. I believe that because you wouldnt have gotten to your position. You have supply chain and operations. Is that basically the coo . You report to the ceo, correct . Correct. Who else reports to the ceo . Cfo, coo. Right. Help me just to understand the perspective then. Who else reports to the ceo . The ceo for commercial, the ceo for defense, the ceo for services, chief counsel, head of hr. Do you run operations across all those divisions . I have responsibility for operations across all those decisions. The question i had was as you look at this responsibility, it looks like youre going from a coo of 100 billion business to the coo of a 600 billion business. Thats done all the time, uh be i appreciate your perspective. Thank you, mr. Chairman. Good morning and thank you for your willingness to serve and your familys support for your willingness to serve. Im glad to see they made it down yesterday by train, i understand. I know that you have discussed briefly your commitment to recusing yourself from boeing related contracts and programs and the commitment also to notifying or to seeking a waiver in the event of any questions in that regard. Will you commit to make public the recusal waiver if one is necessary . Yes. Thank you. To the issue of fair pay, as you may know, during last years ndaa process, i led the fight. It was successful to remove harmful provisions from the final bill that sought inappropriately to limit the fair pay and safe workplaces executive order from applying to the department of defense. Boeing lobbied in support of efforts to curb this executive order. It lobbied against having contractors disclose labor law violations to the government. I vehemently opposed the roll back 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. Approximately 1 in 5 americans are employed by companies that do business with the federal government. Every year tens of thousands of American Workers are denied overtime wages or unlawfully discriminated against in hiring or pay, have their health and safety put at risk by federal contractors who may cut corners or are denied basic workplace protections. This is not to say boeing engaged in any of those practices. My question to you is do you believe that we should ensure that taxpayer dollars go to Defense Companies who play by the rules and uphold existing laws . I mean, i believe they should. I mean, we need to take care of our employees. We need to take care of the work force. I think thats the fundamental responsibility of all companies. Would you favor reinstatement of an executive order that protecting minorities, people with disabilities, veterans from discrimination in the awarding of defense contracts . Senator, i dont know the particulars of the changes that youre f referring to but i support providing the protections that people need. If confirmed, i mean that would be something that 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 . Yeah. I would take that action to review that. Thank you. On the defense Industrial Base, you are probably more aware than any of us on the committee about the need for skill training and education to preserve and enhance and expand our defense Industrial Base. 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 electric boat or Pratt Whitney where we make some of the critical defense product. Sure. Thank you, senator. Education is something i have a passion around. In washington we were able to work with the superintendent of Public Education for the state to get a math equivalency credit for High School Students so that they could get training to allow them to go into maritime, aerospace or electrical work. We worked with the Community Colleges to set up standard programs, allow them to get certificates so employers could meet them upon graduation and give them jobs and they could step into those new jobs without having to go through formal training. It was a Cost Reduction to the companies. It was a benefit to the Community Colleges because people were taking courses that led to high paying jobs. I would use the position to start to this is something i really believe at a National Level we can effect. There are all of these jobs due to demographics where people are going to retire out and theyre high paying. Whether its electric boat or the boeing company, the demographics are Something Like 80 of the people can retire in the next five years. Its a huge opportunity. I hope youll come to connecticut and talk about this issue. Thank you. Thank you. Thank you, mr. Chairman. Good morning, mr. Shanahan. Im happy 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 historically poor track record in acquisitions. Since the attacks on 9 11 through 2011 the d. O. D. Has sent 46 billion on a dozen Weapons Systems that never even entered production. A 2014 poll of almost 400 d. O. D. Employees revealed less than 30 were confident in being able to deliver weapons to war fighters. Urgent means years and requires span decades. This is no surprise to all of us up here. All the while our adversaries are operating in smaller cycles, both of which are eroding the technological advantage weve enjoyed for generations. There is one aircraft system right now that seems to be kind of bucking that trend from what were learning. Ive been impressed with the progress and the speed of the current b21 program. I understand a large part of the programs efficiency is that its not in the normal defense acquisitions pipeline. You may not have done any research yet, but is there any opportunity to replicate some of the b21 Program Practices in order to make the most efficient use of every taxpayer dollar weve got. Im not sure how Much Research youve done in terms of the d21 program. If you care to comment, great. If you dont have a background in that yet, well move on. I dont have a background in the b21, th. Its an innovative approach which is a little bit different for the department of defense. Let me kwocontinue on with anot specific issue. You may or may not have a background in it. Ill share it with you. I understand that you rose through the ranks at boeing as an engineer, that youve led fabrication divisions and that you have run Aircraft Assembly lines. I think there is a third piece overlooked in the conversation of how to buy and what to buy. That piece is how do build. Maturing of the innovative manufacturing techniques and capabilities are often overlooked. Theres a company in california that has recently 3d print add small house and they did it in 24 hours. Another incredible engineering break through is called cold spray. Theyve actually done some work in terms of the b1bs using some cold spray to make some quick repairs and saved a lot of time and money as well. It shoots metal particles to create a cross between manufacturing and welding. Ive seen estimates that this could save the department of defense over 100 million a year in parts replacement alone. 