It is important that this receivee is able to briefings and other communications. To oversightard responsibilities. Have you adhered to the applicable interest . Boeing executive Patrick Shanahan is the nominee to be Deputy Defense secretary. At his Senate Confirmation hearing he promised to divest requested by a duly requested committee or to consult with the Committee Regarding providing such documents . Yes. In the interest of time, i will submit my Opening Statement for the record. I know that will come as a terrible blow to the 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 and senator cantwell. Thank you. If i may also, senator shane wanted to be here, but she is delayed in this terrible weather. With that, i ask permission to submit the statement. I would ask the committee to consider a list of 195 pending military nominations. All of these dominations have been before the committee the required length of time. Is there a motion in favor of the report for these 995 military nominations to the senate . Yes. Is there a second . All in favor, say aye. The motion carries. Welcome, mr. Shanahan. You are deprived of the Opening Statements of senator reid and myself. Pardon me . Oh, before we allow you to speak, senator cantwell is here and i apologize. Senator cantwell, for not recognizing you to take time from your very busy schedule to introduce mr. Shanahan. Senator cantwell, welcome. Thank you, chairman mccain, Ranking Member reid, and distinguished members, i am glad to introduce Patrick Shanahan to serve as the deputy secretary. I too want to welcome his family. They are here and im sure he will make that appropriate introduction. Mr. Shanahan has a unique experience leading major reforms of large, highly complex programs at the boeing company, such as the 737 max and the 787 dreamliner. These aircrafts have cuttingedge technology, keeping them ahead of the global competition. His entire career has been about solving problems nobody else can solve and these skills would be invaluable at the d. O. D. He drives change by building teams to think outside the box and then convince others to think in doing things new ways. Mr. Shanahan has driven reforms in management, affordability, technology and supply chains. He has had an impressive 31 career at the boeing company, serving as Senior Vice President of supply chain operations. His hands on leadership inspires those around him to strive to achieve results on time and on budget. Mr. Shanahan, managing the boeing companys highly complex operations in washington and south carolina, he has served as the head of the commercial airplane program. His attention to detail while operating some of the largest operating manufacturers in the world will prove invaluable. He is fearless. He understands what our country is up against when it comes to the russians and the chinese and the North Koreans and it will not faze him. He focuses on big Game Changing innovation and science and technology and will not be deterred by the bureaucracy of d. O. D. Mr. Shanahan 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 programs and fight activities in philadelphia and in mesa, arizona. So, he has been able to achieve positive results throughout his career. He understands the need for fiscal responsibility and for innovation of the department. D. O. D. Is the largest employer in the world with almost 300 Million People and he has the management skills from the private sector to guide d. O. D. Successfully into the future. I am confident he will be an effective leader in this position for our country. Thank you, mr. Chairman and i will excuse myself, but again, i would thank the committee for this opportunity to introduce mr. Shanahan. Chairman we thank you, senator cantwell. We fully understand, you have other duties in the senate and thank you for taking the time to introduce mr. Shanahan. Mr. Shanahan. Mr. Shanahan thank you, senator cantwell for your kind words and thoughtful introduction. Before i begin, my thoughts and prayers go out to the family of the seven sailors killed in a tragic incident on the uss fitzgerald. Chairman mccain, Ranking Member reid, and members of this committee, i appreciate the time you have afforded me this morning. Im grateful to the president and secretary matthis for nominating to be the position of secretary of defense, deputy secretary of defense. I would like to knowledge my three children, who accompanied me, kayla, will, and jack, seated behind me. I want to take a moment to recognize and honor my parents, joanne and Michael Shanahan. Im the oldest of three boys. My father Michael Shanahan and my brothers and i, from as early as i can remember, practiced 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. Today 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 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 indomitable spirit and persevere no matter what the challenge. I wish you were here today, and i know exactly what he would say to me. 