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i 

52–723 2010

[H.A.S.C. No. 111–86] 

PROPOSED RECONFIGURATION OF THE 

NATIONAL DEFENSE STOCKPILE 

HEARING 

BEFORE THE

READINESS SUBCOMMITTEE 

OF THE

COMMITTEE ON ARMED SERVICES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

HEARING HELD 

JULY 23, 2009 
(II) 

READINESS SUBCOMMITTEE 

SOLOMON P. ORTIZ, Texas, Chairman 

GENE TAYLOR, Mississippi 

NEIL ABERCROMBIE, Hawaii 

SILVESTRE REYES, Texas 

JIM MARSHALL, Georgia 

MADELEINE Z. BORDALLO, Guam 

HANK JOHNSON, Georgia 

CAROL SHEA-PORTER, New Hampshire 

JOE COURTNEY, Connecticut 

DAVID LOEBSACK, Iowa 

GABRIELLE GIFFORDS, Arizona 

GLENN NYE, Virginia 

LARRY KISSELL, North Carolina 

MARTIN HEINRICH, New Mexico 

FRANK M. KRATOVIL, Jr., Maryland 

BOBBY BRIGHT, Alabama 

DAN BOREN, Oklahoma 

J. RANDY FORBES, Virginia 

ROB BISHOP, Utah 

MIKE ROGERS, Alabama 

TRENT FRANKS, Arizona 

BILL SHUSTER, Pennsylvania 

K. MICHAEL CONAWAY, Texas 

DOUG LAMBORN, Colorado 

ROB WITTMAN, Virginia 

MARY FALLIN, Oklahoma 

JOHN C. FLEMING, Louisiana 

FRANK A. LOBIONDO, New Jersey 

MICHAEL TURNER, Ohio 

VICKIE PLUNKETT, Professional Staff Member 

JACK SCHULER, Professional Staff Member 

LYNN WILLIAMS, Professional Staff Member 

MEGAN PUTNAM, Staff Assistant 
(III) 

C O N T E N T S 

CHRONOLOGICAL LIST OF HEARINGS 

2009 

Page 

HEARING: 

Thursday, July 23, 2009, Proposed Reconfiguration of the National Defense 

Stockpile ................................................................................................................ 1 

APPENDIX: 

Thursday, July 23, 2009 .......................................................................................... 29 

THURSDAY, JULY 23, 2009 

PROPOSED RECONFIGURATION OF THE NATIONAL DEFENSE 

STOCKPILE 

STATEMENTS PRESENTED BY MEMBERS OF CONGRESS 

Forbes, Hon. J. Randy, a Representative from Virginia, Ranking Member, 

Readiness Subcommittee ..................................................................................... 2 

Ortiz, Hon. Solomon P., a Representative from Texas, Chairman, Readiness 

Subcommittee ....................................................................................................... 1 

WITNESSES 

Holder, Cornel A., Administrator, National Defense Stockpile Center, Defense 

Logistics Agency, U.S. Department of Defense .................................................. 7 

Lowden, Richard A., Senior Materials Analyst, Office of the Deputy Under 

Secretary of Defense (Industrial Policy), U.S. Department of Defense ........... 4 

Thomason, James S., Senior Analyst and Projects Director, Strategy, Forces, 

and Resources Division, Institute for Defense Analyses ................................... 8 

APPENDIX 

PREPARED STATEMENTS: 

Forbes, Hon. J. Randy ...................................................................................... 36 

Holder, Cornel A. .............................................................................................. 44 

Lowden, Richard A. .......................................................................................... 38 

Ortiz, Hon. Solomon P. ..................................................................................... 33 

Thomason, James S. ......................................................................................... 53 

DOCUMENTS SUBMITTED FOR THE RECORD: 

[There were no Documents submitted.] 

WITNESS RESPONSES TO QUESTIONS ASKED DURING THE HEARING: 

Mr. Forbes ......................................................................................................... 61 

Mr. Taylor ......................................................................................................... 61 

QUESTIONS SUBMITTED BY MEMBERS POST HEARING: 

Mr. Lamborn ..................................................................................................... 71 

Mr. Ortiz ........................................................................................................... 65 

(1) 

PROPOSED RECONFIGURATION OF THE NATIONAL 

DEFENSE STOCKPILE 

HOUSE OF REPRESENTATIVES, COMMITTEE ON ARMED SERVICES, READINESS SUBCOMMITTEE, Washington, DC, Thursday, July 23, 2009. 

The subcommittee met, pursuant to call, at 9:30 a.m., in room 

2118, Rayburn House Office Building, Hon. Solomon P. Ortiz 

(chairman of the subcommittee) presiding. 

OPENING STATEMENT OF HON. SOLOMON P. ORTIZ, A REPRESENTATIVE FROM TEXAS, CHAIRMAN, READINESS SUBCOMMITTEE 

Mr. ORTIZ. The subcommittee will come to order. 

Today the Readiness Subcommittee meets to receive testimony 

on the proposed reconfiguration of the National Defense Stockpile 

(NDS). I thank our distinguished witnesses from the Department 

of Defense (DOD) and the Institute of Defense Analyses (IDA) for 

appearing before the subcommittee today to discuss management of 

the Nation’s stockpile of critical materials. 

So thank you so much for joining us this morning. 

As we will discuss today, the concept of a Federal Government’s 

stockpile has been in existence for nearly a century. The size and 

intent of the National Defense Stockpile has fluctuated based on 

both geopolitical and security pressures. 

Based on this pressure, stockpile requirements have ranged from as low as $24 million to as high as $17 billion. 

In recent years, a sharp decline in requirements resulted in a 

significant disposal program begun in fiscal year 1982–1992 and 

continued through the fiscal year 2006, during which more than $6 

billion worth of materials were sold. 

Stockpile management and policy at various times in the past 70 

years have fallen into the domain of a number of different Federal 

agencies, from the Treasury Department to the General Services 

Administration and the Federal Emergency Management Agency, 

known as FEMA. In 1988, Congress transferred both stockpile policy and operations to DOD. 

Although current policy oversight for the stockpile remains with 

Under Secretary of Defense for Acquisitions, Technology and Logistics (AT&L), the authority for management of the operational aspects of the stockpile has been delegated to the Defense Logistics 

Agency (DLA). All of this background is relevant because today we 

find ourselves in a world where China has emerged as a significant 

economic entity. 
2 

Increased requirements in developing nations have led to sharp 

price hikes for many strategic and critical materials. At the same 

time, both commercial and military manufacturing firms in the 

United States are reporting shortages of materials needed for defense production. 

In this environment, the current stockpile statutory management 

structure may not be sufficiently flexible to respond to critical defense industrial needs. In 2006 and 2007, Congress asked the Department of Defense to review its current stockpiling strategy. 

This review included the possibility of reconfiguring the stockpile 

and proposing changes in the Stockpiling Act to allow for stockpile 

requirements based on economic purposes in this time, none where 

related stockpiling is prohibited under current law, the Strategic 

and Critical Materials Stockpiling Act of 1979. A preliminary report to Congress found a lack of information detailing which materials were forecasted to be required for future weapons systems, domestic production capacity, and alternatives for addressing shortfalls. 

The April 2009 report on the proposed reconfiguration of the National Defense Stockpile, which we are addressing in this hearing, 

is the result of the Department’s work in response to congressional 

inquiry. The Department’s goal for a restructured stockpile would 

be to create the ability to leverage the buying power of the Department of Defense and other cooperating Federal agencies by combining materials requirements, negotiating long-term strategic 

sourcing arrangements and enabling planners to capitalize on favorable market, world market conditions. 

To accomplish this, the Strategic and Critical Materials Stockpiling Act would have to be modified by Congress to enhance program flexibility. The subcommittee recognizes the need for managing strategic and critical materials to sustain major weapons systems. But the question is, where should the management of a strategic material program reside? 

While the Department may have the necessary internal competency to determine material requirements, the core mission of 

the Department does not include market management. Nor does 

the Department function as a holder of significant national stockpiles for other Federal departments and agencies. The United 

States Government may have sufficient knowledge and mission capabilities outside of DOD to support a strategic material program. 

These are the issues that we will be exploring today. 

But before I introduce the witnesses, let me yield to my good 

friend, the ranking member, Mr. Forbes, for any statement that he 

would like to make. 

Mr. Forbes. 

[The prepared statement of Mr. Ortiz can be found in the Appendix on page 33.] 

STATEMENT OF HON. J. RANDY FORBES, A REPRESENTATIVE 

FROM VIRGINIA, RANKING MEMBER, READINESS SUBCOMMITTEE 

Mr. FORBES. Thank you, Mr. Chairman. 

And once again, I want to thank you for your leadership and applaud you for having the vision to bring issues before this sub-
3 

committee that are absolutely critical to the readiness of our military forces and our national security, even though they may not be 

the most glamorous or sexiest issues of the day. Today’s hearing is 

one such topic. 

It is one of those things that no one really talks about or worries 

about until something goes wrong. It is at that point, the point we 

don’t have the steel to build Mine Resistant Ambush Protected 

(MRAPs) vehicles, or the rhenium we need to build a Joint Strike 

Fighter (JSF) engine, that the stockpile becomes critically important. So, although a discussion on the stockpiling of manganese, 

tungsten or rhenium may seem esoteric, the underlying need is 

basic, and this hearing is very important. 

As you noted, the Department’s April 2009 report to Congress 

concluded that reconfiguration of the National Defense Stockpile is 

necessary to respond fully to evolving conditions in the world markets and to rapidly changing requirements for both traditional and 

new materials. 

The report lists several potential changes, and we are here today 

to discuss these potential changes and get further understanding of 

what the Department sees as a desired end state for the stockpile. 

Since it was established by the Strategic Materials Act of 1939, the 

stockpile has experienced a roller coaster ride of reductions and 

buildups. Stockpile requirements are driven by a large number of 

factors that range from the health of global financial markets to potential for localized civil war in a country that is the sole source 

of a crucial material. 

The complexity of setting stockpile requirements is, in itself, extraordinary. The proposed changes would modify and create programmatic flexibility and allow stockpile acquisitions and disposals 

on the basis of current market conditions. This alone would increase this complexity by an order of magnitude. Furthermore, 

moving toward an integrated interagency approach to strategic materials management would likely broaden stockpile requirements 

and further complicate stockpile management. 

I am very concerned that we do not have personnel in the Department of Defense or elsewhere in the Federal Government with 

the expertise necessary to manage and integrate its stockpile with 

latitude to enter and exit as market conditions allow. 

DOD’s proposed reconfigured stockpile would, ‘‘be founded on an 

interagency collaborative approach and bolstered by use of experts 

in timely market research and intelligence.’’ 

While I applaud efforts to improve management of this asset that 

is absolutely critical to national security, I do have concerns that, 

in reality, this vision may not be wholly achievable through one 

sweeping reform initiative. 

I would like to thank our witnesses for being with us today to 

share some of their expertise with all of us. As I alluded to earlier, 

this is an area where we cannot afford to go wrong. It is vital that 

we understand what it takes to achieve the goal set forth, while we 

also strive to identify the unintended consequences of our actions, 

and your testimony today is a crucial part of that. 

It is my understanding that, in order for this proposed reconfiguration to take place, this body will have to take legislative action. 

I hope our witnesses will be able to also share their thoughts and 
4 

views on potential legislative actions required to improve stockpile 

management. 

With that, Mr. Chairman, I once again thank all of our witnesses. Thank you for having this hearing, and I yield back the balance of my time. 

[The prepared statement of Mr. Forbes can be found in the Appendix on page 36.] 

Mr. ORTIZ. Thank you. 

Our distinguished witnesses today are Mr. Rick A. Lowden, Senior Materials Analyst for the Office of the Deputy Under Secretary 

of Defense for Industrial Policy; Mr. Cornel Holder, Administrator, 

National Defense Stockpile Center, Defense Logistics Agency; and 

Dr. James S. Thomason, Senior Analyst and Projects Director, 

Strategy, Forces and Resources Division, Institute for Defense 

Analyses. 

Mr. ORTIZ. Mr. Lowden, whenever you are ready, you can begin 

your testimony. 

STATEMENT OF RICHARD A. LOWDEN, SENIOR MATERIALS ANALYST, OFFICE OF THE DEPUTY UNDER SECRETARY OF DEFENSE (INDUSTRIAL POLICY), U.S. DEPARTMENT OF DEFENSE 

Mr. LOWDEN. Thank you, sir. 

Good morning, Chairman Ortiz, Ranking Member Forbes, and 

distinguished members of the subcommittee. 

I am Rick Lowden, the senior materials analyst from the Office 

of the Deputy Under Secretary of Defense for Industrial Policy. 

Prior to arriving in my current position, I served as a materials 

engineer at the Oak Ridge National Laboratory. I appreciate the 

opportunity to appear today to describe Industrial Policy’s role in 

the reconfiguration of the National Defense Stockpile and in the 

development of a plan for managing strategic materials for the Department of Defense. 

Industrial Policy’s mission is to make certain the industrial base 

on which the Department of Defense depends is reliable, cost-effective and sufficient. More specifically, Industrial Policy is responsible for ensuring DOD policies, procedures and actions both stimulate and support vigorous competition and innovation in the defense industrial base and that these policies help establish and sustain cost-effective industrial and technological capabilities that assure military readiness and superiority. 

Currently, strategic and critical materials are the subject of intense discussion within and outside the Department. Since 2003 

and until the recent economic downturn, metal prices had risen 

sharply. The prices of both titanium and molybdenum, metals required for many important defense systems, increased from around 

$5 per pound to over $30 a pound. The price of rhenium, a metal 

needed for high-temperature alloys used in jet engines, had at one 

point increased by over 1,000 percent. The availability of certain 

materials, such as the rare earths used in high-performance, highstrength magnets has been the subject of many recent inquiries. 

Because of its importance to this discussion, I would like to take 

some time to talk about the definition of strategic material. The 

concept of materials being of importance to national security is not 
5 

new. The scarcity of crucial materials during World War I prompted the Assistant Secretary of War to prepare a list of strategic materials described as the ‘‘raw materials essential for the prosecution 

of war, which cannot be procured in sufficient quantities from domestic sources and for which no domestic substitution has been 

found.’’ 

In the legislation governing the stockpile, strategic materials are 

defined as, ‘‘materials that would be needed to supply the military, 

industrial and essential civilian needs of the United States during 

a national emergency and are not found or produced in the United 

States in sufficient quantities to meet such need.’’ 

There are additional definitions of strategic material. However, 

all share two common elements: criticality of application, we need 

the material; and, second, vulnerability of supply, the material may 

not be available. 

It would appear that the definition of strategic material is clear 

and the implication is obvious. However, many factors can complicate interpretation of this terminology. Recently certain metals 

were given special consideration in Section 2533b of Title 10 of the 

United States Code, enacted under Section 842 of the John Warner 

National Defense Authorization Act for Fiscal Year 2007. 

The amendment provided a list of specialty metals that are strategic materials critical to national security. This association appears to have caused some confusion regarding the definition of 

strategic material. The specialty metals presented in the provision 

are clearly strategic materials. However, the list of strategic materials is not limited to these specialty metals. There are many additional metals and non-metallic materials that could also be considered strategic. 

The John Warner National Defense Authorization Act for Fiscal 

Year 2007 also directed the Secretary of Defense to establish a 

Strategic Materials Protection Board to analyze the needs and 

risks associated with materials designated as critical to national 

security and to recommend strategies to ensure the availability of 

these materials. The Secretary of Defense delegated responsibility 

to the Under Secretary of Defense for Acquisition, Technology and 

Logistics to chair the board, who then delegated to the Deputy 

Under Secretary of Defense for Industrial Policy responsibility to 

act as the board’s executive secretary. The delegation of this responsibility explains Industrial Policy’s connection to the reconfiguration of the stockpile and involvement in other matters concerning strategic and critical materials. 

The statute that established the board does not define materials 

critical to national security. Therefore, in order to distinguish between terms, the board developed definitions to be used for its purposes. 

The board determined that for a material to be designated as 

strategic, that material should meet certain technical criteria. 

First, the material should be essential for important defense systems; and, secondly, it must be unique in the function it performs. 

In other words, there are no viable alternatives. 

This definition is consistent with respect to the earlier definitions 

that include the aspect of criticality of application. But unlike earlier variants, it does not include a vulnerability of supply factor. 
6 

The board’s definition of strategic materials is thus less restrictive 

and expands the list of materials that would be considered strategic. It must be noted that additional criteria, such as vulnerability of supply, would have to be considered in order to elevate 

a strategic material to a higher level of concern. 