10 year in parts replacement alone. Now a large supporter of cold spray is the Army Research lab where they are using it in ballistics and manufacturing repair to repair things faster, safer and cheaper. As i was saying, i have an ad here, but it was developed in south dakota. Im looking forward and looking very seriously at the unique combination of opportunities this particular new product may very well offer to the department of defense. I presume you have a background where you looked at Innovative New products. And part of the job is to put them on the production line and fashions. Can you share what you have in that . I was tracking very well with you around 3d or the adative manufacturing. When we think about the vehicles of the future, like your house, for example, we will print them. Well have payloads that we can just stick them in. And the affordability of these new systems will allow us to lose them. I mean, it just changes everything about cost. I enormously encourage all the technology out there. The issue well run into, this is a sport i was doing while i was at boeing, and it manifested itself at dla. Its not that we cant print the part, its structurally capable. Our processes wont allow us to use it. It will be your job. Right, exactly. The technology is there and the cost savings are there. We have prevented it. Thank you, mr. I remembchair. Thank you, mr. Chairman and thank you mr. Shanahan for meeting with me last week in my office. I want to pick up on a point made by senator reid on the third offset strategy to invest any advanced technologies that maintains superior capabilities against future threat. Many of these technologies are in the Development Phase and are near competitors that are going to continue to improve their capabilities. I want to talk about the level of your commitment to a Strong Research Development Test and evaluation account, especially investments in basic and applied research. Senator, the future is dependent on how well we innovate and integrate the new technologies. Because we are at a point in time where the world is going to change. Our my biggest fear is that a threat will manifest itself more quickly than we have planned. And we wont be ready, so well rush to development and well see all the risks of the past. So it is so important that we be making those investments now. It takes time. So we have to have patience, we have to understand that some of these, not all the bets work. In basic research, the 3 will be a gamechanger. Well, good. Really, we need a strong commitment here. And when you visited my office, we talked about the significant technological advances happening over the commercial sector as well. One way the d. O. D. Is tapping into those defenses is through the experiment taal vouix that works with entrepreneurs to deliver these technologies into the hands of the war fighters. Can you just say a word about your level of interest in nftsinft nftsinft investing in duix and the dod and striving for this innovation . I think thats more of the type of work well be doing. Because what companies, the Smaller Companies unlock creativity, so they get exposed to some initial technology. And then they say to these companies that you make these changes. And the companies can rapidly so advance. Im a big proponent of that, but there has to be adult supervision. I cant be everybodys its the fuel for the future. We need to continue to make these investments in the commercial research and to develop the kind of gamechanging innovations that were going to need. Mr. Shanahan said something about this in every war fighting domain. So i would like to talk about the better advantage to manage our war fighters. Could you say a word about what areas of Technology Advancement you believe best meet those criteria . And how you think about prioritizing those demands . Yes. I dont have the specific domains. The comment there is really getting at the process that we must go through to make choices. And it goes back to your comment about basic research. Well have to narrow the basic research. Theres finite funding, but the key to this is aligning it to the capability that we want to mature. So my point there is that there are certain aspects of the third offset that well say, this is something we need to anchor around. This is the path we need to follow to achieve that. Good. This is powerfully important that we sustain our investments in these leap ahead technologies that our future will depend on. So thank you very much. Thank you, mr. Chairman. Thank you, mr. Chairman. Thank you mr. Shanahan for being here and congratulations on your nomination. I never miss a hearing like this to bring up my favorite prop. When i talk about procurement. One thing that excites me about your nomination is your extensive work and supply chain operations transformation. And i want to get to that in the time allowed. But i want to acquaint you to the organization that youre about to get confirmed to. Its an organization that can take ten years and 680 pages to define the next generation of handgun. I know that at boeing, one of the things that you set out to improve and turn around the dreamliner project was really looking at the fundamental supply chains and the operations process and trying to better align it to address the issues that you can get into the things like the availability of fasteners