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 though, and i would like to share, is she taught me to truly believe in myself. She taught my brothers and i it is not the size of your muscles that matter, but the size of your heart. She taught me to be a better parent. That is 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 help usher in a new age of innovation and effectiveness in the department. I believe i am prepared myself to contribute as deputy secretary of defense. I bring over three decades of leadership honed in americas largest manufacturing exporter. I have led large, geographically dispersed organizations focused on developing complex products. I have experienced converting technological innovation into operational capability. Innovation into operational capability. I bring with me a formula for leadership that has a record of delivering a formidable highperforming Business System and operations under adverse conditions. Leadership casts a long shadow. Strong leadership can create teams that achieve ambitious change of scale. I believe that my skill set strongly complements that of secretary matthis. He is a master strategist. As to the secretary of defense and secretary matthis chief operating officer, i bring strong execution skills with a background in Technology Development and business management. Areas this committee in particular has been in the fight 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 you have afforded me today to answer questions. Chairman thank you, mr. Shanahan. There was questions about providing the ukrainians lethal weapons with which to defend responded byd you saying you would have to look at the issue. That is not satisfactory. Would you wish to amend your statement concerning that . I support equipment for the ukrainians. You support providing lethal defensive weaponry to the ukraine . Yes. I am glad to hear that, but i have to tell you that our job is advise and consent and your response to the question was very disappointing to me and you have been associated for the last however many years as one of the five corporations that provided it is still disturbing to me after all of these years that you would say that you would have to look at the issue. Have you not been aware of the issue or of the Senate Armed Services committee . Have you not been aware of the People Killed by Vladimir Putin . Did you miss all of that . This is a duty of a major Defense Corporation in this country. I am aware of its, chairman. Well, i have to tell you that it is very disturbing and i am disturbed that we have an executive from one of the five major corporations that has 90 of the Defense Budgets and, on a major issue that this committee has had hearings and markups about, we want to find out more information. Not a good beginning. Not a good beginning. Do not do that again or i will not take your name up for a vote before this committee. My perfectly clear . Very clear. Thank you. Genericallyssues is termed the third offset and who you are following has done a remarkable job in this effort and this is trying to counter andadversaries ariel asymmetric capabilities and leap ahead with new technologies. Ae congress reestablished position for engineering and you are going to play a critical and in the new or revised secretary. Can you give us a sense of how this is going to work with the third offset . Yes. Confirmed, i will spend time with the group that has done that work and, while i have not received the briefing on the undertake anwould effort to make sure there is a clear path for the capabilities and, when i look at the strategy exercise that will be done, it is critical that we have the assessment of how much funding needs to be done against this offset. I believe we will have a more informed recommendation. Presume that you arty have that ares of companies not currently involved, but are major with the technology companies. That is correct. And we need tont develop other capabilities and companies. One of the things that we a secretary of acquisitions and, in many respects, you are the chief management officer. Ideas with any respect to that issue . Officer,ief management as i see it, has a responsibility for streamlining the operations for the department and this is how i see my responsibility. I will work with the chief management officer and i intend to experience how we capture efficiency and the opportunities by standardizing many of the services, if you will, across the departments. There is a complicated area andnformational operations it is ironic that the country that created madison avenue is trying to catch up with influencing people through media. Is that iuestion would think the secretary of defense would be. Much involved in this. Playu see a role you would and coordinating these aspects and reaching out to other agencies . The think the deputy and chief operating officer needs to make sure we have the right structure to interface with the proper architectures so that we evolve asde them and technology changes. Thank you. I think you are bringing significant experience. By appreciate your comment about nuclear deterrence. Is routinelyt that overlooked and we have submarines that are on alert. Said that thisr is the bedrock of our national security. You agree . I do. Do you support the modernization of of our Nuclear Weapons and the associated infrastructure . I do. The jointe chair of chiefs of staff has testified that our Nuclear Deterrent is based on a fact of squeezing all the life ive we can all of the life that we can out of the systems. Do you agree with his assessment and the level of urgency that this requires . I have not had a review of takeriorities and i will advice from general solvent to make sure he gets the proper support. In my office,re andalked about technology innovation, but we did not talk about risk tolerance. Innovation is risky. The current environment does not seem to tolerate risk. Do you believe there needs to be risk and howe of do you plan on navigating that and tolerating the amount of risk that is required to have innovation take place . My view is that we have to manage risk. Any risk. Ant when it comes to innovation, the mindset i have in the commercial world is that innovation is messy and you try something and it fails. And iuld not be afraid can be a proponent of failing fast and learning quickly. The faster you do that, the more we end up training people. It is about people developing technology. To theour response advanced policy questions with the violation of the imf treaty, the responses as part of this issue and i will be interested in making sure the skit