To ensure consistency for the various Department activities and 

complete the congressional reporting requirements related to strategic materials in the stockpile, the Strategic Materials Protection 

Board’s executive secretary established the Strategic and Critical 

Materials Working Group. The working group, chaired by the Deputy Under Secretary of Defense for Industrial Policy, conducted the 

requested analyses and prepared the report that was submitted to 

Congress in April. The working group was dissolved upon completion of that report. 

The working group, the working group developed a new process 

by which the strategic and critical materials required for national 

defense can be identified, supply chain risks analyzed, and mitigation strategies selected and applied. The working group employed 

a lengthy, deliberative process to collect material information from 

a wide variety of sources and construct an initial list of strategic 

materials using the board’s technical definition as a guide. 

The initial list included a total of 128 materials, which was a 

more comprehensive list than had previously been assembled. Vulnerability or security of supply criteria were then applied to this 

list to assess risks and vulnerabilities associated with the supply 

of these materials and also determine which materials were of concern and may require application of risk mitigation strategies. 

The Strategic Materials Protection Board played an important 

role in the development of this new process and will continue to 

participate in the implementation of a strategic materials management system. The board will support a new process by requiring 

military services participate in the maintenance of the list of material needs and requirements and identification of possible risks and 

vulnerabilities associated with those materials. It will continue to 

review and validate material requirements with the process linked 

to the Quadrennial Defense Review cycle. 

Any new system for managing strategic materials must be dynamic and proactive. As the Department’s requirements change, 

the list of materials essential to the strategic defense interests of 

the United States will also change, and, thus, the methods by 

which the supply chain risks are monitored, measured and mitigated must also change. 

In addition to traditional stockpiling, new and unique acquisition 

strategies, such as buffer stocks, vendor-managed inventories and 

strategic purchases, will be needed to ensure reliable, cost-effective 

and sufficient supply of strategic materials. 

We must look beyond traditional stockpiling methods and select 

and apply the most effective and efficient methods to manage the 

materials essential to national defense. This is our challenge, and 

we look forward to working with Congress and this subcommittee 

on this endeavor. 

I thank you for the opportunity to testify to the subcommittee. 

I sincerely appreciate your time and your interest, and I will be 

happy to address any questions you may have for me. 
7 

[The prepared statement of Mr. Lowden can be found in the Appendix on page 38.] 

Mr. ORTIZ. Mr. Holder. 

STATEMENT OF CORNEL A. HOLDER, ADMINISTRATOR, NATIONAL DEFENSE STOCKPILE CENTER, DEFENSE LOGISTICS 

AGENCY, U.S. DEPARTMENT OF DEFENSE 

Mr. HOLDER. Good morning, Mr. Chairman and distinguished 

subcommittee members. 

I am Cornel Holder, Administrator for Defense National Stockpile Center, a field activity of the Defense Logistics Agency. 

The Defense National Stockpile Center administers the storage 

and disposal of strategic and critical materials to support national 

defense. The stockpile operates under the Strategic and Critical 

Materials Stockpiling Act. I welcome the opportunity to discuss the 

stockpile to specifically discuss the proposed reconfiguration. 

The stockpile dates back to World War I, when shortages caused 

an imbalance in production schedules and program delays. Over 

the years, the stockpile has been administered by different agencies. In 1988, the responsibility for the National Defense Stockpile 

was delegated to the Secretary of Defense with the Under Secretary for Acquisition, Technology and Logistics designated as 

stockpile manager. Program operations were assigned to Defense 

Logistics Agency, and the Defense National Stockpile Center was 

established to manage the program. 

Stockpile material requirements were based on military and national security scenarios, which resulted in the stockpile having 

periodic buildups and reduction phases. In 1992, the requirement 

determination process concluded most of the materials held in the 

stockpile was excess to defense, industrial, and essential civilian 

needs. 

Since then, the sale of the materials in the stockpile have totaled 

in excess of $6.4 billion. In 1994, there were 90 commodities stored 

in 85 locations; today, there are 24 commodities stored in 11 locations, and the current inventory value is about $1.4 billion. 

Concerns regarding the low availability of strategic and critical 

materials prompted the Department to commission the National 

Academy of Science to conduct an independent analysis. Results of 

the study indicated a new stockpile strategy was needed. 

Following this study, the DOD established a Strategic Materials 

Working Group. The working group was chaired by the Deputy 

Under Secretary for Industrial Policy and included representatives 

from each of the military services, the Joint Staff and other Department representatives. The United States Geological Survey, 

the Department of Commerce, and the Institute for Defense Analyses performed research and analysis on behalf of the group. 

The resulting report submitted to Congress in April 2009 concluded the National Defense Stockpile policy required change. The 

working group assessment indicated that material management is 

a complex and rapidly changing field. Increasing global competition 

for raw materials had added new complexity. The global demand 

for scarce raw materials and the industrial surge in developing 

countries required the United States to use a new integrated and 
8 

responsive strategy for identifying and ensuring advocate supply of 

strategic and critical materials for national defense. 

The proposed change being considered included an expanded 

interface with other Federal agencies, greater latitude in entering 

and exiting the market, and a flexibility to develop risk-mitigation 

strategies. The Department has developed a comprehensive Strategic Materials Security Management System that would identify, 

on an ongoing basis, those materials required for national security. 

This system would be founded on interagency collaborative approach and bolstered by the use of experts and timely market research and intelligence. The system would employ an integrated 

risk-assessment construct, compare demand to supply, analyze supply chain vulnerabilities. This would allow identification of defense 

mitigation strategies to ensure an adequate and timely supply of 

those materials. 

Challenges to the implementing of the Strategic Materials Security Program includes ensuring the Department has programmatic 

flexibility to acquire the right materials efficiently and effectively, 

and to ensure that essential strategic materials are available to respond to current future needs and threats. 

In closing, I would like to thank you for the opportunity to discuss the Department’s strategy to reconfigure the National Defense 

Stockpile, and I look forward to working with Congress as we implement this vital program. 

I stand ready to answer any questions you may have. 

[The prepared statement of Mr. Holder can be found in the Appendix on page 44.] 

Mr. ORTIZ. Thank you. 

Dr. Thomason. 

STATEMENT OF JAMES S. THOMASON, SENIOR ANALYST AND 

PROJECTS DIRECTOR, STRATEGY, FORCES, AND RESOURCES DIVISION, INSTITUTE FOR DEFENSE ANALYSES 

Dr. THOMASON. Good morning, Chairman Ortiz and Ranking 

Member Forbes, and other distinguished members. 

My name is Dr. Jim Thomason of the Institute for Defense Analyses (IDA) in Alexandria, Virginia. I am honored to testify before 

you today to summarize key findings from IDA’s research on the 

National Defense Stockpile. 

IDA did research for DOD last year on three specific things in 

this area, assessing DOD’s ongoing needs for a range of key materials; building and testing an initial risk framework forevaluating 

the risks DOD and the U.S. government would face in obtaining 

enough of such materials in war and in less-than-full-war conditions; and offering recommendations for reconfiguring the stockpile 

based on these assessments. 

I led an IDA team to do this work drawing on the best available 

evidence. We have provided DOD with our independent analysis 

and recommendations, and I am pleased to provide highlights of 

them for you today. Portions of our research were included by DOD 

as appendices B and C in the NDS reconfiguration report that you 

are considering today. 

Our research suggests two major points relevant to this subcommittee’s purpose today. First, the magnitude of DOD’s pur-
9 

chases of strategic and critical materials warrants an ongoing program of analysis to promote purchasing efficiencies. DOD buys numerous materials that are broadly known as strategic and critical. 

Some of IDA’s initial assessments of these ongoing purchases are 

provided in appendix D—B of the reconfiguration report, and that 

appendix shows that DOD annually buys three-quarters of a million tons of strategic and critical materials every year. 

A second major point is that, while the current basis for estimating NDS requirements, in the 2005 requirements report, for example, centers on potential shortages in a full-scale national security emergency, such a focus may be too narrow. The future challenge space, as I call it, for assessing such material needs, both essential defense and civilian, and associated risks, also ought to encompass a range of less than full-scale emergency conditions. These 

additional situations could plausibly include potential material supply disruptions due to natural disasters, political instability in key 

foreign countries, and selective terrorist attacks. 

IDA has made several recommendations to DOD regarding potential scenarios and has provided initial results of risk assessments using some of them. 

Based on its analyses, IDA recommended that DOD consider establishing a materials security program, including a component focused on leveraging DOD’s significant buying power in various materials markets to reap potential economies of scale and savings for 

taxpayers; a component that would regularly assess risks to material supplies across possible disruption scenarios ranging from near 

peace to full-scale war. 

This component would also assess risk-mitigation strategies such 

as stockpiling, as in the NDS, but these strategies could also include making special contingency supply arrangements with trusted producers; working out expedited supply procedures, such as 

under a defense priorities and allocation system; exploring material 

substitution possibilities; and, when warranted, investing in domestic production capacity. 

Failure to use practical risk-mitigation strategies such as these 

could degrade our force’s materiel readiness, which in turn could 

inhibit operational performance of the U.S. military at key times. 

A final component of such a materials security program would 

work closely with major DOD materials users, chiefly the services 

and defense agencies, but also the combatant commanders, to monitor DOD’s regular and emergency demands for and supply chains 

of both traditional materials and leading-edge advanced materials. 

With a strong collaborative partnership of this kind, the fragility 

of material and vital parts supply chains for essential military and 

civilian needs will be better understood than they are today, and 

the risks to materiel readiness and national security should be better mitigated as well. 

This concludes my opening statement, Mr. Chairman, Mr. 

Forbes, distinguished members. Thank you very much for inviting 

me to summarize our research on this important proposal this 

morning. I would be pleased to respond to any questions that you 

may have about these assessments and recommendations. 

[The prepared statement of Dr. Thomason can be found in the 

Appendix on page 53.] 
10 

Mr. ORTIZ. Thank you, Doctor. 

It might not be a very glamorous hearing, but you guys play a 

very important role. Just like when you are driving, you don’t want 

to run out of gasoline. You have got to have the material that you 

need. 

But, Dr. Thomason, based on your research into the risks associated with the continuous supply of strategic materials, is a proposed reconfiguration a good idea which DOD should exercise? If 

you could elaborate a little bit on that. 

Dr. THOMASON. Mr. Chairman, IDA has done assessments and 

made recommendations for a reconfigured program with three 

major components, those that I outlined in my testimony just now. 

I believe that the reconfiguration proposal that DOD has submitted incorporates all of those major elements and, in that sense, 

from my standpoint, from IDA standpoint, is a very strong proposal. 

I cannot speak to the other elements because we weren’t asked 

to assess them, but I would say that, overall, IDA’s position is that 

this reconfiguration proposal is a very worthwhile and overdue reconfiguration. 

Mr. ORTIZ. How would this plan overcome the risk that your research has identified? 

Dr. THOMASON. The risk framework that IDA offered in the context of the research that we did last year is an initial step in the 

sense that it works to identify shortages under both national security emergency conditions pursuant to Section 14, as well as addresses potential shortages under conditions of less-than-full-scale 

emergency conditions. It is a first step, because beyond addressing 

the shortages that could arise, there is the very important question 

of the connection between those shortages, those delays, for example, potential delays, and materiel readiness shortages for the Department of Defense and the impact on operational performance. 

That is an area which I believe DOD is very, very interested in 

extending and developing in the context of this proposal. And I believe that is a well warranted extension, and close collaboration 

with the components and with the combatant commanders will 

serve that purpose and that connection very well. 

Mr. ORTIZ. Do you know, in the past, there were different agencies, like the Treasury Department, the General Services Administration and FEMA involved in the past? I know that that we are 

trying to see how we can do it better now. Do we only have one 

budget now to look at all the stockpile and the buying and the selling. Can you elaborate how that works? 

Dr. THOMASON. Mr. Chairman, I would defer to the DOD representatives for that question. 

Mr. ORTIZ. Mr. Holder. 

Mr. HOLDER. The current construct of the stockpile right now 

does not meet today’s global environment. 

One of the things that we feel is that the stockpile base itself is 

based on war scenarios and which we must respond to. We feel 

that today’s military must meet national defense threats whenever 

they would occur. And, therefore, we feel that is important that we 

basically must transform the National Defense Stockpile to this 

new program, strategic materials program, in order to basically be 
11 

able to secure the materials that it is going to need for current and 

also for the future. 

Let me just give you an example of why we think it is important 

this program is basically transformed. For instance, military services came in and was looking for tungsten in order to service the 

MRAP program. Tungsten is one of those commodities that is used 

basically in shielding a material. And one of the things is that we 

could not base a supply of tungsten to them because of the current 

construct of the stockpile, whereas because of the fact that material 

had to be considered in excess or that material had to be a Presidential release from the stockpile to be able to get to the military 

services or it had to be legislated to be able to get to services. So 

the services basically had to buy that material in open market. 

And in addition to that, one of the things that is one of the restrictions is also the amp ceiling level, whereas the material that— 

the quantities they wanted, basically we could not supply because 

the ceiling level basically had a cap on it. So regardless of the 

quantity that they wanted it and the restrictions of release, the 

services were not able to, basically, obtain material from the National Defense Stockpile, and they basically had to go on the open 

market and basically pay a higher cost for that material. 

Mr. ORTIZ. And the reason I ask is because most of us, when we 

go grocery shopping, you know, we just want to be sure that you 

can take advantage of the material that you might need. You might 

be able to get a bargain sometimes. 

So, in my statement, I mentioned that, based on the pressures 

that you have, these stockpile requirements that range from as low 

as $24 million to $17 billion, so we just want to be sure, maybe 

those bargains don’t come often, but if they do come, that you have 

enough money to buy and then, of course, you sell. 

Mr. HOLDER. Well, we have been selling off materials from the 

stockpile since 1993, and that is because, based on the scenarios 

that were given and the report that was given indicated that a majority of those materials in the stockpile were considered in excess 

to the Department of Defense needs. 

Because it was considered in excess to the Department of Defense needs, we began an aggressive sales program. And from the 

aggressive sales program, we basically have sold off, again, from 90 

commodities to 25 commodities. One of the things we are now 

doing in the Department is that we have assessed the materials 

within the Department. 

We basically have looked at materials, the current inventory 

within the Department, and we have basically used an assessment 

of looking at, is it 100 percent import dependent? Is there a vital 

substitute to those commodities? Are there geopolitical issues that 

may affect the supply chain? 

The Department basically suspended 13 commodities and also 

funded a reconfiguration study. We identified another 39 commodities that needed to be more further studied. So we are taking initial steps in order to address some of the issues, but there is more 

work needed to be done. 

Mr. ORTIZ. We will probably come back with more questions, but 

I don’t want to take all the time. Mr. Forbes, go ahead. 

Do you have any questions? 
12 

Mr. FORBES. Thank you, Mr. Chairman. 

And as all of our witnesses have heard several times over, this 

might not be a glamorous hearing, but if something goes wrong 

down the road, somebody is going to be digging up this hearing and 

saying, what did everybody say and why did we have that problem? 

So we appreciate you being here and appreciate your expertise. 

But the other reason we are excited to have you here is because 

this is the one chance that we get to ask you to take off your agency coats, and we get to look at you and say, tell us what you think 

with your years of experience and expertise in this. 

And so that is the framework or the premise of the two questions 

that I would like to pose to you. And one of my questions has a 

number of components to it. So if you don’t feel comfortable answering it today, you can just get back to us in writing with it, or 

if you do, that is fine. But I think we can all agree that the current 

approach to stockpiling critical and strategic materials can be improved. 

And as we have mentioned and you have heard from all of us, 

we really appreciate all the work you have done to bring forth 

these recommendations on what a reconfigured stockpile should 

look like. However, the piece that I am missing is the path of how 

we get there. You know, the devil is always in the details. 

So I would ask you this, what steps need to be taken and in what 

order to ensure that we get it right? Is it best to take a measured 

approach, or do you recommend we leap in kind of with both feet 

and make those changes with one action? And what are the global 

economic impacts to this transition? How does Congress maintain 

oversight both during the transition and after the reconfiguration 

takes place? That is one question with this component. 

The second one is I had an expert in my office just yesterday or 

the day before yesterday who had just come from testifying before 

the Federal Reserve, I think for about 2.5 hours, but he was, very, 

very concerned about our mining policies now across the United 

States and the direction he saw them moving and the difficulty 

that that was going to place us in for strategic materials down the 

road. 

Could you elaborate as to whether or not you see that as a problem that could pose difficulties for us in our stockpile capabilities 

down the road? And any of you, any order is great. 

Mr. HOLDER. The implementation process, again, we have started 

already. The implementation meaning that we have identified materials within the stockpile, and we have made an assessment of 

those materials, and, again, the Department basically has suspended 13 commodities for right now in order to do the assessment 

on those commodities. In addition, the study reflected that we need 

to do more studies on 39 materials. 

