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i 

72–937 2012

[H.A.S.C. No. 112–99] 

DOING BUSINESS WITH DOD: 

CONTRACTING AND REGULATORY ISSUES 

HEARING 

BEFORE THE

PANEL ON BUSINESS CHALLENGES 

WITHIN THE DEFENSE INDUSTRY 

OF THE

COMMITTEE ON ARMED SERVICES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

HEARING HELD 

FEBRUARY 6, 2012 
(II) 

PANEL ON BUSINESS CHALLENGES WITHIN THE DEFENSE INDUSTRY 

BILL SHUSTER, Pennsylvania, Chairman 

BOBBY SCHILLING, Illinois 

JON RUNYAN, New Jersey 

ALLEN B. WEST, Florida 

RICK LARSEN, Washington 

BETTY SUTTON, Ohio 

COLLEEN HANABUSA, Hawaii 

LYNN WILLIAMS, Professional Staff Member 

TIMOTHY MCCLEES, Professional Staff Member 

CATHERINE SENDAK, Research Assistant 
(III) 

C O N T E N T S 

CHRONOLOGICAL LIST OF HEARINGS 

2012 

Page 

HEARING: 

Monday, February 6, 2012, Doing Business with DOD: Contracting and Regulatory Issues ......................................................................................................... 1 

APPENDIX: 

Monday, February 6, 2012 ...................................................................................... 25 

MONDAY, FEBRUARY 6, 2012 

DOING BUSINESS WITH DOD: CONTRACTING AND REGULATORY 

ISSUES 

STATEMENTS PRESENTED BY MEMBERS OF CONGRESS 

Larsen, Hon. Rick, a Representative from Washington, Ranking Member, 

Panel on Business Challenges within the Defense Industry ............................ 2 

Shuster, Hon. Bill, a Representative from Pennsylvania, Chairman, Panel 

on Business Challenges within the Defense Industry ...................................... 1 

WITNESSES 

Burman, Dr. Allan V., President, Jefferson Solutions .......................................... 4 

Johnson, Joel L., Former Vice President, International, Aerospace Industries 

Association of America, Inc. ................................................................................ 6 

APPENDIX 

PREPARED STATEMENTS: 

Burman, Dr. Allan V. ....................................................................................... 33 

Johnson, Joel L. ................................................................................................ 46 

Larsen, Hon. Rick ............................................................................................. 31 

Sharma, Raj, President, Federal Acquisition Innovation and Reform 

(FAIR) Institute ............................................................................................ 53 

Shuster, Hon. Bill ............................................................................................. 29 

DOCUMENTS SUBMITTED FOR THE RECORD: 

[There were no Documents submitted.] 

WITNESS RESPONSES TO QUESTIONS ASKED DURING THE HEARING: 

[There were no Questions submitted during the hearing.] 

QUESTIONS SUBMITTED BY MEMBERS POST HEARING: 

Mr. Larsen ........................................................................................................ 67 

(1) 

DOING BUSINESS WITH DOD: CONTRACTING AND 

REGULATORY ISSUES 

HOUSE OF REPRESENTATIVES, COMMITTEE ON ARMED SERVICES, PANEL ON BUSINESS CHALLENGES WITHIN THE DEFENSE

INDUSTRY, Washington, DC, Monday, February 6, 2012. 

The panel met, pursuant to call, at 3:00 p.m. in room 2212, Rayburn House Office Building, Hon. Bill Shuster (chairman of the 

panel) presiding. 

OPENING STATEMENT OF HON. BILL SHUSTER, A REPRESENTATIVE FROM PENNSYLVANIA, CHAIRMAN, PANEL ON BUSINESS CHALLENGES WITHIN THE DEFENSE INDUSTRY 

Mr. SHUSTER. The hearing will come to order. I first want to welcome our panelists here today. 

Thank you, and a little trivia, they are fraternity brothers from 

Wesleyan, and I was just trying to figure out who hazed who. 

Mr. BURMAN. He hazed me. 

Mr. SHUSTER. Okay. All right. So you are the younger? 

Mr. BURMAN. I am the younger. 

Mr. SHUSTER. Well, again, thank you very much for taking the 

time to be here today. 

As most of you know, the panel has traveled around the country 

over the past few months to hold roundtable discussions with companies that are trying to do business with the Department of Defense. No matter where we went or what sector of the industrial 

base we met with, we heard time and again that red tape and bureaucracy are getting in the way of innovation, efficiency, and jobs. 