translated into action. Do you believe the response is necessary . I do. Personalve any thoughts on what options would be available as a response . I do not. Thisu have noted that could lead to doubt in the stability of current and future initiatives. Could you elaborate on this statement . Sometimes the deals collapse and suppress theetimes file edition. I dont think you agree with that view. The russians are adversarial deal with the disruption tothe that ierests and i think will spend a significant amount of time dealing with russia. Would you support developing options besides diplomatic . I would support it. Happy. Are not making me we are expecting straight answers and you just duct every question that senator fischer asked you. I am telling you that i believe in the constitution of the United States and it says that the Congress Shall provide advice and consent. Im not going to sit here and let you dock every question. It is not going to go smoothly. Welcome. You have limited institutional experience in the military or the pentagon. The secretary working close with congressional allies and i heard you say that you would work closely with russia. Confirmed with the inner workings of the pentagon and the agency structures, how will you overcome the lack of institutional experience to operate in this environment. Very disparate i believe thatnd my technical and management background prepared me to be able to quickly assimilate the knowledge and expertise. What would you do to hit the ground running, if confirmed. It is a restructuring of the thatization and i think this will be a good way to begin to understand the inner workings of dod. They are participating in a this willview and allow different structures. A differents entity, in order of complexity and all you are working with. , youd you be confirmed will the completely apprised of your responsibilities in running dod. Uts and bolts of the havee cost overruns plagued the department of defense for many decades. This committee has tried to improve the acquisition system. Experiencesnificant with our defense contractors. Based on the perspectives, what would you recommend with contracting processes . Toolsre are a number of that are important. Effective forare contractor performance. Confirmed, we will work the we will understand the the cost baseline and we need to renegotiate. Inthe experience you have dealing with the acquisitions, key element of the overruns that occur on a regular basis, much to our consternation. I will look to you. Turning to the asianpacific strategy, i have some time. Thoughts some of the on the asianpacific pewter. I think that the chinese have been modernizing significantly in recent years and this threatens our ability for freedom of movement and it is important that we find ways to maintain the Security Architecture of the rim and support our allies and our partners there. I would like to see a continuing focus in this area. But as the rest of the world isomes more unstable, there north korea and china as major through things like acquisition reform and other things you bring to the table, i hope that releases more resources. Thank you. You on your nomination. Thee have discussed, secretary plays a major role in managing the department and you have a long and distinguished career at boeing and your reputation for turning around programs is something a lot of military programs could use. There are some questions that we should address up front. How do you plan on carrying on your duties while avoiding 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 precautions. Which is a good prudent. Boeing is one of our major defense contractors. They have many programs, some of which have troubles of their own. Osprey. , the v22 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 . Is that correct . Mr. Shanahan if confirmed, i will divest. Given your time at boeing, i prism it is safe to say they have made you a wealthy man, over 30 years compared to most arkansans. Mr. Shanahan they have treated me well. At this point in your career, your focus in your loyalty is solely on the department of defense and the soldiers, sailors and marines out on our front lines . Mr. Shanahan yes, senator. I am 1000 committed to the department and delivering on the reforms that chairman mccain has outlined. That is what i expected, but as i said, i thought it was important to put up front the steps you were taking to recuse yourself from boeing decisions and to ensure youre making decisions in the best interest of the men and women of the armed forces. To include men and women who will depend on some boeing systems. 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. As a senator mccain says, Something Like 90 of all acquisitions goes to five firms. Some of this relates to the department of defenses own bureaucratic issues. Some relates to the culture you see in the tech world. Ive heard from many tech leaders and entrepreneurs. 