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25 Apr 19. Shanahan cleared in Pentagon investigation. Acting Secretary of Defense Patrick Shanahan has been cleared by the Pentagon’s Inspector General’s office, in a move that likely paves the way for nomination to the full secretary job.
In a 47-page report released Thursday, the IG wrote that no evidence was found that Shanahan used his position in the department to provide preferential treatment to the Boeing Co., where he worked for over three decades.
“We determined that Mr. Shanahan fully complied with his ethics agreements and his ethical obligations regarding Boeing and its competitors,” investigators concluded.
Aside from Shanahan himself, the IG interviewed top leadership from across the department. That including Marine Commandant Gen. Robert Neller, Air Force Chief of Staff Gen. David Goldfein, former Secretary of Defense James Mattis, Gen. Joe Dunford and Gen. Paul Selva, the Chairman and Vice Chairman of the Joint Chiefs of Staff. Unnamed military services chiefs, DoD undersecretaries and “other senior officials who regularly dealt with acquisition and budget issues; and other senior DoD civilian and military leaders” were interviewed as well.
The investigators also looked at more than 5,600 pages of unclassified documents and approximately 1,700 pages of classified documents.
News of Shanahan’s clearance was first reported Thursday morning by the Wall Street Journal.
It has been widely expected for months that Shanahan, who came in as the deputy secretary of defense in summer of 2017, will be the official successor to Mattis as the full secretary of defense. He appears to have a positive relationship with President Donald Trump, and few other names have arisen as a possibility since Mattis left at the end of last year.
However, the IG investigation reportedly caused the White House to press pause on any moves to nominate the former Boeing executive for the defense department’s top spot. In response, Shanahan launched something of a press tour, doing a one-on-one interview on Fox News, increasing his visibility with reporters and talking openly about why he feels he can do the job.
“I show up every day, put my shoulder to the wheel because I believe in what we’re doing,” he told Defense News during a recent trip to Florida. “I want to make a contribution to national defense. And I believe I can deliver on the National Defense Strategy.”
Notably, the IG says that the investigation was launched in part because of request from the office of Sen. Elizabeth Warren, D-Mass., a Senate Armed Services Committee member who is also running for the Democratic nomination for president. Should Shanahan receive the nomination, Warren may be a vocal opponent.
“Secretary Shanahan has at all times complied with his Ethics Agreement, which screens Boeing matters to another DoD official and ensures no potential for a conflict of interest with Boeing on any matter.,” said Lt. Col. Joe Buccino, Shanahan’s spokesman. “The report speaks for itself.”
The IG launched its investigation based on accusations of five ways Shanahan may have violated his ethics agreement:
- That he “Boosted” or “praised” Boeing in meetings.
- Made disparaging remarks about Boeing’s competitors, including Lockheed Martin CEO Marillyn Hewson.
- “Repeatedly dumped” on the F-35 aircraft in meetings and called the F-35 aircraft “f—ed up”
- Put “his finger on the scale when it comes to Pentagon priorities” for procuring Boeing aircraft that the Military Services did not want, including forcing Neller to buy Boeing F/A-18s, and threatening to cut other Air Force programs unless Goldfein supported buying Boeing F-15Xs.
- “Involved himself” in the KC-46 program by “weighing on” the Air Force to accept the aircraft after technical problems delayed Boeing’s delivery.
Following a series of interviews, the IG also decided to look into whether Shanahan had inappropriate contact with Elon Musk, the CEO of SpaceX, suggested that a DoD official visit a Boeing simulation facility, and discussed a classified matter related to a Boeing product.
During the course of the investigation, Shanahan repeatedly expressed confidence he would be cleared.
“I appreciate the IG addressing these accusations,” he said during the same Florida trip. “What I would say is, look, I have over 30 years of experience doing large-scale engineering and manufacturing. I’ve brought that experience, management expertise to the Department of Defense. What I would tell people is I’m not at all biased towards Boeing. I’m biased toward performance for the Department of Defense, I’m biased toward performance for the taxpayer and most importantly I’m biased towards performance for the war fighter.”
He then seemed to point directly at one of the prime accusations in the CREW complaint — that he referred to the F-35 joint strike fighter as “f—ed up” — by saying “I would also add: I know substandard industry performance. And I am an equal opportunity critic of substandard-performing programs. And I will always criticize substandard performance.
“My history has always been to call things the way I see it because at the end of the day, that’s what our war fighters deserve and that’s why I joined the Department of Defense.”
The IG’s findings line up with Shanahan’s statements. Specific to the F-35 comments, the IG concluded that “Mr. Shanahan did not ‘repeatedly dump’ on the F-35 aircraft in meetings. Rather, we determined that Mr. Shanahan’s comments related to the F-35 program and its performance, and were consistent with other comments about problems in the F-35 program made by other senior DoD officials.”