Also the next step would be to look at our current requirement 

determination process, which we need to align that to the Quadrennial Defense Review (QDR). Align it to the QDR to be able to determine what are the defense planning priorities for the future. 

Then we can basically do another requirements report to determine what are the potential material shortfalls. Once we know 

what our potential shortfalls are and we can do assessments of 
13 

those materials to determine what should be the risk-mitigation 

strategies for those materials for the future. 

This would, again, be a very collaborative approach with the industry experts and also with the government experts to be able to 

look at the requirements and look at the military services requirements and be able to look at industry requirements to get a better 

handle, a better assessment of those and apply those strategies, 

risk-mitigation strategies, such as office stocks, such as long-term 

contracts such as better management type stocks and versus traditional stockpiling, as we currently do right now. So that is one of 

the paths we are looking at moving forward. 

As far as for congressional oversight, we believe the Congress 

will still have congressional oversight because of the fact we will— 

we will send up the annual—annual material operation report. In 

that report, it basically gives you an idea of what the stockpile has 

done within a given fiscal year. 

In addition to that, we will send a requirements report and the 

requirements basically tells you what materials we are looking at 

for potential shortfalls, and we will be looking at designating supply and risk mitigation strategies to those materials that have been 

identified. Any release from the stockpile also will—we will basically tell Congress, we will give Congress notification of the release 

of the material from the stockpiles. So Congress will continue to 

have oversight over the program. 

Mr. FORBES. Do any of you see any problems with our current 

mining policies and the directions they may be going as far as it 

would impact stockpiles? 

Mr. LOWDEN. I would like to defer that and get back to you with 

that. 

[The information referred to can be found in the Appendix on 

page 65.] 

Mr. FORBES. Sure. We would be happy to do that. 

With that, Mr. Chairman, I yield back, and thank you, gentlemen. 

Mr. LOWDEN. Sure. 

Dr. THOMASON. May I make one comment? 

Mr. FORBES. Sure, Mr. Thomason. 

Dr. THOMASON. The process for determining requirements that 

has been designed for use by the government and reviewed by the 

Government Accountability Office (GAO) is a flexible process, one 

that can incorporate the best available evidence and that can utilize scenarios of the sort that I was describing beyond the national 

security emergency scenarios. 

I believe that an adapted version of that process will continue to 

be a very useful analytic tool. But I would like to say that that is 

particularly with respect to assessing shortages and risks and 

vulnerabilities. 

The work that IDA did last year with regard to reconfiguration— 

and this harks back actually to Chairman Ortiz’s question earlier 

about a single budget—what we envision now is a potential strong 

role for the development of essentially purchasing efficiencies for 

the Department of Defense and beyond the Department of Defense 

to include the rest of the United States Government in a way that 

is not directly tied to the issue of risk, not directly tied to the issue 
14 

of shortages, but tied more directly to the possibility of serving as 

a wholesale supplier to the government as a whole. 

And so, therefore, in terms of steps for reconfiguring the stockpile, I would urge, as I have in my prepared statement, consideration of the twofold potential purpose of a reconfigured stockpile, 

one, to serve potentially as a smart buyer for the Department of 

Defense as a whole; and, two, to have a separate track, complementary track, that would look at risk-mitigation strategies for a wider 

range of materials than has traditionally been the case. So that is 

point, number one, in response to your question. 

And then, point number two, Mr. Chairman and Mr. Forbes, 

with regard to mining policies, I would simply say that it is very 

important to have as strong evidence as possible about the capabilities both under normal circumstances and contingency emergency 

circumstances of the U.S. mining base and that, in order to do that, 

in order to get that information and be able to use it in a coherent 

way, really calls for a strong capability from either the U.S. Geological Survey or a combination of the U.S. Geological Survey and 

the industry. 

Mr. FORBES. Thank you, Dr. Thomason. 

Mr. ORTIZ. Before I go to Mr. Kissell, let me ask you, Mr. Lowden 

and Mr. Holder, can reconfiguration as proposed in the April report 

be implemented without changes in the Federal law, or do you 

think you might need our help to come up with legislation that 

would make it easier for you, make it better for you? 

Mr. HOLDER. Yes, the final report reflects a full range of authorities that we may need. Some of those authorities we are looking 

at, indicating that we may need help in acquisition, developing acquisition, also help in the area of release authority, such as I indicated before, of having more flexibility in the area of release. 

So those are some of the things that we are proposing or that 

have been proposed in the report that we will probably be needing 

that flexibility to be able to implement this program. 

Mr. LOWDEN. I agree. Flexibility is the word, and if you look at 

the current way that the stockpile operates, it is good for long-term 

storage, and it is good for things that we see as problems down the 

road. But as something comes up quickly, we can’t respond to the 

stockpile because of the legislation that is involved. 

And so that we really need to have a program or methods, different methods by which we react to different scenarios, as Dr. 

Thomason said, that something maybe, may come up like, tomorrow, say for example two-inch-thick aluminum plate can’t be 

bought because they are closing the last rolling mill. 

Well, if we know how much we are going to need for the next 

three years, we are okay; we get that. We move on. That is one scenario. That might be a buffer. 

Or you might have something as long term as we have with manganese, as we talked about, things like that. I think there are different scenarios, there are different materials risks that are going 

to be coming up, and we need different methods to address those, 

so that may require different sources of funding and different 

tracks. 

So I think it is not just as simple as saying we are just going 

to have this block and everything is going to be fine. I think it is 
15 

going to be, as Mr. Forbes asked, I think it is, from my opinion, 

is that it is much more complicated than just saying this is what 

we are going to do, and it is going to take different steps and small 

steps in some cases to get used to what we are doing to know how 

to do what we are doing. Baby steps, I think you call them. 

I think the DLA folks are doing some things already that are 

fantastic in that respect. But it is in that idea of reacting and having a stable source of funds for those different activities is where 

we really would like to work with you guys. 

Mr. ORTIZ. Well, we just wanted to be sure that we offer you our 

services and especially if there is anything we can do, don’t hesitate to let us know how we can help you maybe streamline and 

make it better. 

Mr. KISSELL. 

Mr. KISSELL. Thank you, Mr. Chairman. 

Thank you, gentlemen, for being here today. 

And I want to kind of follow the same lines as the chairman and 

Mr. Forbes has followed. 

There was a saying or story I remember from my past, for want 

of a nail, the war was lost. And the story goes about the rider that 

didn’t have a nail for the horseshoe and took off riding, and the 

horse went lame, and he was not able to deliver the news to the 

general in time. The battle was lost; the war was lost. 

Do we have any nails in our system now, and does the system 

we have now allow us to see the potential nails in time to avert 

a crisis? And the new system you are talking about, is that what 

we need to get to in order to be able to have a system that allows 

us to avoid the nails and, therefore, something very small that 

could cost us in terms of the big picture? 

Mr. HOLDER. The current construct, again, for the stockpile is 

based on war scenarios for war mobilization. So the materials that 

basically go into a stockpile is a hold model. It is holding it for basically national emergencies in order for materials to be released. 

That right now does not fit the global environment, currently, right 

now, as far as to be able to serve the military services. 

What we are talking about, as far as the implementation of a 

new program, is to be able to have more flexibility, to be able to 

have collaboration with the services to identify what are the services’ problems when it comes to materials or requirements that 

they may need for the current and also for the future. 

In the static program of the current stockpile, we did not have 

that interface with the services, and what we are talking about 

now is having more interface with the services to be able to discuss 

their requirements, discuss their emerging needs and being able to 

apply risk-mitigation strategies for the future to assure that they 

will have supply availability in times of our need. 

Mr. KISSELL. Thank you, sir. 

I yield my time, Mr. Chairman. 

Mr. ORTIZ. Mr. Rogers. 

Mr. ROGERS. Thank you, Mr. Chairman. 

Mr. Lowden, in your opening statement, you briefly described the 

mission of the Office of Deputy Under Secretary of Defense for Industrial Policy and in greater detail the responsibilities that have 
16 

been delegated to the deputy under secretary for protecting the 

United States’ access to strategic materials. 

These are significant responsibilities, particularly as the worldwide demand for these materials continues to grow, potentially 

driving the cost of these materials up and availability for them 

down. However, in recent press accounts, and specifically I am referring to the Defense News and Army Times published article, 

these accounts indicate that the Department plans to demote this 

office from deputy under secretary to the director level. 

In response, the Senate’s version of the National Defense Authorization Act would codify and elevate the position to Assistant Secretary. 

In your opinion, what would the effect of downgrading the Office 

of Industrial Policy be in terms of the ability of the office to accomplish its stated mission, particularly as shrinking budgets, defense 

budgets, may lead to further consolidation of the industrial base as 

the world competition for scarce materials such as rare Earth 

magnets becomes more intense? 

Mr. LOWDEN. Mr. Rogers, let me refer to the statement of administration policy (SAP) from July 15 in which the administration expressed its concerns regarding this provision. And the SAP states, 

The elimination of non-statutory deputy under secretary of defense 

positions would be detrimental to the continuity and operation of 

the Department and severely hamper the Secretary of Defense’s 

ability to effectively organize, structure and manage the department. That would be true with us also. 

Mr. ROGERS. Okay. 

What about you, Doctor? 

Dr. THOMASON. I have not studied the issue, and I am not really 

prepared to comment on it, except to say that I do believe that in 

the reconfigured process, as we recommended in our, through our 

research, that it would be very useful to have an Office of the Secretary of Defense (OSD) review and decision panel that could draw 

upon the best assets from OSD (AT&L), and OSD policy and from 

program analysis and evaluation in making key decisions on such 

things as scenarios and other vital planning assumptions. 

Mr. ROGERS. Thank you. 

That is all I have, Mr. Chairman. 

Mr. ORTIZ. Mr. Courtney. 

Mr. COURTNEY. Thank you, Mr. Chairman. 

I had one question I was sort of intrigued by looking at the chart, 

which was submitted to the committee, showing the fluctuation of 

commodity prices for different materials, which I don’t think anybody needs to be reminded of that in terms of just the price of oil 

and what has happened in just the last 12 months, but, clearly, 

that volatility has extended to other materials which are part of today’s discussion. 

And in terms of coming up with a system that can really respond 

to market changes that are out there, I am struck by whether or 

not this is something that really belongs completely or at all in the 

Department of Defense because it is really not sort of the mission 

of the Pentagon is necessarily to be sort of out there, you know, following trading patterns. 
17 

The Department of Commerce, obviously, is an agency of government which is much more focused and linked to dealing with international economics. And, as a result, I think they may—I am just 

sort of curious whether you think that their resources would be 

more appropriate in terms of trying to help design a system that 

can buy when the buying is good and sort of see out into the horizon when the buying is bad. 

As an example, I mean, the Department of State used to run our 

export assistance programs for U.S. businesses looking for markets 

in different parts of the world. Back in the late 1980s, Congress 

moved that function out of State and over to the Department of 

Commerce so that now, if you go to an embassy in different parts 

of the world and you are a U.S. company that is out there looking 

for customers, it is the Department of Commerce that runs the export assistance system, not the Department of State. 

And, frankly, it has been a great shift because Commerce is just 

much more connected to, you know, the world of commerce. And, 

again, looking at the challenge that this country has in terms of, 

again, trying to get ahead of the curve in terms of these very complex markets, you know, should we be tapping into Commerce as 

the agency of government to help us design a good system? 

Mr. HOLDER. One of the things right now is that the Department 

of Commerce does collaboration with the Department of Defense. It 

serves as co-chair of part of the Market Impact Committee with the 

State Department. The Market Impact Committee basically is an 

interagency of material experts, and basically they provide the 

stockpile manager with analysis on supply disruptions and supply 

availability issues. 

We will continue to collaborate with the Department of Commerce. They have been working with the stockpile for 15 years. 

They have participated with us in our sales program. And basically, we will continue that collaboration with State and also with 

all the other individuals that serve on that committee, such as the 

Department of Treasury, Agriculture and Homeland Security, to be 

able to make sure that we have the most intelligence that is going 

to be needed as we implement this new program. 

Mr. COURTNEY. So, I mean, does that collaboration have structure to it? 

Mr. HOLDER. Yes, it does. 

Mr. COURTNEY. Or is it kind of ad hoc? 

Mr. HOLDER. It is a statute within the Stockpiling Act that provides this interagency collaboration in order to support the mission 

of the stockpile program. 

Mr. COURTNEY. Okay, and I know the committee is curious about 

an issue about the definition of strategic materials where, again, 

our 2010 Authorization Act issued a report which talked about the 

definition of strategic materials which points out that the Materials 

Protection Board’s definition of strategic materials is sort of, in the 

committee’s point of view, not as broadly—is not as broad in terms 

of covering what I think the concern is of Congress in terms of materials that need to be picked up under this type of program. 

For example, Congress has determined that the reliance on foreign sources of supply for materials such as titanium, specialty 

steel and high-performance magnets poses a heightened risk. The 
18 

board’s narrowing of the definition of materials critical to national 

security renders the board unable to provide perspective on the 

adequacy, suitability or effectiveness of those policies. I was wondering if you would comment about that sort of disparity. 

Mr. LOWDEN. I will take that, Mr. Courtney. 

The definition of strategic and critical by the board created for 

its purposes was multifold. One is that, in my testimony, it talked 

about strategic materials; are those materials that we have to 

have? And that is what the board took on, was those are the things 

we have to have; they are essential. 

And there is a big list of strategic materials, and as I said, there 

was 128 that we looked at that could possibly be strategic materials. It could be aluminum, an aluminum alloy. It could be almost 

anything, even the most mundane materials we see as standard 

materials still are strategic to us. The Department of Defense has 

to have them. 

So the definition of ‘‘strategic’’ is a technical one. It is one that 

says it is something we have got to have and there is a possibility 

or there is no substitute that is available for it. And that can be, 

like I said, even a plastic screw in a electronic component can be 

a strategic material if that is the only thing that works. 

Then taking it to the next level, is there—I will call it a gray 

area, there is an area in which that material becomes more important. That is the area in which there is a risk of supply-chain disruption, and it can be almost anything that does. It can be global 

disruptions. It can be China cutting us off on that supply of that 

material. That raw material, as you talked about, the nail. The little thing you don’t expect, say terbium for light bulbs, whatever it 

may be. 

There is a bunch of risks that can occur, and those risks can 

have many forms and have different severities. So you don’t want 

to go to critical because critical becomes a state of crisis, and that 

is the definition of the word. And so you don’t want to take everything that suddenly has a small risk of supply disruption and 

crank it up to crisis level. 

So there is this area in between, in between strategic and critical, that things happen, and there is a supply chain disruption, a 

vulnerability that occurs. Now, the board decided that critical 

meant it was—there was a significant chance of supply chain disruption from U.S. and U.S.-friendly suppliers, and the Department 

of Defense is the last user, and also not just the last user, we are 

the ones who drive the market. 

There are very few materials that fall into that category, as you 

notice there is one, it is beryllium, we have all seen that. As you 

look behind this a little bit and what it is coming up the pike, there 

are other materials that probably make it to that level in near 

term, four specific applications. 

And I won’t mention any of those right this moment, but there 

are a number of different risks that occurred. So the reason the 

board took that approach is, we know there are a lot of strategic 

materials, and we know that many of those materials do have risks 

associated with the supply chain. 

And that is going to get worse with time. We have Brazil, Russia 

and China, and other things coming up. So we want to take it, and 
19 

as we move along, we don’t want to go into that crisis mode unless 

we have to. And that is things like we are doing with beryllium, 

and we are building a plant so that we have the beryllium that we 

need for our applications. And we are the last big user. 

So that is the definition. So, what I said in my testimony, I was 

trying to deflect it a little bit, was that we created a big list of strategic materials, and that is something that I find to be very interesting and very useful, because we didn’t know what we need. 

When we came into this process, we really didn’t know all the materials we used. And of course, we looked at those things that were 

big first. You look at the Acquisition Category I programs, you 

know, the ones that are being spent a lot of money. But then you 

realize it is that little thing that might get you. 

It might be the germanium you need for all of our night-vision 

goggles we might not be able to get. It is not the big programs; it 

is those things we have to have and then all of a sudden we can’t 

get. So that is the list of materials we want. We want to know everything we need. And since, by definition, it is things we have to 

have, it is a strategic material. We just don’t want to elevate it to 

critical until we really have to. Thank you. 

Mr. ORTIZ. Mr. Taylor. 

Mr. TAYLOR. Thank you, gentlemen, for being here, and I thank 

you for what you do. 

What I am curious is, is I am reading what your job is and what 

you are empowered to do. What I have failed to see is that, is your 

organization empowered to try to get a better deal for the Nation? 