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 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 userfriendly for smaller, more nimble firms . Mr. Shanahan i have and if confirmed, i think that is one of the more exciting as x of the job. We are seeking a transformation of technology and this is the space where 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. In termse are onerous of the demands and put on these small financial firms. An area ofd, that is 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, but they were not going to bother to 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. That is an insult to the byzantium empire. It is so arcane and cumbersome that it is actually discouraging the importation into our Defense System of advanced technology. Mr. Shanahan senator, this is an area where i have had some fairly good success. Rather than trying to change the whole system, you have to change parts of the system. I will give you an example. We have Found Technology that will fundamentally change how we do work. What we would do is develop prototypes, and we would operationalize those prototypes and the process this is going a little bit deeper the intent was to flesh out of the bureaucratic mechanisms that would say no. So, the idea is not, can the technology work, but can you run these prototypes . We call them pathfinders. It finds all the restrictions, all the people who say no, and we 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. It is in doing those prototypes that you can get a quick win. They also find out where the real limitations of the system are. But one of the fundamental differences between boeing and the United States government is boeing was in an exceedingly competitive situation where you had airbus and other providers around the world trying to get into the airline business. You had the whip of competition over your head. What we are talking about within the Defense Department, you dont have that. That is why it has to be a Major Management focus and constant attention to sort of substitute for the pressure that competition creates. Mr. Shanahan right. I personally think the limits on the budget are the competition that its 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 generate savings, so we can pay to go to these things. Slightly off by the way, on procurement not only is there an issue of cost, but an issue of time. Senator inhofe has presented graphs between the difference of the private sector the time it takes boeing to get a new aircraft from concept to flight. It 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. Mr. Shanahan 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, it is not enough to simply say, were going to work harder at it. I hope you will think about and perhaps, convene a publicprivate 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, he will 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 with the pentagon and within the services. We have had lots of talk here and there have been some cuts in staff, but i believe that is also an area that has to be looked at because every dollar they goes into tail does not go into tooth. And when we are talking about scarce dollars for readiness and recapitalization of the Nuclear Deterrent, 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 is an area you Pay Attention to. Mr. Shanahan it will be. Finally. We need to be able to audit the department of defense. I cant keep going home to maine and a saying we are spending half of 1 trillion a year, but it cannot be audited. Do you take that as one of your priorities . Because 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. Mr. Shanahan you have my commitment to start the audit in september. Effortse of the highest in terms of priorities for me. Could you repeat that . Mr. Shanahan the audit, i believe it is 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 we can procure faster . Mr. Shanahan senator, i am 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 called that operations officer, which is a great description. Its clear theirat 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. I would like to start with more of a policy question, policy discussion. Ive been calling attention to the increasing threat posed by violent extremeist 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. Had said thathis ending the named 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 it is time to reestablish a named operation. What are your opinions on that . Mr. Shanahan the violent extremists i think this falls in line with our policy with isis, where we can find them, by, with, and through others and defeat them. If confirmed, this is an area that i will invest the time to understand our commitments in terms of resources and our ability to undertake those types of efforts. I appreciate that because we have, for a long while, taken our eye off of that region and they continue to grow and develop in Southeast Asia. So, i appreciate that. As im sure you know, our air crews continue to experience Physiological Episodes in High Performance aircraft. The f22, the t45 and now the f35, yet we still have not 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. This is something i have recommended to both air force and navy leaders in past hearings. Im glad thaw eve actualeyve actually taken action on this item. That bowman you were known as mr. Fixit. 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 war fighting readiness . Mr. Shanahan the culture at boeing 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 itemse type of safety that will receive my highest attention. Thats how weve grown up. We solve your problems. And 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 i will support doing that. And how will you communicate that between the branches and the services . I suspect and this goes kind of back to the senator, there are many things they have to learn in terms of actually 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. It is going to be, how quickly do we actually get the Solution Incorporated into the airplane . That will he really about acquisition and getting these things on contract, that is the most important thing we have to do. I appreciated. Thank you for your time. Thank you, mr. Chair. Thank you, mr. Chairman and 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 obsesse offset strategy, which at the know, the 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. 