On the specific F-35 comment, the IG noted a differentiating between the F-35 program at the Pentagon and contractor level, and the plane itself.
“Mr. Shanahan told us that he did not say that the F-35 aircraft was ‘f—ed up.’ He told us that the F-35 aircraft is ‘awesome.’ Mr. Shanahan told us that he said the F-35 program was ‘f—ed up,'” the IG wrote. (Source: Defense News)
25 Apr 19. Not dead yet: Nuclear weapons agency moves to save Jason advisory group. The National Nuclear Security Administration is making a play to save a scientific advisory group, just days before its contract with the Pentagon is set to expire.
On Thursday, the NNSA quietly put a notice of a sole-source contract up on the FedBizOps website, to “award a short-term sole source contract to MITRE Corporation to provide management and logistics support to the Jason program and its members, referred to as ‘The Jasons.’”
In essence, NNSA seeks to recreate the Pentagon’s contract with the advisory group through the end of next January, in order to keep key research from falling apart.
“NNSA has issued a notice of intent to award a short-term sole source contract to MITRE Corporation to provide management and logistics support to the Jason program and its members through January 31, 2020,” agency spokesman Gregory Wolf told Defense News.
“JASON is a group of elite scientists and engineers who advise NNSA and the United States Government on matters of science and technology, mostly of a sensitive nature, and has provided significant contributions to NNSA’s mission of ensuring a safe, secure and reliable nuclear stockpile and preventing nuclear weapon proliferation around the world. NNSA cannot afford a contractual gap in the services MITRE provides.”
The Jason program dates back the 1950s, when the Pentagon put together a panel of scientific experts to provide outside advice. That contract is now managed by the MITRE group, and run through the Pentagon’s undersecretary of research and engineering.
According to a 2006 book written about the group, the panel played major roles in developing, or lambasting, technical ideas for the department, including pushing to sign the Comprehensive Test Ban Treaty on nuclear weapons and a controversial stretch of ideas during the Vietnam War. Much of their work, however, has been classified.
The latest contract for the group’s work existed under an indefinite delivery, indefinite quantity contract, which allowed for an unlimited number of deliveries over a fixed time period. That contract was between the Pentagon’s undersecretary of research and engineering and the MITRE corporation.
However, that contract was allowed to expire on March 31, with a final tasking order set to expire at the end of April. The Pentagon has said the move was made as a cost-saving measure and that the open-ended nature of Jason no longer makes sense.
And while the DoD said it intends to still use JASON for one-off contracts, critics have said that the financial setup for the panel requires a constant stream of work and that attempting to do piecemeal studies will lead to the closure of the group.
The NNSA’s plan to keep JASON alive came together quickly, in just the last few weeks. While there will be some sort of gap between when the Pentagon contract expires and NNSA can get theirs off the ground, it is not expected to be a large gap in time.
The NNSA contract would mirror the ID/IQ nature of the Pentagon’s legacy contract. Meanwhile, the agency will use the time to “perform market research to determine a long term strategy for obtaining JASON scientific support services,” an indication that alternative solutions may be an option.
The cancellation of the Jason contract came to light during a hearing featuring NNSA head Lisa Gordon-Hagerty, who said she had asked her staff to look into what the Pentagon’s cancellation of the contract would mean for her agency.
“I found their reports to be fulsome and the members of JASON to be knowledgeable about issues associated with our programs at NNSA,” Gordon-Hagerty said during that hearing, when asked if the agency had benefited from the advisory panel.
The agency currently has three studies being considered and planned with Jason, related to “cyber security of operating equipment, nuclear detonation detection, and plutonium aging,” according to Wolf. (Source: Defense News)
25 Apr 19. The National Background Investigations Bureau Moves to the Department of Defense. President Trump signed an executive order April 24, 2019 that, in combination with the National Defense Authorization Act of 2018, section 925, shifts the primary responsibility for conducting background investigations for the federal government from the Office of Personnel Management to the Department of Defense. This executive order reflects the administration’s commitment to reform the personnel vetting enterprise to ensure a trusted federal workforce and achieve an efficient, effective, and secure operation that meets all government-wide needs for background investigations. The DOD will reorganize the Defense Security Service to best position the department to assume primary responsibility for the government-wide background investigation mission. DSS will be renamed the Defense Counterintelligence and Security Agency and will conduct all activities currently assigned to DSS and serve as the primary entity for conducting background investigations for the federal government. DSS (and subsequently DCSA) reports to the Under Secretary of Defense for Intelligence. Efforts to undertake the transfer of OPM’s background investigation function and associated personnel, resources, and facilities to DOD will begin immediately. (Source: US DoD)
23 Apr 19. Ex-DoD official offers path to boost defense-industrial cooperation with US allies. A former Pentagon acquisitions official has recommended to Congress a series of legal and regulatory changes to ease defense-industrial cooperation between America and its closest allies, including a stronger waiver for U.S. defense-export controls.