For example, you mentioned in your testimony, the price of metals went way up during the 1980s. You didn’t mention that the 

price of steel and aluminum fell to about half of what it was just 

two years ago over the course of the last year. And the only reason 

I found out is my local scrap dealer told me. 

And so as someone who has, very fortunately, significant amount 

of responsibility for shipbuilding, I found it very strange that no 

one in the Navy came to me and said, hey, the price of steel is 

down, the price of aluminum is down, let’s go buy a bunch of it 

while we can and save the taxpayers some money. 

In fact, when I pointed it out to the Navy, they said, well, it is 

only five percent of the ship. Well, if you can save 2.5 percent on 

a $7 billion ship, that is a heck of a lot of money in Bay St. Louis, 

Mississippi. 

So my question to you gentlemen is, to what extent do you get 

involved, and since you know what things cost and their availability, and that sometimes things are way above cost and sometimes there are bargains, to what extent are you empowered to try 

to get a better deal for the Nation? And to notify Congress, hey, 

the price of aluminum down, now is the time to buy? The price of 

steel is down; now is the time to buy. Or I am told titanium is 

down by a third from a couple of years ago; now is the time to buy. 

Are you empowered to do that, and do you ever do that? Guys, it 

is a fair question. 

Mr. HOLDER. That is one of the things that we are looking at in 

order to transform the current construct of the National Defense 

Stockpile into a Strategic Materials Security Program, to be able 

to have those flexibilities and to be able to help the services when 
20 

it comes to an acquisition buy of materials. Currently, right now, 

the materials that we have in the stockpile are considered to be in 

excess the Department of Defense needs; so, therefore, we are selling off a majority of materials from the stockpile. 

Mr. TAYLOR. May I interrupt? 

Mr. HOLDER. Yes, sir. 

Mr. TAYLOR. To that point, let’s say that material happens to be 

aluminum. Are you empowered to say, guys, this is a bad time to 

sell aluminum; the price is down from two years ago? It has got 

to go up at some point. It would be a smart thing for our Nation 

to hold off on that. And I will give you a perfect for instance. 

I was here when we sold off the naval shale reserves, and the 

price of oil was $13 a barrel. Everybody, including myself, who 

voted for that should have been shot. If we had just waited a few 

years, we could have gotten a heck—if we would have waited until 

last summer, we could have gotten over $100 a barrel for the same 

oil. So, again, I made a mistake when I voted for that. We happened to have balanced the budget that year; that is the only good 

thing that came out of it. But is anybody saying, this isn’t a good 

time to sell? Because we all have a civic responsibility to try to get 

the best deal for the taxpayers. 

Mr. HOLDER. Within our sales program, we have that responsibility to determine when is the best time to be able to sell material. 

For instance, let me give you an example. We have cobalt within the inventory. The price of cobalt fell down to about $6 a pound. 

We suspended the sales of cobalt because we knew that over an extended period of time that the price of cobalt was going to rise 

again, and which it did. We backed out of the market for a year, 

and basically the price of cobalt began to rise, and we began—— 

Mr. TAYLOR. So you are empowered right now, under existing 

law, to make that decision? 

Mr. HOLDER. Yes. With the materials we have considered excess 

within the stockpile. 

Mr. TAYLOR. And just as a matter of curiosity, when you see a 

directive come down to get rid of something and you know it is a 

bad time to sell it, what is your procedure to notify someone that 

we really shouldn’t be doing this? What do you do? Are you the 

man that makes that decision? 

Mr. HOLDER. I have that authority to make that decision not to 

sell those materials at that moment in time. 

Mr. TAYLOR. But everyone answers to someone. 

Mr. HOLDER. Yes, sir. 

Mr. TAYLOR. So who do you notify that you have made the decision to hold on to that product until the price gets better? 

Mr. HOLDER. We go through the chain of command, which is 

through, basically, from Industrial Policy and all the way to the 

stockpile manager; which we have done this time, where we said 

that we wanted to suspend the sale of 13 commodities within the 

stockpile because of the fact that we felt that those commodities 

may have geopolitical issues; we didn’t have viable substitutes and 

were 100 percent import-dependent. Until we made sure that the 

services—that there was no need for those materials for the services. Right now, those materials are still suspended or curtailed 

until that analysis is done. 
21 

Mr. TAYLOR. And as a matter of curiosity, when you saw that it 

was a bad time to buy something or sell something, and particularly sell something, has anyone above you ever told you, go ahead 

and sell it anyway? 

Mr. HOLDER. No, sir. 

Mr. TAYLOR. I am glad to hear that. 

Thank you, Mr. Chairman. 

Mr. ORTIZ. Mr. Johnson. 

Mr. JOHNSON. Thank you, Mr. Chairman. 

And I am just now arriving at this hearing, unfortunately, and 

so I missed a lot that has taken place prior to my arrival. So I will 

have no questions or comments today, but next time, I would like 

to get my five minutes from today added on to. 

Mr. ORTIZ. Well, my question is this now. The material that you 

buy, is there an expiration period where you stockpile it and you 

say, well, it is only good for five years, six years? And then, you 

know, most of the stuff we buy today, you look at the bottom of the 

can or the bottle, expires by such and such a date. Is that the same 

animal that you face with the stuff that you buy? 

Mr. HOLDER. We haven’t purchased material in the stockpile 

probably since the early 1990s. But one of the things that the current Stockpiling Act does allow us to rotate materials. Such as, for 

instance, years ago, when we had smoked sheet rubber within the 

inventory, we were able to rotate the stock on a yearly basis to 

make sure that we had the current available or current specifications of rubber within the stockpile. So that the Stockpiling Act 

does give us that authority to rotate the stocks to assure that we 

have the best availability and material. 

Mr. ORTIZ. Mike. 

Mr. ROGERS. The only question I have in follow-up with Gene’s 

questioning is, is it a problem as far as space? What would be the 

reason why you couldn’t go ahead and take advantage of market 

pricing volatilities if you saw, as Gene said, steel down 50 percent 

from what it had been 2 years ago? What would inhibit you from 

being able to penetrate that market and take advantage of that? 

Or, would storage costs outweigh the savings you would make on 

it? I don’t know. I am asking. 

Mr. HOLDER. Again, with the current construct right now, we 

have to go through what is considered to be a process of Department determination to determine, what are the requirements that 

the services will actually need? That is identifying the material. 

And, right now, the only things we have identified of potential materials right now with the current construct is that materials that 

we have are considered to be excess. So there is right now no determination for material for us to actually buy at this moment in 

time. 

One of the things that Dr. Thomason testified is that, as we 

looked at our study, we looked at maybe the top 10 materials that 

there is the possibility for the Department to do leverage buys because those are the materials that we are saying that there are 

three quarter of a million tons of materials that possibly that the 

Department can apply leverage buys to be able to use their buying 

strength to be able to attain the best overall price for these commodities. 
22 

Mr. ROGERS. So then the cost of storing those materials is not 

going to be a factor that you are concerned about outweighing the 

price benefit that you may get from a cheaper buy? 

Mr. HOLDER. Sir, that would depend on the quantity that we are 

talking about buying, and also depends on where actually the storage of these locations will be. Currently, right now, Defense National Stockpile has three staff locations where we store material 

at. Some of those locations basically could possibly maybe handle 

the storage of those commodities. But then, again, we need to be 

looking at, should we be storing those commodities? Or basically, 

should we be looking at vendor management with those materials 

actually being kept at the facility, and they could basically be holding it as buffer stocks, versus releasing that material to the government and where it can be used or can be released directly to the 

vendor in times of need? 

Mr. ROGERS. Thank you, Mr. Chairman. 

Mr. FORBES. Mr. Chairman. 

Mr. ORTIZ. Mr. Forbes. 

Mr. FORBES. Can I offer one follow-up question? 

Mr. Lowden, returning to your definition of strategic material 

critical to national security. By determining that DOD has to be, 

in your words, the, quote, last big user of the material for it to be 

critical to national security, doesn’t it create the difficult situation 

that a material could be critical to every element of the industrial 

base upon which the Department depends but not considered critical to the Department itself if the material is also used significantly in commercial items and vulnerable to disruption? 

Mr. LOWDEN. Well, I think that the health of the commercial 

market and the commercial industrial base is essential for ours. If 

you look at materials, we are a relatively small user of materials, 

although we talk about so many millions of tons of materials. In 

steel, we are less than one percent in defense. And if you look at 

aluminum, we are less than six percent. If you look at titanium, 

we used to be the key in titanium, but with the global aerospace 

market and the growth in other areas, we are less than five percent of the market now globally. 

So when you look at that health of the industrial base—— 

Mr. FORBES. How about something like fuel that you would be 

using? 

Mr. LOWDEN. I don’t know about fuel, sir. 

But I can tell you about materials, is that we do look at it from, 

again, from the bottom up; is that we are only a small player. And 

when I call it critical to national security through the Strategic Materials Protection Board, as I noted, that was for its purposes, and 

that was Defense Department purposes. 

Mr. FORBES. What does that term the ‘‘last big user’’ really 

mean? 

Mr. LOWDEN. Well, let’s look at beryllium. I can use another example. Say it is a corrosion protection material that is hazardous 

to the health of the users and the people who have it out there, 

and we are no longer going to use it, and there are a couple out 

there right now. As we look at our legacy equipment and we find 

and we look at our current and existing programs to build aircraft 

or ships, whatever it may be, a ground vehicle, and we see that 
23 

this material is no longer to be used in the commercial market; we 

see that coming, but we have to have it. And we are the last user. 

Mr. FORBES. Let me stop you there, and I will wrap up here very 

quickly. Suppose I have material A, which has to go in some product that you need, and you are concerned about that not being 

available. But let’s say there is a product B that is vitally important for the commercial industry that is producing the product you 

need. Does that product A ever come in and be counted as a critical 

to national security? 

Mr. LOWDEN. Yes. 

Mr. FORBES. Okay. 

Mr. ORTIZ. Trying to follow up on Mr. Rogers’ question. Do you 

envision the necessity for Military Construction (MILCON) funding 

requirements under the storage, under the plan that we are talking 

about? 

Mr. HOLDER. Right now, we are looking at different funding 

sources. The Department right now has not made a decision on 

what is the appropriate funding source. As of right now, we operate 

under the transaction fund, which basically pays for operating in 

the National Defense Stockpile. Of course, as you know, there is 

the appropriated fund that is a direct line from the Defense budget, 

and also there has a revolving fund. These are things that we are 

exploring, but no decision has been made within the Department 

what would be the most appropriate fund as we move forward with 

the new program. 

Mr. ORTIZ. Any other questions? 

Mr. Taylor. 

Dr. THOMASON. Mr. Chairman, may I make one comment on that 

point? 

Speaking to Mr. Rogers’ question about the storage requirements, I think Mr. Holder indicated, very much in line with our 

suggestions and our research, that the model for storage has yet 

to be determined because there is the question of whether it is 

more efficient, more efficient for the taxpayer, more efficient for the 

government to serve as a manager and yet store, for example, at 

the contractors that are actually doing the production. 

But—so it is premature, I would say, from our standpoint, because the issue of the relative merits of one versus the other storage model have not been worked out yet, which bears, I believe, on 

the chairman’s question as well about MILCON requirements. 

Mr. ORTIZ. Thank you, sir. 

Mr. Taylor. 

Mr. TAYLOR. Thank you, Mr. Chairman. 

Gentlemen, have all of you been at this job for at least five 

years? Okay. A real-life scenario that occurred with this committee 

was a group frustration at the delays it took for our Nation to 

produce up-armored Humvees. One of the causes of those delays 

was the shortage of certain types of steel to use in the up-armored 

portions of the Humvees. I am just curious, and I remember it 

being a very significant factor, was that type of steel in your inventory? And was any effort made to get that type of steel out of your 

inventory to the manufacturers that we were calling upon to make 

the doors and the bodies of the up-armored Humvees? That is the 

first question; did you have that type of steel in your inventory? 
24 

Mr. HOLDER. Sir, the Defense National Stockpile basically has 

raw materials. 

Mr. TAYLOR. I understand. 

Mr. HOLDER. These are materials that are basically used in the 

applying and making of steel. 

Mr. TAYLOR. I understand that, too. 

Mr. HOLDER. So the answer is, as far as did I have steel within 

the inventory, the answer is, no. 

Mr. TAYLOR. Based on that delay, has anyone within the DOD 

come to you and said, we got burnt once, maybe we should stockpile this stuff this time? 

Mr. HOLDER. No, sir. 

Mr. TAYLOR. Just for my information. Who within the DOD 

ought to be looking at scenarios like that and saying, okay, we 

made a mistake once, let’s not make it again? Whose job is it to 

analyze that real-life scenario that happened just in the past five 

years? 

Mr. LOWDEN. It is our job. And we did respond, and we did work 

with the steel community to get the material that was needed. 

Mr. TAYLOR. But I think you will agree, Mr. Lowden, it took a 

very long time. 

Mr. LOWDEN. Yes. The hindrance was the availability of ingot 

steel to be rolled and tempered and quenched in the appropriate 

manner to make the steel we required, the thin-gauged armor 

plate. The problem was no one could melt enough steel of the type 

we needed in this country. And, therefore, we had the capability at 

Oregon Steel to roll and quench and temper that ingot, but they 

could not get steel to roll. 

And, therefore, the delay and the hindrance was the rule that we 

could not bring steel that was melted or produced into this country 

to make armor; from either Canada or the United States was not 

available. So that, by working with the various organizations, we 

looked at changing the definition of produced and allowing us to 

bring in ingot from Mexico from Mittal Steel—that also produces 

here; it is our number one producer—to be rolled and quenched and 

tempered at Oregon Steel, and it increased our capacity by 40 percent. So it was that move that in that special situation we had to 

work through that scenario of getting it because it was not allowed 

by law to be brought in. And so that is what the hindrance was, 

was that ability to get ingot steel of the type we needed. We had 

the capacity to roll, but not the capacity to produce. 

Mr. TAYLOR. Given that very real scenario happened not that 

long ago, that we have also had again group frustration in how 

long it took to produce the 18,000 MRAPs that we now have in 

Iraq, that I am sure we are going to continue to feel that frustration in trying to fill the 5,000 all-terrain MRAPs for Afghanistan, 

to what extent—it is my understanding General Brogan is in 

charge of that program. To what extent do you work with General 

Brogan, who is responsible for the acquisition of those 5,000 new 

MRAPs, to see to it that this type of delay doesn’t happen? 

And, Mr. Lowden, I am not trying to bust your chops. 

Mr. LOWDEN. I understand, sir. 

Mr. TAYLOR. But we know for a fact that MRAPs are saving 

lives. We know for a fact that kids who died in Humvees would 
25 

probably have been alive if we had gotten the MRAPs built sooner. 

Right? We don’t want to keep making the same mistakes. So to 

what extent does your organization get involved in saying, General, 

you have got some delays here, I have got some expertise within 

my shop, let me help you find these things? 

Mr. LOWDEN. The purpose of industrial policy is to look at the 

industrial base and make sure we have what we need to do the job. 

And I would like to—— 

Mr. TAYLOR. But we also get caught in our own lanes and fail 

to help the guy in the next lane with some expertise that you 

might have. 

Mr. LOWDEN. I would like to take that for the record, Because 

I am a materials engineer, and it is not my area of expertise, and 

I would like to get back to you and provide a more appropriate and 

informed answer to that. 

[The information referred to can be found in the Appendix on 

page 65.] 

Mr. TAYLOR. I would very much appreciate that, because it is 

going to be a challenge. We have just funded those vehicles. We 

want to get them fielded right away. 

Mr. LOWDEN. Now that I said that, I would like to say something 

a little bit additional to that. 

Mr. TAYLOR. All right. 

Mr. LOWDEN. This idea of a Strategic Materials Management 

Program broadens what we would be doing with respect to materials that we may need or we see problems with. If we are using 

the military services to help derive the list of materials we need— 

and it was real interesting. I used two-inch-thick aluminum plate 

as an example because, in our inquiries out to the services, that 

came back as a material they were concerned about. If they are 

concerned about it and they know about it, they can tell us, and 

then we, as a Strategic Materials Management Program, can plan 

ahead for that, and we can see what is coming down the pike. And 

that requires input from the services and the programs. They are 

crucial to making this work. And so as I look at this program and 

as we talk about it, this is the idea, is that when we think about 

stockpiling—and I am going to try not to smile too much. 

When I came here when I thought about stockpiling, I said it is 

a pile of rocks. You know, that is what it is. It is this big pile of 

rocks that we have kept around for long times, and we are not 

using it. And now we are looking at having materials in the form 

we need it when we need it. It doesn’t just have to be the pile of 

rocks anymore. This gives us the opportunity to put things in there 

in the form we can best use it, whether it be an ingot of steel, an 

ingot of titanium, or a two-inch-thick aluminum plate, store it at 

the vendor so that the programs can get it when they need it. That 

is what we want to look at. 