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 . Mr. Shanahan 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. I plan to continue to support those efforts. To me, it is about, how do we validate that these capabilities are the right ones in terms of conducting warfare . And this is the messy part about innovation. I mean, we are going to have to make some bets and do some prototyping, so we can tests these prototypes with the war fighters. 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. 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 . Mr. Shanahan 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 it is electrification, added manufacturing like you mentioned, machine learning. Given these emerging capabilities, how will we scale 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, as you mentioned . In my state tardeck 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 . Mr. Shanahan 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. It 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 . Mr. Shanahan correct. Put it in perspective for the committee. Were dealing with a 600 billion plus budget in d. O. D. Across a lot of Different Services and platforms. At boeing, did you ever have a year where you missed supplying a reviewed audit . Mr. Shanahan no. Have you ever known any fortune 500 company that ever missed an audit . Mr. Shanahan no. So, i want to make sure i understood your answer. 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. Mr. Shanahan correct. Weve been asking this for several years obviously, since 1990 when the law was put in. My question is, we have 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 . Mr. Shanahan senator, so, i dont know exactly how long it will take to complete the audit. Thats fair. Mr. Shanahan 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 and create a culture of affordability, we at least have to be able to do a knotted. An audit doesnt get you to the place where you can actually do cost accounting, which allows you to make affordability decisions. We will get to a place where audit isnt something were talking about. Thank you. Where it becomes like breathing, right . Mr. Shanahan right. Weve got a budget problem obviously. Were spending about 3 of our gdp on the military. That is 100 basis points than our threeyear average. 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. That is 800 billion for from 275 the fleet 355. O the question is how in the world are we going to find the money to do that . In your role, what will you do to help us figure that out . Mr. Shanahan 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 capabilities. These are the assets that we need. I think that will be the doeline to determine what we modernize and what do we recapitalize . The second piece of this, and 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 . Mr. Shanahan yes, i was. I am steeped in im sorry to interrupt. I believe that. Let me ask you about your position. You have supply chain and operations. Is that basically the coo . You report to the ceo, correct . Mr. Shanahan correct. Else reports to the ceo . You have the traditional you have the cfo, the coo. Mr. Shanahan right. Help me just to understand the perspective then. Who else reports to the ceo . Mr. Shanahan 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 . Mr. Shanahan i have responsibility for operations across all those divisions. Ok, thank you. 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. That is done all the time, but i wanted to put into perspective. I appreciate your willingness to step up. Thank you. Thank you. 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 . Mr. Shanahan yes. Thank you. Going 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 one in five 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. It was not directed at boeing. 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 . Mr. Shanahan 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 protected minorities, people with disabilities, veterans from discrimination in the awarding of defense contracts . Senator, i dont know the particulars of the changes that you are referring to, but i support providing the protections that people need. So you know, 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 . Mr. Shanahan 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 about the need for skilled training and education to enhance and expand our Industrial Base and 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. Mr. Shanahan 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 literally 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 highpaying. So 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. Mr. Shanahan 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. Acquisitions 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 the b21 program. As it sits right now . If you care to comment, great. If you dont have a background in that yet, well move on. Mr. Shanahan i dont have a background in the b21. Sen. Rounds they have done things that have kept them on target and i have been impressed with what i have seen. Its an innovative approach which is a little bit different for the department of defense. Let me continue on with another specific issue. You may or may not have a background in it. But at least ill share it with you. It might pique your interest as you move forward. 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 youll appreciate my final thought. 