Bill Greenwalt, a former Senate Armed Services Committee staffer, deputy undersecretary of defense for industrial policy and federal acquisition policy director at Lockheed Martin, made the recommendations in a new study on America’s technology-industrial base, while stressing that the country could fall behind China without fast action.
The Atlantic Council is due to release the 64-page study on April 23, with hopes it will make waves on Capitol Hill. With Greenwalt’s involvement, annual iterations of the National Defense Authorization Act have addressed the issue of defense-industrial cooperation with allies, and his study offers sample legislative language to advance that process through a future NDAA.
U.S. law defines the national technology and industrial base, or NTIB, as the industrial bases of America’s closest historical allies, Australia, the United Kingdom (since 2016) and Canada (since 1994, when the NTIB was established). But the job’s not done, Greenwalt writes.
The study warns that “a go-it-alone strategy will eventual leave the United States to compete on its own against a civilly-military integrated China, as allies and the commercial marketplace hold back better technology out of fear of getting entangled in the US export-control system.”
A key recommendation is to an expand an exemption for the U.S. International Traffic in Arms Regulations (ITAR) regime from Canada to other NTIB countries, either by executive action or an act of Congress.
Greenwalt envisions a “Five Eyes Defense Free Trade Zone” — a “trusted space” for the sharing of innovation, technology and investment between NTIB allies akin to the Five Eyes arrangement for intelligence.
“Broad and robust changes will be necessary to modernize technology-transfer laws, regulations, policies, and practices to establish the integrated defense-industrial base that US law calls for, to ensure the NTIB nations can work together — as they did to meet existential threats during World War II and in the first decades of the Cold War,” the study reads. “They now need to respond to the far more complex threats they collectively face.”
In 2017, President Donald Trump ordered a whole-of-government assessment of U.S. manufacturing capacity, including the defense-industrial base. The study found a number of challenges.
The Trump administration has since made increasing American arms sales abroad a key part of its national security and economic strategies; that coincided with a major reform package of the Foreign Military Sales process, with the explicit goal of making it easier for friendly nations to procure American military goods.
That policy change, known as the Conventional Arms Transfer policy, includes loosening ITAR restrictions on exports and emphasizing the easier Direct Commercial Sales process. (Source: glstrade.com/Defense News)
23 Apr 19. The US Air Force, not Turkey, is frustrating Lockheed execs on the F-35 program. Turkey’s purchase of Lockheed Martin’s F-35 is in jeopardy due to its order of a Russian air defense system, but Lockheed executives on Tuesday appeared unruffled by the dispute.
Rather, they signaled that an inconsistent demand by the U.S. military — particularly the Air Force — is a bigger long-term concern.
During an April 23 earnings call, one Wall Street analyst asked how Lockheed is dealing with shifts in the F-35 production rate caused by fluctuations in U.S. demand and the uncertainty of future orders with Turkey, Canada and Italy.
Turkey has ignored pleas from NATO to scrap its deal with the S-400 surface-to-air missile system, and the Trump administration could soon face a decision on whether to remove Turkey from the joint strike fighter program.
Lockheed Chief Executive Marillyn Hewson did not mention Turkey by name, but responded that decisions about Turkish participation in the program remain with the U.S. government.
“I suppose the JPO [F-35 joint program office] will have to figure out how they manage what aircraft they buy at what point in time, as countries look at their procurement decisions or as things change among some of the partners that we have,” she said. “But I think they’re managing that risk quite well and the demand is very strong.”
Lockheed Chief Financial Officer Ken Possenriede noted the small size of foreign contracts.
Turkey is “an important ally of ours, a least today,” he said, but the country plans to buy only eight aircraft per lot over the upcoming block buy, which spans lots 12 through 14. Lockheed is hopeful that Italy will sustain its interest in the program, but Possenriede noted that its buy is “not a material number of aircraft.” Meanwhile, Canada is still not yet under contract for the F-35, but plans to start a new fighter competition as soon as next month.
“I think the frustrating piece for us is the United States Air Force and we’ll continue working with our customer and with representatives in the government on what’s the right path forward there,” Possenriede said.
In the fiscal year 2020 budget, the U.S. Defense Department plans to buy 78 joint strike fighters for the Air Force, Navy and Marine Corps. However, the Air Force, the F-35’s largest customer, requested just 48 F-35As in FY20 and intends to buy only 48 F-35As annually over the next five years — a far cry from the 60 jet buy rate that Air Force officials had previously held as a goal.
Meanwhile, Turkey is set to buy 100 F-35As over the entirety of the program. Turkish companies are also part of the program’s industrial base and play a role in sustainment — a complication that neither Hewson nor Possenriede commented on.