So whether it be titanium or even something as simple as a powder that they use to make magnets, we want to be able to have the 

material in the form and in the quantities we need to plan for 

those problems in the future. And that is really what we are talking about here, is taking and making this more flexible and allowing us to do things like that. 

Mr. TAYLOR. If I may, Mr. Chairman, one last thing. 
26 

Mr. Lowden, and really all of you, and again, we learn from our 

mistakes. In conversations I had with the acquisitions people in the 

Navy and the fact that they weren’t aware that the price of steel 

had been cut in half, the price of aluminum had been cut in half, 

and even that flip remark of, well, you know, it is only five percent. 

I just put a pencil to it. Okay, so half of 5 percent is 2.5; 2.5 percent of $7 billion is $170 million towards these $7 billion aircraft 

carriers. That is a heck of a lot of money that somebody was just 

dismissing as inconsequential. 

I would really hope that one of the things that your organization 

would do, since you track this, is reach out to the other acquisition—other branches, like the Under Secretary of the Navy, and 

say, you know what? Now is a good time to be doing, whatever. Because I really do—I think many of us have the sense of frustration 

that the right hand often isn’t telling the left hand what they are 

up to, and that we as a Nation, we as taxpayers end up paying too 

much for things we shouldn’t be, and we miss the opportunities 

that we ought to be taking advantage of. And I am asking you guys 

to be an integral part of that because you are tracking the price 

of materials, and I would hope that you would make that part of 

your job description. 

Mr. HOLDER. One of the things I would like to say, sir, is that 

one of the things we have done is we have established a pilot program with the Army and the Navy. And with that pilot program, 

one of the things that we are doing is to do an aggregate buy. For 

instance, for titanium for the Army and Navy for lightweight armory and also for the Navy submarine program, by them coming 

in together with their requirements, we are able to enter into a 

long-term agreement with titanium producers to be able to provide 

a lower overall cost versus market price where they would buy that 

material on the spot market. By doing such, we are basically saving the Army possibly avoiding $7 million just for this little small 

pilot program. 

So we are taking small steps to be able to see how we can basically best serve the military services and looking at ways to be able 

to create new acquisition strategies for the future. 

Mr. TAYLOR. Thank you, sir. 

Thank you, Mr. Chairman. 

Mr. ORTIZ. Mr. Rogers. 

Mr. ROGERS. Thank you, Mr. Chairman. 

I would just like to point out to the panel but also to the committee members, the person that makes the decision that Mr. Taylor was asking about a little while ago, about looking and making 

sure we don’t make these mistakes again and we start getting the 

materials that we need, is the Deputy Under Secretary of Defense 

for Industrial Policy, the position that I questioned Mr. Lowden 

about, and the published articles that they are talking about demoting that person to a director level. I think, if anything, we need 

to be looking at investing more power into that person and expecting more of the kind of foresight that Mr. Taylor just referenced. 

Thank you. 

Mr. ORTIZ. It has been a wonderful hearing this morning. It has 

been very informative, and I think that me personally, I have 

learned a lot by having this hearing, having you as witnesses 
27 

today. But let me ask you a question. Should we expect a legislative proposal for the fiscal year 2011 authorization bill? 

Mr. HOLDER. One of the things right now the Department is basically, or, from us, we are planning on submitting a proposal to the 

Department, and then basically the Department would basically 

have to review that proposal of our legislation authorities that we 

are seeking relief for. And so that is where we are currently right 

now. 

Mr. LOWDEN. I would like to add one thing, is that we have a 

new AT&L, Under Secretary of Defense for Acquisition Technology 

and Logistics, and we have a number of key leadership positions 

that are empty right now. So moving that through the system, we 

will have to wait and see what we have a little bit. 

Mr. ORTIZ. Thank you. And like I stated before, we want to work 

with you, because we are all in the same boat, the same team. And 

whatever we can do to make what we build better and to save taxpayers money, we should look at it so that we can do better. 

You guys have done a great job this morning. And if we don’t 

have any further questions, thank you so much again for your testimony, and we look forward to continuing to work with you. Not 

hearing any questions, the hearing is adjourned. 

[Whereupon, at 11:01 a.m., the subcommittee was adjourned.] 

A P P E N D I X 

JULY 23, 2009 

PREPARED STATEMENTS SUBMITTED FOR THE RECORD 

JULY 23, 2009 

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WITNESS RESPONSES TO QUESTIONS ASKED DURING 

THE HEARING 

JULY 23, 2009 

(61) 

RESPONSE TO QUESTION SUBMITTED BY MR. FORBES 

Mr. LOWDEN. The purpose of the National Defense Stockpile is to protect the nation against a dangerous and costly dependence upon foreign sources of supply of 

strategic and critical materials in time of national emergency. The NDS is a reserve 

of strategic and critical materials which are unavailable in the U.S. in sufficient 

quantities to meet anticipated national security emergency requirements. Mining 

regulations that result in the closure of existing mines and/or hinder the development of additional domestic resources have the potential to expand dependence 

upon foreign supplies and thus could theoretically increase the number of materials 

which would require stockpiling. [See page 13.] 

RESPONSE TO QUESTION SUBMITTED BY MR. TAYLOR 

Mr. LOWDEN. The Department relies on its prime contractors (as an integral part 

of their program management responsibilities) to identify, manage, and solve program/supplier issues and risks. The DOD program office is responsible for maintaining frequent and open communications with the prime and key suppliers to keep 

appraised of any issues that could potentially affect the program’s cost, schedule, 

or performance. The Military Services are encouraged to resolve identified industrial 

capability issues at the lowest level possible. However, there are cases when issues 

may impact more than a single program or Service. 

The Defense Acquisition Guidebook directs program offices to elevate an industrial capabilities matter via their Program Executive Officer to the Office of the 

Deputy Under Secretary of Defense (Industrial Policy) when an item produced by 

a single or sole source supplier meets one or more of the following criteria (even if 

the program office has ensured that its program requirements can and/or will be 

met): 

• it is used by three or more programs 

• it represents an obsolete, enabling, or emerging technology 

• it requires 12 months or more to manufacture 

• it has limited surge production capability 

The Mine Resistant Ambush Protected (MRAP) is a good example of the process. 

There was a shortfall in thin gauge MIL-A grade steel armor production capacity 

necessary to support rapid production of the MRAP vehicle and other operationallyimportant ground vehicles requiring protective armor. The MRAP managers elicited 

the assistance of Industrial Policy in uncovering the details associated with the 

shortage and resolving the problem. The availability of steel, generally, was not a 

production constraint; but the availability of the specialized thin gauge, quenched 

and tempered steel (a ‘‘specialty metal’’) needed for DOD armor applications was a 

constraint. The Department was required to waive various statutory domestic 

source restrictions to meet operational requirements. 

The primary ‘‘beneficiary’’ of the waivers was U.S.-located Evraz-Oregon Steel. Although Oregon Steel quenches and tempers its steel in the United States, it does 

not have a blast furnace and buys its ingot from Mittal in Mexico. The addition of 

Oregon Steel increased relevant domestic production capacity by about 40 percent. 

For MRAP, the Department waived restrictions concerning armor plate in the Defense Federal Acquisition Regulation. When the Department faces shortcomings in 

the industrial base (such as shortages of strategic or critical materials), it has authorities, responsibilities, and resources to address these deficiencies and promote 

innovation and competition. For example, the Department can: 

• Directly fund innovation in its science and technology accounts, and encourage 

industry to do the same via their independent research and development accounts; 

• Induce innovation by employing acquisition strategies that encourage competition at all levels of contract performance; 
62 

• Use contract provisions to preclude the ability of contractors to favor in-house 

capabilities or long-term teammate products over more innovative solutions 

available elsewhere; 

• Block exclusive contractor teaming arrangements that effectively reduce the 

number of suppliers in a given market, especially if the teammates are dominant in a particular market sector; and/or 

• Utilize other authorities such as Title III of the Defense Production Act to maintain or expand capacity for needed items or materials. 

The Department also can, and does, formally establish restrictions within the Defense Federal Acquisition Regulation Supplement on the use of foreign products for 

certain defense applications, when necessary, to ensure the survival of domestic suppliers required to sustain military readiness. 

Additional details regarding policies, procedures, and circumstances under which 

the Department will take action when there are problems with a supply chain or 

to preserve endangered industrial capabilities can be found in DOD Directive 

5000.60, ‘‘Defense Industrial Capabilities Assessments,’’ and the accompanying DOD 

Handbook 5000.60-H, ‘‘Assessing Defense Industrial Capabilities.’’ [See page 25.] 
QUESTIONS SUBMITTED BY MEMBERS POST HEARING 

JULY 23, 2009 

(65) 

QUESTIONS SUBMITTED BY MR. ORTIZ 

Mr. ORTIZ. You stated that your office interprets ‘‘critical materials’’ as those for 

which a crisis in availability already exists. Is there some other defined term or way 

in which a strategic material for which availability to the Department is an issue 

of concern (but not at the crisis level) is or could be designated for review for policy 

action? 

Mr. LOWDEN. The Department’s analysis of and resulting definitions for ‘‘strategic’’ and ‘‘critical’’ materials were validated by the Strategic Materials Protection 

Board (SMPB) and published as the ‘‘Analysis of National Security Issues Associated 

With Specialty Metals,’’ in the Federal Register (Volume 74, Number 34, Monday, 

February 23, 2009, in Notices). 

From the publication: 

‘‘ . . . the SMPB agreed that the term ‘‘Strategic Material’’ shall mean— 

A material: 

(1) which is essential for important defense systems, 

(2) which is unique in the function it performs, and 

(3) for which there are no viable alternatives. Strategic Materials include those 

specialty metals listed in 10 U.S.C. 2533b, and any other materials the Board may 

designate. 

The SMPB also agreed that the term ‘‘Material Critical to National Security’’ (or 

‘‘Critical Material’’) shall mean— 

A ‘‘Strategic Material’’ for which: 

(1) the Department of Defense dominates the market for the material, 

(2) the Department’s full and active involvement and support are necessary to 

sustain and shape the strategic direction of the market, and 

(3) there is significant and unacceptable risk of supply disruption due to vulnerable U.S. or qualified non-U.S. suppliers.’’ 

It is evident that there are many materials that meet the definition of ‘‘strategic.’’ 

It is also apparent that some of the ‘‘strategic’’ materials have risks and 

vulnerabilities associated with their supply, but do not meet all of the given criteria 

to be elevated to ‘‘critical.’’ Even though these materials are not ‘‘critical,’’ these ‘‘at 

risk’’ materials must still be monitored, and when appropriate, action taken to ensure their availability. The Department’s proposed strategic materials management 

program includes a reproducible and dynamic process for identifying materials that 

are essential to national security and defense; and for identifying, analyzing, and 

watching strategic materials that are ‘‘at risk.’’ When necessary, the process will 

also guide the selection and application of risk mitigation strategies to ensure a reliable supply of the materials. 

Mr. ORTIZ. As part of the Strategic Materials Security Management System as described in your report, you note representation and analysis will be provided by such 

agencies as the Department of Commerce and the United States Geological Service. 

Do you anticipate cooperation and representation with the Department of Homeland 

Security as well? 

Mr. LOWDEN. Currently, DNSC relies on the cooperation and support of other federal agencies that serve on the Interagency Market Impact Committee (MIC). The 

Department of Homeland Security is a member of the MIC. The co-chairs of the 

MIC are Department of Commerce and Department of State. Both the Department 

of Commerce and the United States Geological Service have been instrumental in 

providing analytical and technical support to DNSC in formulating the requirements report on material needs. This collaborative effort will continue to support 

the Strategic Materials Security Program. 

Mr. ORTIZ. A number of references within the reconfiguration report make the 

statement that the new program would ‘‘require a stable funding source to make 

strategic acquisitions, undertake other risk mitigation strategies and operate the 

stockpile program’’. The report did not stipulate whether these funds should be appropriated or revolving in nature, only a ‘‘stable source of funding.’’ Would a revolving fund be more appropriate for this type of program? 
66 

Mr. LOWDEN. The operation of the National Defense Stockpile is currently funded 

by the Transaction Fund which was established under the Strategic and Critical 

Materials Stock Piling Act. The implementation process for the Strategic Materials 

Security Program is an evolutionary one. There would be no need for additional 

funding to get the process started. As we begin the implementation we know there 

will be challenges, at that time the Department will work with the Administration 

and Congress to identify the available options for stable funding sources and the implications of each option. 

Mr. ORTIZ. IDA’s risk assessment recommended that the Department convene senior panels to review the most current assessments and make policy recommendations as to which supply scenarios the DOD should use as benchmarks to determine 

how much risk it is prepared to accept with respect to material sources in the years 

ahead. What has the Department done in this regard? 

Mr. LOWDEN. ODUSD-Industrial Policy (IP) has tentatively identified mid-September 2009 for conducting an IP-Chaired Working Group for assessing supply side 

assumptions and making appropriate recommendations to ODUSD (L&MR) regarding supply side risk. Proposed representation at this time includes such offices as 

L&MR, PAE, OUSD (Policy), OUSD (P&R) and J-5. Another panel is planned to address demand-side assumptions after issuance and analysis of the Quadrennial Defense Review (QDR). DNSC’s role in this process would be to provide input to the 

Working Group and implement policy decisions emanating from OSD. 

Mr. ORTIZ. IDA also recommended that the Department should consider continuing to compile data from the military services on materials used to produce key 

weapon systems. What has the Department done in this regard? 

Mr. LOWDEN. The Strategic and Critical Materials Working Group assembled the 

initial Integrated Materials List employing a robust process that included de-consolidation of weapons platforms down to basic materials, discussions with program 

offices, and interviews of experts to determine required materials. The Military Departments also provided input regarding materials with which they had encountered 

problems or believed would cause difficulties in the near future. The Military Departments and program officers are a necessary and valuable source of information 

and their participation is crucial to maintaining a dynamic and complete list of strategic materials and in identifying risks, vulnerabilities, or other problems associated 

with essential materials. 

The Department, through the Strategic Materials Protection Board, is considering 

a new process of requiring the respective Military Departments to participate in the 

maintenance of the list of material requirements and in the identification of possible 

risks and vulnerabilities associated with these materials. 

Mr. ORTIZ. What is the risk if we don’t make the proposed changes to configuration and management of the National Defense Stockpile? 

Mr. LOWDEN. Without the proposed changes to the configuration and management 

of the NDS, the primary risk is a shortage of the strategic and critical materials 

required for current and future defense and essential civilian needs. Reconfiguration 

is necessary to fully respond to evolving conditions in the world market and to the 

nation’s rapidly changing requirements for both traditional and new materials, particularly during this era of increased dependence on foreign sources of supply. Reconfiguration will address non-conflict as well as conflict scenarios, and the nation’s 

key users of strategic and critical materials, both essential civilian and defense. 

The program will take into consideration fluctuating domestic and foreign industrial consumption and production capacities; technological advances; geopolitical 

issues; and supply chain vulnerabilities. Risk mitigation strategies and contingency 

plans will be developed and put in place. The reconfigured Stockpile will maintain 

close relationships with material users, and will readjust and assist as necessary 

to further reduce the risk of material unavailability. Establishing partnerships with 

friendly nations will enhance the nation’s ability to ensure current and future availability of key materials; and the procuring and stockpiling selected materials 

deemed truly critical to the nation’s security will provide the insurance policy for 

the Nation’s needs. 

Mr. ORTIZ. What are the economic implications involved in stockpile management? How would the proposed reconfiguration affect those implications? 

Mr. LOWDEN. There will be some economic implications. First to clarify, with current funding, we can meet service and operational requirements. In the reconfigured 

organization, we would not build the Stockpile to previous levels. However, we may 

need additional investments, e.g., additional infrastructure and strategic sources. 

The amount of investment will depend upon input from the military services and 

commodities they identify as critical to their needs. When investment needs are determined, we will work within the Department to determine the most appropriate 

sources of funding. 
67 

Under the current configuration acquisition of strategic and critical materials is 

made in accordance with established Federal procurement practices. Both acquisition and disposal of strategic and critical materials from the stockpile are made 

under the following parameters: 

(1) Competitive procedures are used. 

(2) Efforts are made to avoid undue disruption of the usual markets of producers, 

processors, and consumers of such materials and to protect the United States 

against avoidable loss. 

The Market Impact Committee as described in Question 3 plays an integral role 

in this process. Under the reconfiguration these practices would continue. 