and a number of other things on Flight Control Development Life cycle. But do you have any sense of the nature of the organization youre about to inherit in terms of its ability of having lean processes implemented in a culture of lean design in it . I do. I mean, the how would you assess it . Its challenged. Very challenged. Many people have worked to streamline it. And were we have not seen the success we need. So how would you go about, youre i believe, by the way, i wanted to go back. I think what youre looking at are the foundational process that is have to change. I appreciate your answer to the senator and others about recusing krours from wyourself programs. But if you are far removed, you will remove yourself from the renlg renlg recommendations of the programs. So the next generation of handguns is a 100page process at the most. And youll talk about the technological challenges of the product youre trying to produce. So how do you go about actually your first year, what would you do to actually try to figure out where you can put your resources to have the greatest effect so that we dont continue to have the hearings that are not participated over the last twoandahalf years that are clearly operational programs . Or problems . Well, at first blush, the three things ill focus on, number one is really getting that strategy in place that gets at the future next generation capabilities so were seeding it properly. The second is, this gets at the current business. I think its a failed effort to try to fix it all. Thats like boiling the ocean. To me, its doing the value assessment, where is the most money that can be saved . What are the top ten programs that we have to go capture real value tonight. From that, there are ten things we have to go fix if we are going to prevent this going toward, but my management style is you have to put points on the board. You cant work a generic paroxysm improvement and say that five years from now were going to be better. How are we doing that tonight . The other area is then with all the business functions. How do we quickly work through all the governance and people not wanting to share and getting the consolidation and lower cost. I think one of the challenges youre going to run into. And i hope as you look at the transformation, its having the those in uniform and then you have civilian and contractor contest. But then you have the core skills and education to do what youre attempting to do. I met with the class that is about to graduate from war college. The question i asked them is, how much has been focused on business process transformation, the operational side of the business. Not the war side, im confident that on the war fighting side, there are they are well qualified for their jobs. But you have to do a serious assessment of the inventory of people that have the discipline, the experience and the disciplines to really transform this organization how do you go about doing that . My teak sneak chnique in the been to understand and find out who is leading the performance. Pretty soon you will find out who the leadership is that needs to be affected. Im out of time. But when you go through here, you need to identify the selfimposed impediment. There are things within your lanes that you can fix. And then you need to be prepared to come here and tell us the things that we have to change that are impediments to you in the transformational results that we want. But theres no doubt in why my mind there are a lot of obstacles to require congressional action to get it right. Thank you, look forward to supporting your confirmation. Thank you. Thank you, mr. Chairman. I appreciate the meeting we had yet. Im going to followup on what youre seeing here, which is people believe you have a lot of background in helping us address what is a very significant challenge. How much are you producing there . 12 a month. So were trying to build one ice breaker for the United States. And one of the estimates has come out of our services, its going to take ten years and a billion dollars. We are talking about acquisition, but we also need people in the building to help with efficiencies. When you think about this, how do we go from, obviously, were not boeing, but 12 aircraft a month, that americans can do in our country, to develop with 12 billion. What are some of the things we can focus on, saying we cant build anything on time or have a 6 rpm handgun. Leadership says you have a judgment of ten years and a billion dollars seems like a long time. Do you think that seems like a long time . Its its a long time. You built the technology of ten years. I imagine you would be spending a lot of money to upgrade it. So what do we need to do . What experiences can you blirin to help the country with that enormously important the things that help me the most are we have to get good leaders in place. They have the judgment. We have 300 pages. We dont need this for a handgun. The other i think it is 600, but nevertheless. 680. Okay. Then it gets back to why the audit is so important. We need to have the understanding of the cost baseline. Because whether you are in automotive or air space, what should it cost back to the ship . What should this ship cost . And this is just physics to weld up. Its one of those, should the cost tell you if youre in the ballpark or not. If you are 2, 3, 4 or 5x, we need to understand. That is an unacceptable answer. You think the audit process will help us have a much deeper understanding of why we have the processes to any observer, will that seem outrageous . We have to look where we want to spend the money to make sure the data is accurate. There are things where it gives us the understanding of where we are inefficient. Or in the case of acquisition, this should cost and relate to the Qualitative Analysis of when a similar ship, you can par m parometrically adjust anything, but what would a vessel cost. The ship we talked about yesterday was the lay down of the forces in the pacific, which a number of us on the committee, the chairman and myself, have taken a lot of interesting we need to get this right. Weve had a hard