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. In fact, theres a company in california that has recently 3d printed a small house and they did it in 24 hours. Another incredible engineering break through is called cold spray. Im not sure if you are familiar with cold spray or not. Theyve actually done some work in terms of the b1bs using some cold spray to make some quick repairs very efficiently, saved a lot of time and money as well. It shoots metal particles to create a cross between manufacturing and welding. It can be used to reinforce parts so they dont wear down. Ive seen estimates that this could save the department of defense over 100 million a year in parts replacement alone. Now a large supporter of cold spray is the Army Research lab where they are exploring ways to use it in ballistics and manufacturing repair to repair things faster, safer and cheaper. As i was saying, kind of 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. You have 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 internet efficient fashion. Can you share what you have in that . Background, success stories. Mr. Shanahan 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. We will have modular payloads so that we can just stick them in. 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 some work 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. That is the work we have to do. Sen. Rounds that is going to be your job. Mr. Shanahan right, exactly. The technology is there and the cost savings are there. We have prevented it. Sen. Rounds thank you, mr. Chairman. 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 in the 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 illmprove their capabilities. I just wonder if you can say a word about your level of commitment to a Strong Research Development Test and evaluation account, especially investments in basic and applied research. Mr. Shanahan 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. It may be 3 . In basic research, the 3 will be a gamechanger. Sen. Warren thats right, well, good. Wen you visited my office, talked about the significant technological advances happening over the commercial sector as well. One way the d. O. D. Is tapping into those defenses those advancements is the defense innovation. 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 investing in diux and the dod and striving for this innovation . Mr. Shanahan i think thats more of the type of work well be doing, because what companies the Smaller Companies do is they unlock the creativity of the war fighter. So they get exposed to some initial technology and then they say to these companies, can you make these changes . And the companies can rapidly so advance. The Development Cycles are very quick. Im a big proponent of that, but there has to be adult supervision. I cant be everybody indiscriminately going to work with these different groups, but its the fuel for the future. Sen. Warren we have an amazing in massachusetts and 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, in your response to various questions from this committee, you said it would be maintain 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 . Mr. Shanahan yeah, 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 is kind of 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. Sen. Warren good. I think 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 in 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 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 that you found, the 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 . Mr. Shanahan i do. I mean, the sen. Tillis and how would you assess it . Mr. Shanahan its challenged. Very challenged. Many people have worked to streamline it. And were we have not seen the success we need. Sen. Tillis so how would you go about, youre i believe, by the way, i wanted to go back. I think what youre looking at the foundational processes that have to be changed. I appreciate your answer to the senator and others about recusing krours from whoyourself recusing yourselves from potential programs. But if you are far removed, you will remove yourself from the recommendations of the programs. And you are fixing the underlying processes, so the next generation of handguns is a 100page process at the most. And the more advanced weapon systems, you will scale down the challenges of the product you are 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 these hearings that i have participated in the last two and a half years that are clearly just operational . Mr. Shanahan 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 six or ten things we have to go fix if we want to prevent this going forward, but my management style is more, you have to put points on the board. You cant work a generic process 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 these business functions, how do we quickly work through all the governance and people not wanting to share and getting the consolidation and lower cost. Sen. Tillis i think one of the challenges youre going to run into, and i hope as you look at the transformation, its having those in uniform and then you have civilian and contractor content. But you have to do a critical assessment of whether they 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, throughout your curriculum, 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, they are well qualified for their jobs. But you have to do a serious assessment of the inventory of people that have the discipline, ixperience, i sit say should say, in the disciplines to really transform this organization. How do you go about doing that . Mr. Shanahan my technique in the past has been to understand and find out who is leading the performance. Pretty soon you will find out where the leadership needs to be affected. Sen. Tillis last thing im out of time 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 youll run into along the way that will require congressional action to get it right. Thank you, look forward to supporting your confirmation. Mr. Shanahan thank you. Thank you, mr. Chairman. I appreciate your family being here, i appreciate the meeting we had yet. Im going to followup on what youre seeing is a theme here, which is people believe you have a lot of background