Mr. ORTIZ. Marketplace action and reaction would be another critical piece of the 

reconfiguration plan. Where would DOD get the workforce competencies and market 

research and intelligence expertise that would be required to manage the stockpile 

in this environment? Would this be a more appropriate function for the Department 

of Commerce? If so, what impediments could that cause? 

Mr. LOWDEN. Over the past 15 years, the National Defense Stockpile/Defense National Stockpile Center (DNSC), on DOD’s behalf, has managed a very robust marketing and sales program. DNSC’s aggressive efforts to dispose of (sell) materials 

determined to be excess to defense needs have generated over $6 billion worth of 

revenue, and have afforded DNSC the opportunity to develop and strengthen the 

precise core competencies required to successfully manage the reconfigured stockpile. 

With its extensive experience in the domestic and international marketplace, 

DNSC possesses the necessary expertise in all facets of commodity marketing and 

sales, as well as commodity procurement. Integral to each process is DNSC’s demonstrated ability to effectively evaluate global market conditions; e.g., determine 

supply and contractor reliability, pricing, etc., and to analyze supply chain risks. For 

example, after conducting extensive market research and intelligence, an internal 

DNSC economist has prepared and issued a comprehensive ‘‘Alert’’ of pertinent 

issues regarding alumina/aluminum, a commodity included in the list of 11 materials used in the largest quantities by DOD. 

DNSC’s extensive communication network, customer outreach, and strong, established relationships with commodity traders, producers, processors, individual consumers, and foreign and local governments further point to DNSC as the best manager for the reconfigured stockpile. 

In the reconfigured stockpile, DNSC’s efforts would be augmented through interagency, collaborative efforts involving the use of experts from such organizations as 

the Departments of Commerce and State, DCMA, and the U.S. Geological Survey, 

as well as from the formally established Stockpile Market Impact Committee (MIC). 

The Department of Commerce and the State Department are co-chairs for the Stockpile’s MIC, and DHS, Agriculture, Energy, Interior and Treasury are representatives. DNSC has standing Memoranda of Agreement with DOC, USGS and Census 

for data collection and analysis, and collaborates with DCMA on a regular basis. 

Within DOD, the effect of the Strategic and Critical Materials Working Group has 

been to establish closer relationships among DNSC, the Military Services, Research 

Laboratories, and OSD, and the revised requirements determination process will 

build upon that relationship. 

Mr. ORTIZ. Please explain what is meant in the report by ‘‘the reconfigured program requires a broader internal DOD profile.’’ 

Mr. LOWDEN. Building on the relationships established during the DOD Strategic 

and Critical Materials Working Group, the Stockpile will adopt a more proactive, 

preventive approach to material management by increasing the collaboration and 

communication flow among OSD, the Military Services, Joint Chiefs of Staff J–8, 

and research labs. Stockpile-issued material alerts will keep OSD and key stakeholders abreast of important developments in the global marketplace. Aggressive 

outreach and consultation to the Military Services will provide expertise in strategic 

sourcing and other risk mitigation strategies. Senior OSD panels will consider and 

provide policy decisions for issues such as supply and demand-side assumptions/scenarios, and the DOD Strategic Materials Protection Board (SMPB) will provide 

guidance and validation of materials determined to be at risk. 

Mr. ORTIZ. In the hearing, you mentioned a Pilot Program with the Army and 

Navy. Could you provide additional details on what the pilot is, and what the program hopes to achieve in the future? What would be the next steps if the pilot is 

successful? 

Mr. HOLDER. Under the pilot program, DNSC awarded a strategic sourcing contract to procure titanium to support select Army and Navy programs. The contract 

vehicle enabled DNSC to aggregate the quantity of material needed by the two serv-
68 

ices in order to leverage a more favorable unit price. This material was previously 

purchased by the defense contractors often as a spot market transaction where 

prices are traditionally high. 

The commitment under the pilot program was for approximately 368,800 lbs of 

titanium over four years. Army provided 10,000 lbs of offal (scrap) material as feedstock to reduce the out of pocket cost for the material. This scrap material was purchased by the contractor at prevailing scrap market value. The contract included a 

provision for a scrap management program under which DOD would receive value 

for any scrap material resulting from the manufacturing processes either as a credit 

against future deliveries or priced at prevailing scrap market value. The pilot program realized a cost avoidance of approximately $1.0M for the Army. 

The Navy program (the Virginia Submarine Program) is still drawing against the 

contract. Other Navy programs have also purchased titanium against this contract 

as the unit cost for the material was lower than what they previously were charged 

when the material was purchased by the defense contractor. 

DNSC is currently partnering with Army Armament Research, Development and 

Engineering Center (ARDEC) to expand the footprint of the pilot program. ARDEC 

is capturing information on program needs to facilitate a more comprehensive procurement strategy for not only titanium but other strategic materials. Army plans 

to assist DNSC in working with the other services in identifying material requirements in order to maximize the benefit to DOD in material leverage procurements. 

Mr. ORTIZ. When can we expect to see Legislative Proposals to implement this 

proposal? 

Mr. HOLDER. DLA has prepared a legislative proposal to implement the recommendations contained in the DNSC Reconfiguration Report and this proposal is 

being considered by the Department for submission in the Department of Defense 

legislative package for Fiscal Year 2011. The legislative proposal includes a requirements determination process that consists of a wide variety of conflict and non-conflict planning scenarios, expands the ability to release strategic and critical materials from the stockpile, and overall allows greater flexibility in meeting needs of 

the military services for strategic and critical materials. 

Mr. ORTIZ. As part of the Strategic Materials Security Management System as described in your report, you note representation and analysis will be provided by such 

agencies as the Department of Commerce and the United States Geological Service. 

Do you anticipate cooperation and representation with the Department of Homeland 

Security as well? 

Mr. HOLDER. Currently, DNSC relies on the cooperation and support of other federal agencies that serve on the Interagency Market Impact Committee (MIC). The 

Department of Homeland Security is a member of the MIC. The co-chairs of the 

MIC are Department of Commerce and Department of State. Both the Department 

of Commerce and the United States Geological Service have been instrumental in 

providing analytical and technical support to DNSC in formulating the requirements report on material needs. This collaborative effort will continue to support 

the Strategic Materials Security Program. 

Mr. ORTIZ. A number of references within the reconfiguration report make the 

statement that the new program would ‘‘require a stable funding source to make 

strategic acquisitions, undertake other risk mitigation strategies and operate the 

stockpile program’’. The report did not stipulate whether these funds should be appropriated or revolving in nature, only a ‘‘stable source of funding.’’ Would a revolving fund be more appropriate for this type of program? 

Mr. HOLDER. The Department has not determined which funding source would be 

the most appropriate to support the National Defense Stockpile reconfigurations. 

Currently Defense National Stockpile Center operating costs and payments to entities mandated by Congress are paid out of the Transaction Fund. 

Mr. ORTIZ. IDA’s risk assessment recommended that the Department convene senior panels to review the most current assessments and make policy recommendations as to which supply scenarios the DOD should use as benchmarks to determine 

how much risk it is prepared to accept with respect to material sources in the years 

ahead. What has the Department done in this regard? 

Mr. HOLDER. The Office of the Deputy Under Secretary of Defense for Industrial 

Policy (IP) in cooperation with the Office of the Deputy Under Secretary of Defense 

for Logistics and Materiel Readiness (L&MR) is convening the senior panel for this 

purpose. IP has tentatively identified mid-September 2009 for conducting this IPChaired Panel. Proposed panel members include representatives from L&MR, Program Analysis and Evaluation, OUSD (Policy), OUSD (Personnel & Readiness) and 

J–5. 

DNSC’s role in this process would be to provide input to the Panel and implement 

policy decisions emanating from OSD. 
69 

Mr. ORTIZ. IDA also recommended that the Department should consider continuing to compile data from the military services on materials used to produce key 

weapon systems. What has the Department done in this regard? 

Mr. HOLDER. Recognizing the need to develop a more comprehensive listing of materials needed by the services to support their weapon systems, DNSC will be 

awarding a contract to develop a process to compile ‘‘live’’ data on the quantity and 

character of strategic materials purchased and consumed in support of DOD vehicles, weapons and related systems. For the purpose of demonstrating the effectiveness and efficiency of the process, the contractor will be required to compile information on the titantium procured to support eleven cross-service systems. Data collected will include: form and quantity of the material purchased; specific end item 

part or sub-system to which the material was applied; supplier of the material; unit 

price; lead time; amount of material consumed; and amount of scrap material with 

the possibility of reclamation at each step of the manufacturing phases. 

Mr. ORTIZ. What is the risk if we don’t make the proposed changes to configuration and management of the National Defense Stockpile? 

Mr. HOLDER. The primary risk is a shortage of the strategic and critical materials 

required for current and future defense and essential civilian needs. Reconfiguration 

is necessary to fully respond to evolving conditions in the world market and to the 

Nation’s rapidly changing requirements for both traditional and new materials, particularly during this era of increased dependence on foreign sources of supply. Reconfiguration will address non-conflict as well as conflict scenarios, and the Nation’s 

key users of strategic and critical materials, both essential civilian and defense. 

Mr. ORTIZ. What are the economic implications involved in stockpile management? How would the proposed reconfiguration affect those implications? 

Mr. HOLDER. There will be some economic implications. The current authorization 

allows us to operate the National Defense Stockpile. During the initial implementation of the Strategic Materials Security Program no additional funding would be required. In the reconfigured organization, we would not build the Stockpile to previous levels. However, additional funding may be needed for the limited additions 

to the stockpile and the implementation of the risk mitigation strategies. The 

amount of investment will depend upon input from the military services and commodities they identify as critical to their needs. When investment needs are determined, we will work within the Department to determine the most appropriate 

sources of funding. The efficiencies and flexibility of the reconfigured program will 

allow the Department to realize cost avoidances and savings by aggregating material acquisitions and entering into long term contracts. 

Under the current configuration acquisition of strategic and critical materials are 

made in accordance with established Federal procurement practices. Both acquisition and disposal of strategic and critical materials from the stockpile are made 

under the following parameters: 

(1) Competitive procedures are used. 

(2) Efforts are made to avoid undue disruption of the usual markets of producers, 

processors, and consumers of such materials and to protect the United States 

against avoidable loss. 

The Market Impact Committee as described in Question 3 plays an integral role 

in this process. Under the reconfiguration these practices would continue. 

Mr. ORTIZ. Marketplace action and reaction would be another critical piece of the 

reconfiguration plan. Where would DOD get the workforce competencies and market 

research and intelligence expertise that would be required to manage the stockpile 

in this environment? Would this be a more appropriate function for the Department 

of Commerce? If so, what impediments could that cause? 

Mr. HOLDER. Over the past 15 years, the National Defense Stockpile/Defense National Stockpile Center (DNSC), on DOD’s behalf, has managed a very robust marketing and sales program. DNSC’s aggressive efforts to dispose of (sell) materials 

determined to be excess to defense needs has generated over $6 billion worth of revenue, and has afforded DNSC the opportunity to develop and strengthen the precise 

core competencies required to successfully manage the reconfigured stockpile. With 

its extensive experience in the domestic and international marketplace, DNSC possesses the necessary expertise in all facets of commodity marketing and sales, as 

well as commodity procurement. Integral to each process is DNSC’s demonstrated 

ability to effectively evaluate global market conditions, i.g., determine supply and 

contractor reliability, pricing, etc., and to analyze supply chain risks. 

In the reconfigured stockpile, DNSC’s efforts would be augmented through interagency, collaborative efforts involving the use of experts from such organizations as 

the Departments of Commerce and State, DCMA, and the U.S. Geological Survey, 

as well as from the formally established Stockpile Market Impact Committee (MIC). 
70 

* The last DOD NDS Requirements Report to Congress (2005) provides considerable analysis 

and evidence of such major effects. (See table 2 and figure 1, pp 11-12 of that report.) Appendix 

B of the April 2009 DOD NDS Reconfiguration Report to Congress references a similar set of 

IDA analyses for DOD showing the major effects that selecting one or another Peacetime Supply 

Disruption Scenario may have upon estimated material shortages. 

The Departments of Commerce and the State Department are co-chairs for the 

Stockpile’s MIC, and DHS, Agriculture, Energy, Interior and Treasury are representatives. DNSC has standing Memoranda of Agreement with DOC, USGS and 

Census for data collection and analysis, and collaborates with DCMA on a regular 

basis. Within DOD, the effect of the Strategic and Critical Materials Working Group 

has been to establish closer relationships among DNSC, the Military Services, Research Laboratories, and OSD, and the revised requirements determination process 

will build upon that relationship. 

Mr. ORTIZ. Please explain what is meant in the report by ‘‘the reconfigured program requires a broader internal DOD profile.’’ 

Mr. HOLDER. Building on the relationships established during the DOD Strategic 

and Critical Materials Working Group, the Stockpile will adopt a more proactive, 

preventative approach to material management by increasing the collaboration and 

communication flow among OSD, the Military Services, Joint Chiefs of Staff J-8, 

and research labs. Stockpile-issued material alerts will keep OSD and key stake 

holders abreast of important developments in the global marketplace. Aggressive 

outreach and consultation to the Military Services will provide expertise in strategic 

sourcing and other risk mitigation strategies. Senior OSD panels will consider and 

provide policy decisions for issues such as supply and demand-side assumptions/scenarios, and the DOD Strategic Materials Protection Board (SMSP) will provide guidance and validation of materials determined to be at risk. 

Mr. ORTIZ. IDA’s risk assessment recommended that the Department convene senior panels to review the most current assessments and make policy recommendations as to which supply scenarios the DOD should use as benchmarks to determine 

how much risk it is prepared to accept with respect to material sources in the years 

ahead. What was the analysis behind this recommendation? 

Dr. THOMASON. The risk analysis process that IDA has designed for DOD in this 

area has several key steps. One important step involves DOD selecting the specific 

scenarios (including assumptions about essential material demands and material 

supply conditions) for which the United States should be prepared. Such planning 

scenarios normally have both material demand-side and material supply-side assumptions. Scenario-related decisions such as what defense and civilian equipment 

(and derived material) demands it is essential to meet, and what supplies of material production will be available from the US (and potentially elsewhere) on what 

schedules to meet those demands, are crucial. Such scenario-related decisions are 

important in this process because IDA’s analysis has shown repeatedly that these 

decisions can have major effects on estimated shortages of materials such as titanium, tungsten, cobalt, tantalum and many others.* Based on a variety of such 

analyses, IDA has recommended to DOD that such scenario decisions should be 

made explicitly in the risk assessment process—in a structured and transparent 

way. DOD has had key elements of such an explicit decision process in place for 

the NDS requirements report for a number of years. For a reconfigured stockpile 

(materials security) program, IDA again recommends that DOD have an explicit 

process for such decisions, and in particular that DOD convene an official advisory 

group to set key assumptions for each major material security assessment. IDA does 

not have a specific recommendation as to which offices should be members of this 

advisory group. 

Mr. ORTIZ. IDA also recommended that the Department should consider continuing to compile data from the military services on materials used to produce key 

weapon systems. Why do you believe this is necessary? 

Dr. THOMASON. OSD-led research in 2008 identified some materials of concern to 

one or more of the Services. These materials were summarized in Appendix C of 

the April 2009 NDS Reconfiguration Report to Congress. IDA believes, based on its 

research, that obtaining ongoing and even more specific information of this kind 

from the Services—about the scope, nature and persistence of any problems they 

have had or anticipate with those materials—could be useful to DOD for at least 

three reasons. First, detailed, timely evidence from the Services can help DOD diagnose the problems more clearly and thus promote the most cost-effective risk-mitigation approaches. Second, obtaining high-quality evidence of material demands of 

each individual DOD component for key systems can help DOD identify and leverage opportunities to achieve purchasing efficiencies department-wide. Third, new 

types of materials are being introduced into high-priority weapon systems regularly 
71 

and DOD would manage material risks best with clear, timely visibility into the 

DOD-wide demands for such materials and into the specific suppliers of those materials, both in the US and abroad. 

Mr. ORTIZ. What is the risk if we don’t make the proposed changes to configuration and management of the National Defense Stockpile. 

Dr. THOMASON. There are at least two types of risk. One risk is that more serious 

material shortages will occur for DOD, with extra shortages in turn degrading the 

materiel readiness and operational performance of DOD forces more than otherwise. 

A second type of risk of not reconfiguring is that DOD will be unable to implement 

an integrated program to achieve purchasing efficiencies for strategic materials as 

readily as it could with reconfiguration. Savings achieved through these purchasing 

efficiencies can be applied to other critical needs in DOD, thus further mitigating 

operational risk. 

Mr. ORTIZ. What are the economic implications involved in stockpile management? How would the proposed reconfiguration affect those implications? 