In Rock Island, Illinois, we heard complaints that export controls 

are overly restrictive. Many of the businesses we spoke to highlighted that we currently take a one-size-fits-all approach to determining what is placed on the U.S. munitions list. There is no mechanism for items to smartly be moved off of that list as technology 

advances and specific items become readily available in the global 

market. 

In Santa Clarita, California, we heard from a gentleman who ran 

a company that was last audited by the Defense Contracting Audit 

Agency in 2005, and the audit was still open due to failures on the 

part of DCAA [Defense Contracting Audit Agency]. He estimated 

that having his open audit on the books has cost his company $3 

to $4 million in lost business over the last 6 years. 

In Akron, Ohio, we heard that although programs like the Small 

Business Innovative Research program aid in technology development, the technology rarely goes anywhere because there is no 
2 

mechanism to assist in completing the stringent military test requirements nor is there resourcing to get the technology into production. 

In Honolulu, Hawaii, we met with a small business owner who 

commented that small businesses are simply not equipped to deal 

with the bureaucracy of DOD [Department of Defense] acquisition 

system. And in San Diego, California, we heard from a businessman who felt that the large primes don’t want small business to 

innovate and another who commented that anyone that wants to 

partner with a small business simply wants your technology. Both 

these gentlemen agreed that more needs to be done to protect the 

intellectual property of small businesses. 

Here is the thing, it isn’t just one guy in Ohio or a CEO [Chief 

Executive Officer] in California or a small business owner in Illinois. These issues were consistently raised everywhere we went, 

from the shipyard workers in Hawaii to the nanotechnology developers in Ohio. 

Mr. SHUSTER. We invited three witnesses to meet with us today 

to explore those issues and provide us with recommendations to 

eliminate some of the red tape. Unfortunately, one of our witnesses, Mr. Raj Sharma, President of the FAIR [Federal Acquisition Innovation and Reform] Institute, needed a few more days to 

recover from surgery he had last week and will not be able to join 

us. He did provide us with written testimony and is standing by 

to respond to any questions we may have for him following the 

hearing. We wish him a speedy recovery and ask his written statement be entered into the record. 

[The prepared statement of Mr. Sharma can be found in the Appendix on page 53.] 

Mr. SHUSTER. Today with us are Dr. Allan Burman, President of 

the Jefferson Solutions, and Dr.—or, Mr. Joel Johnson, former Vice 

President of the Aerospace Industries Association of America. Both 

of these gentlemen bring a unique set of—brings a unique set of 

experience and expertise to the table. I hope that we will have a 

fruitful exchange today and you will be able to assist this panel in 

formulating recommendations to improve the business environment 

out there. 

And with that, I will yield to Mr. Larsen if he has an opening 

statement. 

[The prepared statement of Mr. Shuster can be found in the Appendix on page 29.] 

STATEMENT OF HON. RICK LARSEN, A REPRESENTATIVE 

FROM WASHINGTON, RANKING MEMBER, PANEL ON BUSINESS CHALLENGES WITHIN THE DEFENSE INDUSTRY 

Mr. LARSEN. Thanks, Mr. Shuster, and I am pleased to be joining 

you and the other panel members today in what is the last hearing 

of the panel’s first 6 months. 

Mr. SHUSTER. Is it? 

Mr. LARSEN. The staff is confirming it is in fact our last hearing 

of the panel’s first 6 months to look at the challenges of doing business with the Department of Defense. 

Since this panel kicked off, we have heard from countless large 

and small defense contractors, DOD officials, noted academics, and 
3 

nonprofit and think tanks about doing business with the Department. While each individual had their own take on doing business 

with DOD, many common themes emerged. The Federal acquisition 

process consists of many onerous rules and regulations. There is 

not enough communication between industry and the Government 

buyer. The technology valley of death continues to grow. The accounting and auditing standards used by DOD agencies are antiquated and don’t differentiate between large and small companies. 

There is a lack of skilled acquisition professionals. And Government export control policies hinder the sale of U.S. goods and services to foreign buyers. 

Today’s hearing focuses on some of the most complex issues that 

negatively impact small businesses’ ability to become and remain 

viable partners to the Department contracting and procurement 

processes as well as regulatory policies. 

While U.S. goods and services and the process in which the DOD 

buys them has repeatedly proven to be world class, it is not without limitations. For many companies, doing business with the DOD 

either the cost to enter the defense market or the cost to comply 

with defense regulations is prohibitive. This panel would benefit 

from hearing recommendations from our witnesses that might lead 

to DOD’s contracting system becoming more flexible, allowing more 

entrants into the defense market. We would also like to hear your 

recommendations for ideas to bolster the existing defense industrial 

base while taking steps toward creating a 21st-century defense industrial base that is more diverse, more agile, and more able to respond to an array of potential threats. 