By FY20, Lockheed will be able to offer an F-35A conventional take off and landing model at a cost of $80m or less, Possenriede said. The company is also working to lower sustainment costs to $25,000 per flight hour by 2025, which is on par with the cost of flying fourth generation fighters.
However, it remains to be seen whether that will be enough to entice the Air Force to increase its buy rates, especially as it also plans to begin procuring the F-15X from rival Boeing in FY20.
Defense Department officials have maintained that the F-35 program of record remains the same, and that overall quantities aren’t in danger of being slashed if the services buy the jets more slowly. Hewson said she sees that as a positive sign.
“How they manage what they buy year to year, that’s always been a challenge as they look at what their overall needs are relative to the budgets that they have to work with,” she said. “I think that’s going to continue.”
Hewson also believes that there are opportunities to extend the current program well beyond the 3,300 sales that Lockheed has racked up so far, citing reports of Poland and Romania’s interest in the jet.
“We frankly have great capacity on this program. We’ve got facilities in place; we’re going to be in the position to produce over 180 aircraft a year. We’re prepared to do that,” she said. (Source: Defense News)
22 Apr 19. Lockheed’s Costly F-35 to Be Billions Costlier, Pentagon Finds. Lockheed Martin Corp.’s F-35 jet, the world’s costliest weapons program, just got even costlier. The estimated total price for research and procurement has increased by $22bn in current dollars adjusted for inflation, according to the Pentagon’s latest annual cost assessment of major projects. The estimate for operating and supporting the fleet of fighters over more than six decades grew by almost $73bn to $1.196trn.
The increase to $428.4bn from $406.2bn in acquisition costs, about a 5.5 percent increase, isn’t due to poor performance, delays or excessive costs for labor or materials, according to the Defense Department’s latest Selected Acquisition Report sent to Congress last week and obtained by Bloomberg News.
Instead, the increase reflects for the first time the current cost estimates for a major set of upgrades planned in coming “Block 4” modifications, according to the report.
“Ensuring our Block 4 efforts are captured in our acquisition baseline and now in our SAR help us to provide full transparency and status on our F-35 modernization progress,” the Pentagon’s F-35 program office said in an emailed statement.
“The F-35 program remains within all cost, schedule and performance thresholds and continues to make steady progress,” the program office said in its statement. The office “is committed to the delivery of cost-effective warfighting capability across all areas of the program.”
But the long-range cost estimate for operating the fleet from 2011 to 2077 was problematic even before the latest independent Pentagon cost projection of an increase to $1.196trn. By contrast, the F-35 program office’s latest estimate declined by about $8.5bn to $1trn.
The projected increase is likely to be scrutinized by lawmakers, Pentagon acquisition chief Ellen Lord and Acting Defense Secretary Pat Shanahan because they have been pushing the program office and Lockheed to reduce projected operations and support costs.
As a potential sign of concern, the Pentagon’s fiscal 2021 proposed budget calls for 17 fewer F-35s than planned — 81, according to the Selected Acquisition Report.
“At current estimates, the projected F-35 sustainment outlays based upon given planned fleet growth will strain future service operations and support budgets,” the report said. Lockheed also “must embrace much-needed supply chain management affordability initiatives, optimize priorities across the supply chain for spare and new production parts” and share the data rights to certain F-35 software with the Pentagon.
Carolyn Nelson, a spokeswoman for Bethesda, Maryland-based Lockheed, said in an email that the contractor “is taking aggressive action to build supply chain capacity, reduce supply chain costs and improve parts availability to help drive sustainment costs down while enhancing readiness.”
She said the actions by the No. 1 U.S. defense contractor include supply chain competitions, restructuring supplier contracts, synchronizing spare buys, improving parts reliability and accelerating modifications to earlier aircraft. Likewise, the company has “reduced our portion of ‘cost per aircraft’ per year by 15 percent since 2015 and we continue to look for ways to reduce costs,” she said.
The U.S. still plans to buy 2,456 total of the jets in its variations: 1,763 for the Air Force, 420 for the Marines and 273 for the Navy. The totals don’t include more than 700 potential foreign military sales.
Speed of Negotiations
The Pentagon report urged better cooperation from Lockheed to speed contract negotiations as the pace of F-35 production ramps up.
Talks for the 12th and largest production contract to date, valued at as much as $22bn, have moved quickly and are on track to finish in mid-May. But that hasn’t always been the case. The Pentagon F-35 program office “continues to experience slow negotiation behaviors from the prime contractor that unnecessarily extends the timeline to contract award,” the report found.
Nelson said “we continue to negotiate in good faith” and in the current talks “used the actual data from the last 11 contracts as the basis of our offer.” (Source: Defense News Early Bird/Bloomberg)
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