Dr. THOMASON. Our research suggests that if DOD can achieve purchasing efficiencies in its buys of selected materials through such a reconfiguration, this result 

could regularly free up DOD funds, potentially millions of dollars per year, for other 

high-priority defense budget items. 

Mr. ORTIZ. Marketplace action and reaction would be another critical piece of the 

reconfiguration plan. Where would DOD get the workforce competencies and market 

research and intelligence expertise that would be required to manage the stockpile 

in this environment? Would this be a more appropriate function for the Department 

of Commerce? If so, what impediments could that cause? 

Dr. THOMASON. The reconfiguration proposal calls for a team effort with other departments and agencies, such as through the existing interagency Market Impact 

Committee (MIC), which the DOC chairs. Interagency expertise has proven useful 

to DOD in the past, including research by DOC, DOI and DOS, and should continue 

to be a strong part of a reconfigured materials security program. 

Mr. ORTIZ. Should DOC have the lead instead of DOD? If DOC had the lead, 

would there be any problems? 

Dr. THOMASON. IDA was not asked to study this issue. Whichever organization 

leads this effort, interagency collaboration is essential. 

Mr. ORTIZ. Please explain what is meant in the report by ‘‘the reconfigured program requires a broader internal DOD profile.’’ 

Dr. THOMASON. IDA was not involved in developing or supporting development of 

this conclusion. I cannot, therefore, explain its meaning beyond the language contained in the report itself. 

QUESTIONS SUBMITTED BY MR. LAMBORN 

Mr. LAMBORN. In your testimony you state that there is ‘‘some confusion regarding the definition of strategic material.’’ Additionally, you state that the designation 

of ‘‘critical material’’ is only given in the instance that the Department of Defense 

(DOD) is the ‘‘last big user’’ of that material. Is it DOD Industrial Policy’s position 

that a material will only be deemed ‘‘critical’’ if DOD is the sole consumer of that 

material in the marketplace? If so, how does DOD ensure availability of supply of 

defense articles for materials that utilize materials with only limited supply in the 

supply-chain, but that have some commercial applications? How does refusing to 

classify materials, such as rare earth metals (which are predominately available 

from Chinese sources), as ‘‘critical’’ make sense when these materials are required 

in the production of vital DOD components? Is there a long-term strategy for ensuring a supply of materials, such as defense-specific components containing rare earth 

metals, considering there are some commercial uses of these rare earths or will 

DOD simply let the market dictate their availability before taking any action? 

Mr. LOWDEN. The Department’s analysis of and resulting definitions for ‘‘strategic’’ and ‘‘critical’’ materials were validated by the Strategic Materials Protection 

Board (SMPB) and published as the ‘‘Analysis of National Security Issues Associated 

With Specialty Metals,’’ in the Federal Register (Volume 74, Number 34, Monday, 

February 23, 2009, in Notices). A more detailed discussion of these definitions can 

be found in the answer to Congressman Ortiz’s question #11. 

Additional information and analysis regarding the definitions of ‘‘strategic material’’ and ‘‘material critical to national security’’ or ‘‘critical material’’ will be provided in the report to the House and Senate Armed Services Committees as described on page 351 of H.R. 2647, National Defense Authorization Act for Fiscal 

Year 2010. 
72 

Mr. LAMBORN. This Committee clarified in the FY09 and FY10 National Defense 

Authorization Bill via ‘‘Items of Special Interest’’ that it was concerned about DOD’s 

implementation of Section 842 of the National Defense Authorization Act for Fiscal 

Year 2007 and Section 804 and 884 of the National Defense Authorization Act for 

Fiscal Year 2008. In fact, the committee has contacted DOD on numerous occasions 

with concerns over the definition ‘‘production.’’ Has DOD noted those concerns and 

how were they addressed in the release of the Final Rule by DOD on July 29, 2009? 

How does DOD justify a definition of ‘‘production’’ that allows late stage finishing 

processes to qualify as a major production process that will allow minimal manufacturing of metal to occur in the United States? 

Mr. LOWDEN. The issues concerning ‘‘produced’’ are addressed in ‘‘Defense Federal 

Acquisition Regulation Supplement; Restriction on Acquisition of Specialty Metals 

(DFARS Case 2008–D003),’’ published in the Federal Register, Volume 74, Number 

144, Wednesday, July 29, 2009, under Rules and Regulations. This is the final rule 

amending the Defense Federal Acquisition Regulation Supplement (DFARS) to address statutory restrictions on the acquisition of specialty metals not melted or produced in the United States. The rule implements Section 842 of the National Defense Authorization Act for Fiscal Year 2007 and Sections 804 and 884 of the National Defense Authorization Act for Fiscal Year 2008. All input was considered in 

the decision making process. Additional analysis regarding the definition of 

‘‘produce’’ will be included in the report to the House and Senate Armed Services 

Committees as described on page 351 of H.R. 2647, National Defense Authorization 

Act for Fiscal Year 2010. 

From the Federal Register: 

‘‘The law has never provided a definition of ‘‘produce’’ with regard to the requirement to acquire domestic specialty metals. The 1973 DOD Appropriations Act (Pub. 

L. 92–570) added specialty metals to the annual Berry Amendment restrictions, requiring that restricted items be ‘‘grown, reprocessed, reused, or produced in the 

United States.’’ The Secretary of Defense at that time (Melvin Laird), in a memorandum setting forth DOD planned implementation of this restriction, interpreted 

this requirement to mean ‘‘melted’’ when applied to specialty metals, and the reasonableness of this interpretation was upheld in the courts. This does not mean that 

this is the only possible interpretation. When Congress created the new 10 U.S.C. 

2533b, while following the Laird memo traditions in many respects, it reinstated ‘‘or 

produced,’’ allowing that melting was not the only acceptable process for creation 

of domestic specialty metal. 

According to DOD technical experts, quenching and tempering is not an insignificant process. Melting is only one stage in a multi-step process that is used to 

produce an item with properties that meet the requirements of an application, i.e., 

specifications. Melting for most metals accounts for about one third of the final price 

of a wrought product. Manufacturers have stated that the operations associated 

with forming and heat treating account for more than one-half of the price of a mill 

product such as plate. (The prices for mill products used by the military are typically higher than for commercial products due to more stringent military requirements.) Although alloying elements are added during ‘‘melting,’’ the primary casting 

(ingot, slab, bloom, etc.) does not possess the microstructures and/or phases that are 

required to produce desired properties. Using steel as an example, after primary 

casting, the metal is shaped and then heat treated to produce the desired properties 

in the final product. This is true for plate, wire, sheet, etc. Steel’s versatility is primarily due to its extraordinary response to heat treatment. Heat treatment is used 

to control the microstructure and thus the properties of the steel. Different iron carbon phases form at critical temperatures, and it is the combination and concentration of these phases that produce the desired mechanical properties in the steel. 

DOD experts believe that heat treatment may be the single most important stage 

in metals processing for DOD applications. The final properties of the metal are determined by the heat treat schedule. This is true for most if not all metals and their 

alloys. Heat treatment results in a product with properties that meet the specified 

requirements. The specifications for a material typically include not just chemistry 

but also the mechanical and physical properties as well as the condition of the product, i.e., surface finish, flatness, waviness. Forming and heat treatment processes 

are very important to producing an item that meets the requirements of an application. It is after heat treatment that the item possesses all of the attributes that are 

needed for the required application. 

The concern that magnetization can be considered production under this rule is 

unfounded. The definition of ‘‘produce’’ has not been left to open ended interpretation. It has narrowly specified what processes other than melting are included, and 

does not include magnetization. DOD does not see any impact on the high perform-
73 

ance magnet industry from the definition of ‘‘produce,’’ because tempering and 

quenching processes are specifically restricted to the production of steel plate, and 

gas atomization and sputtering are restricted to the production of titanium. 

DOD acknowledges the additional restriction on armor plate in DFARS 252.225– 

7030, which requires that armor plate be melted and rolled in the United States. 

Therefore, any acquisition of armor plate by DOD must satisfy both statutory restrictions. 

DOD performed an industrial capabilities assessment in 2007 to support rapid 

production of the MRAP vehicles and other important defense programs relying on 

protective armor. The assessment found that availability of thin gauge MIL–A grade 

steel armor was the limiting factor in domestic production. The industrial capabilities assessment identified a total of four North American steel mills collectively capable of producing up to 12,000 tons per month of thin gauge armor steel plate. All 

four reported that quench and temper operations (not steel melting capacity or 

ingot/slab availability) were the limiting factor in their ability to produce the thin 

gauge armor needed to meet U.S. military demand. In contrast to the demonstrated 

maximum North American MIL–A grade thin gauge armor steel plate production capacity of 12,000 tons per month, the American Iron and Steel Institute (via its Web 

site) asserts that domestic raw steel melt production per week is usually in excess 

of 2 million tons (8 million tons per month). To meet peak MRAP and other DOD 

requirements, the four mills made capital investments and process improvements 

that enabled a 100 percent increase (to 24,000 tons per month) in thin gauge armor 

steel plate production capacity. However, two of the mills rely on ingot/slab melted 

outside the United States. If these mills had been excluded from participation, the 

sustained MRAP production rate would have been limited to about 600 vehicles per 

month (instead of the actual sustained rate of 1,100 vehicles per month); and it 

would have taken twice as long to deploy MRAP vehicles into Iraq and Afghanistan. 

DOD also notes that the specialty steel industry does not object to the other expansions DOD provided in the definition of ‘‘produce,’’ such as gas atomization, sputtering of titanium, or titanium alloy powder. None of these processes is a melting 

process. It is inconsistent to accept some non-melt processes, but not others. 

DOD considered processing a domestic non-availability determination under the 

non-availability exception or the national security exception, but both avenues represented significant obstacles, and were rejected as unsuitable options. A national 

security exception requires that the contractor become compliant. The availability 

exception was determined to be impracticable, time-consuming, and inefficient.’’ 

Mr. LAMBORN. DOD recently released a Final Rule implementing Section 842 of 

the National Defense Authorization Act for Fiscal Year 2007 and Section 804 and 

884 of the National Defense Authorization Act for Fiscal Year 2008. In that rule, 

it defined ‘‘high performance magnets’’ as ‘‘a permanent magnet that obtains a majority of its magnetic properties from rare earth metals (such as samarium).’’ However, Congress explicitly defined ‘‘high performance magnet’’ in its Conference Report (H.R. 110-477), which states that ‘‘ ‘high performance magnet’ means permanent magnets containing 10 or more percent by weight of materials such as cobalt, 

samarium, or nickel.’’ How can DOD justify a redefinition that ignores congressional 

intent, particularly considering its impact on the alnico magnet industry? Was DOD 

unaware of the congressional definition? 

Mr. LOWDEN. The issues concerning ‘‘high performance magnets’’ were addressed 

in ‘‘Defense Federal Acquisition Regulation Supplement; Restriction on Acquisition of 

Specialty Metals (DFARS Case 2008–D003),’’ published in the Federal Register, Volume 74, Number 144, Wednesday, July 29, 2009, under Rules and Regulations. This 

is the final rule amending the Defense Federal Acquisition Regulation Supplement 

(DFARS) to address statutory restrictions on the acquisition of specialty metals not 

melted or produced in the United States. The rule implements Section 842 of the 

National Defense Authorization Act for Fiscal Year 2007 and Sections 804 and 884 

of the National Defense Authorization Act for Fiscal Year 2008. All input was considered in the decision making process. 

To define ‘‘high performance magnets’’ as ‘‘permanent magnets containing 10 percent or more by weight of materials such as cobalt, samarium, or nickel’’ is technically unsound and open-ended. Cobalt and nickel have been primary alloying elements for permanent magnet materials since exploration of these materials began 

over 100 years ago. By this unbounded definition, almost all magnets would be covered. The table listing compositions of many magnetic materials containing specialty 

metals is provided to highlight this assertion. 
74 

DOD does not consider alnico magnets to be ‘‘high performance magnets.’’ The Department does note that representatives from permanent magnet suppliers established in discussions with DOD technical experts that virtually all alnico and samarium cobalt magnets are made to unique customer specifications and are not 

COTS items. Accordingly, direct DOD purchase of such permanent magnets almost 

certainly would involve non-COTS magnets, which must comply with specialty metals provisions, whether or not the magnets are judged to be high performance 

magnets. With respect to permanent magnets incorporated into COTS subsystems 

or end items, such magnets, whether COTS or non-COTS, high performance or not 

high performance, are by statute not required to utilize specialty metals melted or 

produced in the United States. Therefore, the definition of high performance magnet 

makes a difference only with regard to the 2 percent minimum content exception 

and has no significant impact on the use of alnico magnets for defense applications. 

The text addressing ‘‘high performance magnets’’ from the DFARS rule referenced 

earlier is provided for easy reference. 

‘‘With regard to whether it is meaningful to define ‘‘high performance magnet’’ as 

a permanent magnet that obtains a majority of its magnetic properties from rare 

earth metals: Cobalt, iron, and nickel are the three primary ferromagnetic metals 

and, therefore, are present in most, if not all, permanent magnets. However, it is 

the very strong magnetocrystalline anisotropy (the property of being directionally 

dependent) of certain rare earth elements that produces the exceptional magnetic 

behavior in the materials to which they are added. The partially filled 4f electron 

subshells in rare earths lead to magnetic properties in a manner similar to the partially filled 3d electron subshells in transition elements such as cobalt, iron, and 

nickel. However, the magnetic moment of a rare earth material is typically an order 

of magnitude greater than that in a transition element; and rare earths exhibit a 
75 

large anisotropy due to dipolar interactions. In summary, rare earths possess very 

unique electron structures that produce extreme anisotropy in their magnetic properties. 

DOD technical experts have concluded that there is no industry standard definition for high performance magnets. However, magnet performance is measured 

using magnetic properties and temperature capability. 

• Magnetic properties are summarized using maximum energy product. DOD 

technical experts reviewed various references that place heavy emphasis on the 

maximum energy product of a magnet as ‘‘the figure of merit’’ by which permanent magnet materials are judged. The greater the maximum energy product 

of a permanent magnetic material, the more powerful the magnet, and the 

smaller the volume (and typically the weight) of the magnet required for a given 

application. The maximum energy products for rare earth magnets are significantly higher than those for ferrite and alnico materials, thus supporting their 

designation as ‘‘high performance magnets.’’ 

• Temperature stability is measured using maximum operating and Curie temperatures (the temperature below which there is a spontaneous magnetization 

in the absence of an externally applied magnetic field). Although alnico magnetic materials rank well on maximum use temperature and Curie temperature, 

this does not overcome the substantially lower maximum energy product. 

The maximum energy product ranking of various magnetic materials and temperature stability measurements are as follows: 

Of today’s permanent magnets containing specialty metals, only samarium cobalt 

magnet materials possess the combination of properties necessary to be considered 

‘‘high performance magnets.’’ The only other permanent magnets today that obtain 

a majority of their magnetic properties from rare earths are neodymium-iron-boron 

magnets. Neodymium-iron-boron magnets are high performance magnets, but normally do not contain specialty metals. Ferrites are not high performance magnets 

(as was erroneously stated in the preamble to the proposed rule), nor do they contain specialty metals. 

Representatives from permanent magnet suppliers asserted in discussions with 

DOD engineers that alnico magnets possessed superior toughness and calibration 

sensitivity qualities, and those qualities supported designating alnico magnets as 

high performance magnets. DOD engineers considered, but ultimately did not accept, that rationale. 

• Mechanical strength and toughness generally are not employed as measures of 

merit for permanent magnets, because all permanent magnetic materials of interest (ferrites, rare-earths, and alnico) are hard and brittle. Section I, subsection 6.0, of Magnetic Materials Producers Association Standard No. 0100–00, 

Standard Specifications for Permanent Magnet Materials, states that most permanent magnet materials lack ductility and are inherently brittle. Such materials should not be utilized as structural components in a circuit. Measurement 

of properties such as hardness and tensile strength are not feasible on commercial materials with these inherent characteristics. Therefore, specifications of 

these properties are not acceptable. 
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• Finally, calibration sensitivity is an indication of precision but not of high performance. 

DOD technical experts agree that, in addition to maximum energy product, parameters such as temperature stability, temperature range, resistance to demagnetization, corrosion resistance, mechanical toughness, and machinability contribute 

to the decision as to which type of magnet to use for a military application. However, just because a particular magnetic material is most appropriate for a particular application does not mean that it is a high performance magnet. Not every 

application requires the use of a high performance magnet. 