Shifting to a more agile 21st-century defense industrial base will 

mean making difficult choices about what we want our defense industrial base to look like and what goods and services we want it 

to provide. 

I would like to thank each of our witnesses for appearing before 

the panel this afternoon and ask that they offer the panel, this 

panel, their expert viewpoints on what they feel are some necessary steps needed to create a more flexible acquisition process. I 

am also interested in hearing about what steps DOD and industry 

can take to increase communication and transparency, not just at 

the top leadership levels but trickling down to the buying commands and program officers. 

Last, I am interested in hearing what our witnesses believe are 

the most significant challenges that DOD faces in buying goods and 

services, and briefly offer your thoughts on at least one significant 

barrier faced by the industry to remain a viable defense partner. 

For example, I can’t help but recall a couple of export control challenges that were presented to the panel while we were conducting 

the roundtable discussion in Chairman McKeon’s district a few 

weeks ago. 

One small business noted that on a particular contract to provide 

air conditioners for a weapons platform, that the basic air conditioner was required to be ITAR [International Traffic in Arms Regulations]-compliant simply because DOD wanted it to be painted 

similar to the platform it supported. Another participant who manufactures lithium ion batteries described how unnecessary ITAR re-
4 

strictions impacts his, ‘‘competitiveness, not only in exporting but 

also how it impacted his domestic sales as well.’’ 

These are tough issues that fall largely outside the jurisdiction 

of this committee but nonetheless should be addressed if we as a 

nation seek to help our industrial base, particularly our small businesses, remain viable to defense and to our economy. 

So I want to thank Dr. Burman and Mr. Johnson for their participation this afternoon, and I look forward to hearing from each 

of you. 

And again thank you again, Mr. Chairman, and as well, Mr. 

Chairman, it looks like we, in fact, will have Representative 

Hanabusa’s presence at this hearing, maintaining her stellar attendance. 

[The prepared statement of Mr. Larsen can be found in the Appendix on page 31.] 

Mr. SHUSTER. Thank goodness. 

I wouldn’t know what to do if she wasn’t here. 

Welcome. 

Welcome to all. We have a full house here today, so welcome all 

the Members to the hearing today. 

And with that, Dr. Burman, if you would proceed with your testimony. 

STATEMENT OF DR. ALLAN V. BURMAN, PRESIDENT, 

JEFFERSON SOLUTIONS 

Dr. BURMAN. Thank you very much, Mr. Chairman. Chairman 

Shuster, Ranking Member Larsen and Members of the committee, 

I am Allan Burman. 

Mr. SHUSTER. Your microphone, sir. Your microphone, you have 

to press the button. 

Dr. BURMAN. Now do you hear me? Sorry. 

And Members of the committee, I am Allan Burman, president 

of Jefferson Solutions, a woman-owned small business, and chairman of the Procurement Round Table. I am also a former administrator for Federal procurement policy of the United States and 

served in that post under Presidents Reagan, Bush, and Clinton. 

I appreciate the opportunity to testify on challenges facing companies doing business with the Department of Defense, and I would 

ask that my statement be submitted for the record, and I will summarize its main points. 

Jefferson has done many acquisition reviews across the Government, and the same issues tend to come up again and again. Contracting officers are often overworked and underequipped. Collaboration between program and contract staff is poor. And there is a 

lot of confusion on what Government can say to industry and when. 

Some of these problems come from the mismatched growth of dollars and staff. If you look at DOD’s contract obligations from fiscal 

year 1999 to fiscal year 2010, they went from $165 billion to $366 

billion, an increase of 122 percent. However, if you take a look at 

staffing over that same time frame, contract staffing, you are seeing a growth of about 20 percent. The fix to a lot of these kinds 

of problems tends to be additional layers of policy and regulation, 

and what ends up is added complexity, burden, and cost, and costs 

particularly for small businesses. 
5 

I think the committee recognizes and those who are in this profession looking at acquisition, the acquisition community, agree 

that we need to strike some kind of balance between workload and 

staffing, efficiency and risk, and regulation and cost. 

Today I would like to speak to four major topics of concern and 

challenges: Communications between Government and industry; 

the imbalance between Federal contracting workload and staffing; 

the risks involved with the improper use of Lowest Price Technically Acceptable contracting techniques; and the costs of increasing use of regulation. 