time getting it right in terms of cost and strategic location of our marines and air force and other forces. We commit to work with this committee making sure theres a united effort and kind of joint cooperation between the congress and the pentagon on making sure we get that correct. I am committed to do that. Final question on Missile Defense. Just give your sense on what you think our priorities are. I know you answered advanced questions for this hearing. A number of us are interested in it, what should be our priorities on homeland Missile Defense, not just Missile Defense for our allies and for the asia pacific or the middle east. Theres been a lot of testimony over the last year from the top military and intelligence officials that it is literally at our doorstep. That north korea is on the verge of the intercontinental Ballistic Missile in the United States. Give us a sense of your thoughtses background and priorities on misis defense. Absolutely. We have placed all the interceptors, i think 40 of them, up in alaska. The North Koreans are learning quickly. The ten missile test this year, they are going to continue to evolve their capability. We need to evolve our capability to involve sufficient inventory in alaska and other places to protect against, you know, a launch or threat from the North Koreans. Thank you. Thank you, mr. Chairman. Well, mr. Shanahan, i want you to look at the answers that you gave, the standard answers that you propose d. Some of them were less than specific. At least one of them and more were almost insulting. I want to move forward as quickly as i can with your nomination. I am concerned that 90 of defense spending is in the hands of corporations, of which you represent one. I have to have confidence that fox is not going to be put back into the hen house. Shanahan, i think youre a fine man. You have an outstanding record. But when you answer a question about defensive weapons for ukraine as something that needs to be examined before you reach a conclusion, thats not an informed answer. This is not a new issue. So take a look at the responses you up sent to this committee. Take a look at the responses you gave to some of these answers. Somehow over the last several years, this committee seems to have been treated as sort of a rubber stamp. Thats not the role. Thats not what the constitution of the United States says. The constitution of the United States says that the United States senate would provide advice and consent. The answers that you gave to the questions, whether intentionally or unintentionally, were almost condescending. Defensive weapons for ukraine, well, something we aught to discuss. I wish you could have been with me in ukraine on new years eve when president porashenko gave a medal to the young man of a moth mother whose son had just been killed by a sniper with tears running down her face. Im not sure you would have given her the same answers to standard eyes no different than anyone else. So i want to work with this administration. I want to work with this president. I want to work with the new secretary of defense who i happen to be one of the most ardent admirers of. I have to tell you n a couple weeks were going to mark up the Defense Authorization bill. The president has two choices, either give us a strategy or we will put a strategy that we develop into the Defense Authorization bill. We are talking about shooting down airplanes in syria. We are talking about afghanistan, theres going to be x thousand of increase. And yet, no one has informed the American People and the committee. So i have to say that i want some answers. I want some straightforward answers. And this town, you know very well, abhors a vacuum. If they dont give us a strategy from the people i admire the most, we are going to put a strategy in. We are losing in afghanistan. We just had three americans kill in the last couple of days. This is not an academic exercise. Now, i understand the problems that they are facing. They should be able to sort out those problems rather than say, hey, were going to do the following four things, by the way, and well expect the congress to just rubber stamp. Were not going to, so our job is one of the most important and key elements. And frankly, im not overjoyed you came from one of the corporations five, five corporations, 90 of the spending in the taxpayers dollars comes in corporations. Thats not what our Founding Fathers had in mind. So look at the answers that you gave us and there was standard questions that we ask a very nominee that is nothing unusual. And see if you want to abridge some of them. I want to give the secretary of defense the team he needs but im not going to give him a team that i think is business as usual of the last eight years. Too many thousands, too many hundreds of thousands of refugees with 6 million, actually. 400,000 are dead. We are not talking about academic exercises. So mr. Shanahan, take a look at the answers you gave and get the answers back as quickly as you can. It is the desire of this committee to recommend you. It is the desire of us. It is also our desire and obligation to the constitution of the United States, which says advise and consent. This hearing is concluded. Thank you. Theseattletimes. Com has background on nominee Patrick Shanahan. The former boeing executive has no political experience, but hes familiar with the business side. A year ago the new boeing ceo appointed mr. Shanahan to boeings executive counsel with a new role of overseeing supply Chain Management and manufacturing operations for the company as those suggestions talk about the complex operations, his presence in the Defense Department would place the boeing alum in a senior position at the pentagon as is considered the next big contract award. Theres more on the article about that from theseattletimes. Com. Coming up later this afternoon, well hear from the sec chair on the budget question, that would be the commissioner ajit pai. Thats live at 2 30 eastern this afternoon. Until then, well bring you another Senate Armed Services committee hearing. This one on the navys 2018 budget request. Well hear