Although DOD does not consider alnico magnets to be high performance magnets, 

regardless of the impact of this decision on the industry, DOD notes that representatives from permanent magnet suppliers further established in discussions with 

DOD technical experts that virtually all alnico and samarium cobalt magnets are 

made to unique customer specifications and are not COTS items. Accordingly, direct 

DOD purchase of such permanent magnets almost certainly would involve nonCOTS magnets, which must comply with specialty metals provisions, whether or not 

the magnets are judged to be high performance magnets. With respect to permanent 

magnets incorporated into COTS subsystems or end items, such magnets, whether 

COTS or non-COTS, high performance or not high performance, are by statute not 

required to utilize specialty metals melted or produced in the United States. Therefore, the definition of high performance magnet makes a difference only with regard 

to the 2 percent minimum content exception and has no significant impact on the 

use of alnico magnets for defense applications. To define ‘‘high performance 

magnets’’ as ‘‘permanent magnets containing 10 percent or more by weight of materials such as cobalt, samarium, or nickel’’ would be technically unsound and openended. Cobalt and nickel have been primary alloying elements for permanent magnet materials since exploration of these materials began over 100 years ago. By this 

unbounded definition, almost all magnets would be covered. Therefore, no change 

has been made to the definition of ‘‘high performance magnet.’’ 

Mr. LAMBORN. Following up on Mr. Kissell’s question regarding any potential vulnerability in our DOD supply chain what does DOD consider to be viable, reliable 

alternative sources of supply for the following materials? 

Titanium—Is there a sufficient quality and quantity of aerospace grade titanium 

produced in the United States to meet the needs of the Department of Defense? 

Would it be acceptable if DOD suppliers were reliant on VSMPO in Russia for a 

substantial quantity of aerospace titanium? Are all potential sources of aerospace 

grade titanium, i.e., U.S., Russia, China, considered equally reliant? 

Mr. LOWDEN. The three domestic titanium producers have been boosting capacity 

to support the upcoming growth in the aerospace market (Airbus A380, Boeing 787 

and Joint Strike Fighter). In 2007, U.S. production of titanium metal products rose 

to record levels with production of ingot and mill products increasing by 11% and 

6%, respectively, from the previous year. Despite the current economic downturn, 

the domestic titanium producers continue to expand production capacity and expect 

much of the new capability to be on-line by 2011. Domestic sponge capacity will be 

double that of 2005 levels and mill product capacity increased by almost as much. 

A recently released RAND study predicts there will be excess titanium production 

capacity by 2010. In addition to these factors, the continued delays in Airbus A380, 

Boeing 787 and Lockheed Martin’s Joint Strike Fighter have given extra breathing 

space for a market that previously anticipated a shortfall in availability. 

Mr. LAMBORN. Alnico magnets—Are there alnico magnets produced in sufficient 

quality and quantity to meet the needs of the Department of Defense from other 

than Chinese sources? Would it be acceptable if DOD suppliers were reliant on Chinese suppliers for alnico? Are all potential sources of alnico, i.e., U.S. or China, considered equally reliant? 

Mr. LOWDEN. There are three primary domestic Anico magnet producers. Alnico 

alloys have some of the highest Curie points of any magnetic material and thus are 

favored for elevated temperature applications. In spite of this advantage, they are 

being superseded by rare earth magnets, whose stronger fields (Br) and larger energy products (BHmax) allow smaller size magnets to be used for a given application. Current production of Alnico magnets is rather low and continues to decline 

as the availability of the rare earth materials improves and engineering approaches 

are being explored to allow the use of low cost ferrites in as many applications as 

possible. The high temperature stability of Sm-Co magnets now matches or exceeds 

that of the Alnico materials. Sm-Co magnets can thus be used in the same applications as Alnico magnets, but due to their improved magnetic properties, the Sm-Co 

magnets would be smaller. Many sources show growth for every permanent mag-
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netic material market with the exception of Alnico for which some experts predict 

the market to shrink by 1/3 in the next ten years. 

Mr. LAMBORN. Neodymium Iron Boron magnets—Are there neodymium-iron-boron 

magnets produced in sufficient quality and quantity to meet the needs of the Department of Defense from sources other than Chinese manufactures? When considering the manufacturing of magnets, is the base neodymium metal available from 

other than Chinese sources? Do any U.S. suppliers produce neodymium iron boron 

magnets (excluding late stage finishing process such as magnetization, shaving or 

finishing)? Does DOD have a strategy to ensure a long-term supply of neodymium 

iron boron magnets? 

Mr. LOWDEN. Presently, there is no domestic NdFeB magnet production capability. The NdFeB magnets presently contained in certain defense systems are procured from reliable foreign suppliers. The Department is aware of the issues regarding the rare earth elements. The Department plans to commission in FY2010 a 

study of rare earth resources, associated supply chains, and defense systems that 

utilize these materials. The results of the study will be used to help guide Department decisions and future actions. 

Mr. LAMBORN. In your testimony, you cite DOD’s review of 128 potential strategic 

materials. Can you provide that list to Congress? 

Mr. LOWDEN. Please see table entitled, ‘‘Integrated Strategic Materials List.’’ 

Mr. LAMBORN. Of those materials, how many were in the ‘‘gray area’’ between 

strategic and critical? What were those materials? 

Mr. LOWDEN. There are materials that meet the definition of strategic and have 

risks associated with their supply, but do not meet all of the criteria to be elevated 

to critical. These are the materials in the ‘‘gray area’’ between strategic and critical. 

These ‘‘at risk’’ materials must monitored, and when appropriate, action taken to 

ensure a reliable supply. 

Initial risk assessment modeling by the Institute for Defense Analyses indicated 

the 13 commodities for which the NDS has temporarily suspended or limited sales 

are ‘‘at risk’’ and thus by the aforementioned definition would be in the ‘‘gray area.’’ 

The risk analysis also indicated that 39 other materials should be monitored, studied and/or considered candidates for future mitigation strategies to ensure availability. These are the strategic materials included in the accompanying Integrated 

Strategic Materials List with recommendations such as ‘‘Monitor’’, ‘‘Hold/Study’’ or 

‘‘Study/PB.’’ These too may be considered to be in the ‘‘gray area.’’ Materials with 

possible supply chain vulnerabilities are also included in Table 1 of Appendix C of 

the Reconfiguration of the National Defense Stockpile Report to Congress, entitled, 

‘‘Supplementary Risk Assessments.’’ The analysis of the risks associated with the 

materials presented in the tables is also included in Appendix C. 

Mr. LAMBORN. What was your methodology for determining if a material is strategic, critical or neither? 

Mr. LOWDEN. The Working Group employed the definitions for ‘‘strategic’’ and 

‘‘critical’’ materials validated by the Strategic Materials Protection Board (SMPB) 

and published as the ‘‘Analysis of National Security Issues Associated with Specialty 

Metals,’’ in the Federal Register (Volume 74, Number 34, Monday, February 23, 

2009, in Notices). 

Mr. LAMBORN. How did you ascertain the original list of 128 materials? 

Mr. LOWDEN. The Strategic and Critical Materials Working Group employed a 

lengthy, deliberative process to collect material information from a wide variety of 

sources to construct an initial list of strategic materials. Details regarding the methods and sources are included in Appendix B of the Reconfiguration of the National 

Defense Stockpile Report to Congress, entitled, ‘‘Key Materials for High-Priority 

Weapon Systems, and Assessing Risks to their Supply.’’ 

Mr. LAMBORN. Will DOD simply let a domestic industry fail before it crosses over 

into the ‘‘critical’’ category? For example, what are the plans for ensuring a longterm availability of strategic materials such as titanium, alnico magnets, samarium 

cobalt magnets or neodymium iron boron magnets—items that are found in critical 

defense applications, but that may have limited (or no) production in the United 

States? 

Mr. LOWDEN. The Department of Defense has focused resources (as well as policies, processes, and structured procedures) that ensure, when indications of potential industrial concerns arise, they are identified, analyzed, and effectively integrated into key DOD budget, acquisition, and logistics processes. DOD Directive 

5000.60, ‘‘Defense Industrial Capabilities Assessments,’’ and the accompanying DOD 

Handbook 5000.60-H, ‘‘Assessing Defense Industrial Capabilities,’’ establish the policies, procedures, and circumstances under which the Department will take action 

when there are problems with a supply chain or to preserve endangered industrial 

capabilities. 
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Mr. LAMBORN. When considering DOD’s long-term needs for strategic materials 

such as titanium, high performance magnets (i.e. SmCo, Alnico, NdFeB) and components containing rare earth materials, how does DOD Industrial Policy ensure availability of these items? Your testimony repeatedly states that the Office of Industrial 

Policy responds to what the services need. ‘‘What systems does the Office of Industrial Policy use to predict and inform the services of the materials they will need 

today and in the future (and vice versa)?’’ In other words, how do you and the services know what materials readiness and supply-chain availability shortfalls exist in 

their current and future weapon systems? How is DOD determining if a supply of 

strategic materials is available and how does it ensure it will always be available? 

For example studies by the National Academies refused to list tungsten as a critical 

material for the military, because there was no history of its supply interruption. 

Yet the US today is approaching 100% import reliance on China for tungsten. Is 

it likely that China would ship tungsten for armor plate to the US in the event of 

a confrontation or actual conflict with North Korea, or its energy supplier, Iran? 

America and Canada have ample deposits of tungsten, but only Canada is developing new resources of tungsten as well as trying to maintain production from large 

existing mines in the face of Chinese predatory pricing. How will DOD predict future material shortages? Do you have data and statistics, not only on material 

usage, but also on US industrial capacity? Isn’t this lack of foresight a contributor 

to the recent MRAP steel shortage? 

Mr. LOWDEN. This series of questions addresses the fundamental aspects of program development and planning, acquisition, and program management. The Defense Acquisition System exists to manage the Nation’s investments in technologies, 

programs, and product support necessary to achieve the National Security Strategy 

and support the United States Armed Forces. The objective is to rapidly acquire 

quality products that satisfy user needs with measurable improvements to mission 

capability at a fair and reasonable price. The fundamental principles and procedures 

that the Department follows in achieving those objectives are described in DOD Directive 5000.01 and DOD Instruction 5000.02. 

The Office of the Deputy Under Secretary of Defense (Industrial Policy) is a participant in the acquisition decision process whose primary role is to advise the 

Under Secretary of Defense for Acquisition, Technology & Logistics (AT&L) and the 

Secretary and Deputy Secretary of Defense on matters concerning defense industrial 

capabilities. Industrial Policy’s mission is to make certain the industrial base on 

which the Department of Defense depends is reliable, cost-effective, and sufficient. 

More specifically, Industrial Policy is responsible for ensuring DOD policies, procedures, and actions both stimulate and support vigorous competition and innovation 

in the defense industrial base and that these policies help establish and sustain 

cost-effective industrial and technological capabilities that assure military readiness 

and superiority. Industrial Policy does so by monitoring the health and competitiveness of industry; by leveraging DOD decisions to promote innovation and competition; and by utilizing statutory processes. 

However, it is important to note that the Department relies on its prime contractors (as an integral part of their program management responsibilities) to identify, 

manage, and solve program/supplier issues and risks. The DOD program office is 

responsible for maintaining frequent and open communications with the prime and 

key suppliers to keep appraised of any issues that could potentially affect the program’s cost, schedule, or performance. The Military Services are encouraged to re-
83 

solve identified industrial capability issues at the lowest level possible. However, 

there are cases when issues may impact more than a single program or Service. The 

Defense Acquisition Guidebook directs program offices to elevate an industrial capabilities matter via their Program Executive Officer to the Office of the Deputy 

Under Secretary of Defense (Industrial Policy) when an item produced by a single 

or sole source supplier meets one or more of the following criteria (even if the program office has ensured that its program requirements can and/or will be met): 

• it is used by three or more programs 

• it represents an obsolete, enabling, or emerging technology 

• it requires 12 months or more to manufacture 

• it has limited surge production capability 

The Mine Resistant Ambush Protected (MRAP) is a good example of the process. 

There was a shortfall in thin gauge MIL–A grade steel armor production capacity 

necessary to support rapid production of the MRAP vehicle and other operationallyimportant ground vehicles requiring protective armor. The MRAP managers elicited 

the assistance of Industrial Policy in uncovering the details associated with the 

shortage and resolving the problem. The availability of steel, generally, was not a 

production constraint; but the availability of the specialized thin gauge, quenched 

and tempered steel (a ‘‘specialty metal’’) needed for DOD armor applications was a 

constraint. The Department was required to waive various statutory domestic 

source restrictions to meet operational requirements. The primary ‘‘beneficiary’’ of 

the waivers was U.S.-located Evraz-Oregon Steel. Although Oregon Steel quenches 

and tempers its steel in the United States, it does not have a blast furnace and buys 

its ingot from Mittal in Mexico. The addition of Oregon Steel increased relevant domestic production capacity by about 40 percent. 

Tungsten is specifically mentioned in your inquiry. Tungsten is a metal that is 

used in a number of important defense systems, such as armor penetrating munitions, and in the manufacture of a variety of components, e.g., in carbide machine 

tools. A Department of Commerce analysis of tungsten is included as an appendix 

to the Reconfiguration of the National Defense Stockpile Report to Congress. According to the 2009 USGS Mineral Commodity Summaries, the U.S. net import reliance 

on imported tungsten has decreased since 2004, due in part to the fact that a mine 

in California made limited shipments of tungsten concentrates in 2008. Tungsten 

contained in scrap represented approximately 35% of the materials consumed that 

same year. Canada and the United States have noteworthy tungsten resources and 

a number of domestic tungsten manufacturers are vertically integrated allowing 

them to process ore and scrap to produce precursor material and/or powder. Tungsten is a strategic material for which there is some concern regarding supply; however, current indications do not warrant significant action. 

Additional details regarding policies, procedures, and circumstances under which 

the Department will take action when there are problems with a supply chain or 

to preserve endangered industrial capabilities can be found in DOD Directive 

5000.60, ‘‘Defense Industrial Capabilities Assessments,’’ and the accompanying DOD 

Handbook 5000.60–H, ‘‘Assessing Defense Industrial Capabilities.’’ 

The Reconfiguration of the National Defense Stockpile Report to Congress presents a strategic materials management program that includes many of the processes and procedures addressed in your questions. It is a system for managing strategic materials that is dynamic and proactive so that as the Department’s requirements change, and the list of materials essential to the strategic defense interests 

of the U.S. also changes, the methods by which supply chain risks are monitored, 

measured, and mitigated also change. The proposed strategic materials management program includes all of the basic components essential to managing risk— 

indentify, study, monitor, and act. Strategic materials will be identified. These materials will be studied and risks examined. The materials with supply chain 

vulnerabilities will be monitored. When problems arise, action will be taken. Strategic materials risk management is a crucial part of ensuring a reliable, cost-effective, and sufficient supply of the materials that are essential to national security 

and defense. 

Mr. LAMBORN. You mentioned potential stockpiling of powders to make magnets. 

Are you aware that stockpiling of rare earth magnet powders would likely result in 

having the incorrect composition for the production of customized magnet alloys 

needed by the Department of Defense? A form very useful to meet customized DOD 

needs would be to stockpile rare earth un-alloyed metals of purity of 99.9% minimum purity and 99.5% minimum total rare earth purity. 

Mr. LOWDEN. Magnet powder was used as an example of a form of a material, 

other than ore or ingot that could be stockpiled or managed utilizing different ap-
84 

proaches in the future. The statement was made to support the concept of flexibility 

in the types of materials that could be included as part of a strategic materials management program. In some instances, it may be beneficial to acquire and manage 

materials in a form more easily processed into finished products. 

Mr. LAMBORN. Are you aware that even without a conflict, rare earth metals supply are in jeopardy due to the production of Chinese rare earths potentially equaling 

domestic Chinese consumption within a few years according to expert sources, thereby squeezing out access of rare earths to the DOD not only for rare earth magnets 

but also for metal hydride batteries, and numerous other commercial magnet and 

non-magnet uses? What are the Department’s plans to ensure availability of rare 

earth metals in the event of a supply disruption due to a conflict or simply being 

cut off due to China consuming the entire world’s production of these elements? 

Mr. LOWDEN. The Department is aware of the issues regarding the availability 

of rare earth elements as Chinese consumption increases. The Department plans to 

commission in FY2010 a study of rare earth resources, associated supply chains, 

and defense systems that utilize these materials. The results of the study will be 

used to help guide DOD decisions and future actions. 

Part of the Department’s plan to respond to the issue raised is the purpose of the 

National Defense Stockpile—to protect the nation against a dangerous and costly 

dependence upon foreign sources of supply of strategic and critical materials in time 

of national emergency. The NDS is a reserve of strategic and critical materials 

which are unavailable in the U.S. in sufficient quantities to meet anticipated national security emergency requirements. It is worth noting the U.S. and Canada do 

possess ample rare earth resources. However, regulations that result in the closure 

of existing mines and/or hinder the development of additional domestic resources 

would increase dependence upon foreign supplies of these materials. 

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