in helping us address what is a very significant challenge. Give me a sense of at boeing, how many 747s are you producing there . Mr. Shanahan 12 a month. Sen. Sullivan 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 need people in the building who understand how to get to efficiencies. When you think about this, how do we go from obviously, we are not boeing, but 12 aircraft in months, americans can do in ship, tory, to one develop with 12 billion. What are some of the things we can focus on, saying we cant to get us out of this since we cant build anything or on time or have a 600 page rfp for a handgun. Mr. Shanahan i think sechrist tillis was on this. Leadership says you have a judgment of ten years and a billion dollars seems like a long time. Sen. Sullivan do you think that seems like a long time . Mr. Shanahan its its a long time. Sen. Sullivan isnt that when you build a ship, the technology has outdated the ship. Mr. Shanahan i imagine you would be spending a lot of money to upgrade it. Sen. Sullivan so what do we need to do . What experiences can you bring to help the country with that . It is enormously important. Mr. Shanahan the things the two things that have helped me the most are we have to get good leaders in place. They just have the judgment. Like, 300 pages. We dont need this for a handgun. Sen. Sullivan i think it is 600, but nevertheless. 680. Mr. Shanahan ok. 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 it up. We can run the math to say that this is what it should cost in terms of commercial practices, that will inform us. Its one of those, should the cost tell you if youre in the mark parker not . If you are 2, 3, 4 or 5x, we him need to stop the meeting. And start over because that is an unacceptable answer. Sen. Sullivan 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 . Mr. Shanahan i think, as i spend time on the audit, it is going to be where do we want to spend the money to make sure the data is accurate. And then how do we use that data to inform us on our cost him form and performance. 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 has really doing the Qualitative Analysis of when a similar ship, you can parametrically adjust anything, but what would a similar type of commercial vessel cost . The me turn to another issue we talked about lately. The pacific, which a number of us on the committee, the chairman and myself, have taken a lot of interest in. 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. Will you commit to working 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. Mr. Shanahan i am committed to doing that. Finalullivan the question i noticed in your background you have a lot of Technical Expertise on Missile Defense. Just give your sense on what you think our priorities are. I know you answered advanced questions for this hearing that dealt on Missile Defense. 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. And where should the priorities b and do you see the threats to the homeland increasing. 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 an Intercontinental Ballistic Missile that can range the United States. Give us a sense of your thoughts, background and priorities on Missile Defense. Mr. Shanahan absolutely. My last time in the department of defense was over 10 years ago operationalizing it. We had placed all of the interceptors, i think 40 of them, up in alaska. The North Koreans are learning quickly. I mean, 10 missile tests this year they are going to continue to evolve their capability. We need to evolve our capability and make sure we have sufficient inventory in alaska and other places to protect against, you know, a launch or threat from the North Koreans. Sen. Sullivan 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 proposed. 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 five 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 ought to discuss. I wish you could have been with me in ukraine on new years eve when president porashenko gave a medal to the mother of a young man who 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 those same written questions, which were standardized, 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 killed 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 rubberstamp. We are not going to. Were not going to, so our job your 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 out of five different corporations. Thats not what our Founding Fathers had in mind. So look at the answers that you gave us, and they are standard questions that we ask of every nominee, there 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 6 million, actually. 400,000 are dead. We are not talking about academic exercises. So mr. Shanahan, take a look at those 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. Mr. Shanahan thank you. [indiscernible conversation] cspan3, jehday on johnson testifies at a house intelligence hearing on russian interference in u. S. Elections. We will have live coverage at 10 00 a. M. Eastern on cspan three, cspan. Org and the cspan radio app. Later, a hearing on the fbi with andrew mccabe. Live beginning at 3 00 eastern. Cspan, where history unfolds daily. In 1970 nine, cspan was created as a Public Service by American Service cable companies. It is brought to you today by your cable or satellite provider. John awsat, the democratic candidate and special house election conceded the race tuesday night to republican karen handel. The seat has been vacant since tom price was confirmed as health and human health secretary. This race was the most expensive house election in u. S. History, with 55 million spent by both campaigns combined. Jon ossjohn awsat in speaking to supporters north atlanta, georgia. [cheers and applause]
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