With regard to communications, as I mentioned, there seems to 

be a lot of confusion and misinformation on the level and timing 

of communication between Government and industry, and people 

are hesitant to talk. Dan Gordon, as procurement administrator, 

the most recent administrator who just recently resigned, came up 

with a Mythbusters Top 10 list, and here are some things to do: 

When requests for information go out, Government should follow 

up with meetings to perform market research. One-on-one meetings 

help both sides in understanding capabilities and needs. And debriefs should be as thorough as possible to help small businesses 

better compete and to reduce protests. When we first started, when 

Solutions started in the mid-1990s, we went through a lot of procurements where it definitely helped us to come in and find what 

we had done wrong to be able to correct those kinds of things. We 

ended up doing a lot better as a result. So more communication 

and more understanding of how the other side operates I think is 

a great benefit for both. 

With regard to staffing, we find overworked and understaffed 

personnel. They don’t have the time to get the training, development, and refreshers they need, and you see low morale and high 

turnover. Procurements are delayed and customer service suffers, 

and staff are not developing the competencies they need. As a result of this, agencies are looking to use less complicated evaluation 

schemes inappropriately, such as Lowest Price Technically Acceptable ones, as a way to sidestep the inability of staff to perform a 

best value analysis effectively. Even with reduced budgets—and we 

see this coming—the agency must invest in the necessary support 

training and staffing of its workforce. 

Now, I mentioned Lowest Price Technically Acceptable and the 

risks associated with it. This really is a focus on price, and it results in big risks for the Department because it drives innovation 

off the table. Competitors only show enough qualification to get by. 

Evaluations start at prices, and if the low cost offer is technically 

acceptable, then they win, and no one else’s proposal can be even 

seen or is even seen. So small businesses that can’t offer incredibly 

low bids are forced out of the process. I know this is an issue that 

has already been raised before this committee. 

The end result is Government gets unrealistically low bids and 

firms can’t do the work. A former—Jacques Gansler, a former 

Under Secretary of Defense, cited this as something that the NRO 

[National Reconnaissance Office] was using as a contracting technique for buying security services. He called it a failure waiting to 

happen. I see the same thing happening now with the Navy going 

down the path for its highly sophisticated multibillion dollar next- 
6 

generation enterprise network contract. By essentially denying the 

best products, services, and ideas, LPTA [Lowest Price Technically 

Acceptable] sends a message that subpar work is good enough for 

Government. 

With regard to small business goals, I know the Department is 

behind on its goals and missed some of its goals in 2010. There is 

a common complaint that the agency tends to favor large businesses. This isn’t a new complaint. When I was procurement administrator, I had to arbitrate between the SBA [Small Business 

Administration] and the Department to get the Department to 

raise its goals, and for a department with large sophisticated procurements, it is hard to hit these numbers. Certain categories of activities that lend themselves to small business participation, like 

construction or base repair work, they tend to bear the brunt, and 

larger businesses in these fields then see themselves as being 

treated unfairly. The goals will not be met without the strongest 

possible leadership in the Department. I know that Secretary Panetta has mentioned this a number of times; it is a key issue for 

him. 

Then the increased tendency toward regulation. This creates the 

same types of costs and process delays that the regulations are 

meant to remedy. For example, the Department of Labor’s final 

rule on nondisplacement of qualified workers under service contracts ends up creating new hurdles for getting rid of poor performing incumbent contractors, even after the company employing 

them loses the work. The most comprehensive assessment of this 

regulatory constraint is the 1994 Coopers & Lybrand study for Bill 

Perry. It was a major effort, a thousand interviews. They came up 

with a result of 18 percent cost differential for firms doing business 

with DOD. Maybe it is time to look at this again, and it may be 

time to redo this study. 

I hope the points I have raised have been helpful to the committee. I strongly support the work of this committee to address 

the issues that make it hard for firms to do business and to provide 

meaningful support to the Department. 

Mr. Chairman, Ranking Member Larsen, committee Members, 

this concludes my prepared remarks. Thank you for the opportunity to testify, and I would be pleased to answer any questions 

you or other committee Members may have. 

Mr. SHUSTER. Thank you very much, Dr. Burman. 

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

Mr. SHUSTER. And with that, Mr. Johnson, if you would proceed. 

STATEMENT OF JOEL L. JOHNSON, FORMER VICE PRESIDENT, 

INTERNATIONAL, AEROSPACE INDUSTRIES ASSOCIATION OF 

AMERICA, INC. 

Mr. JOHNSON. Thank you, Mr. Chairman and Members of the 

panel. 

I, too, am pleased to be here. I am testifying on my own behalf, 

although as you noticed, I am unsuccessfully retired from 20 years 

in the trade association world and a few more years in the Government, including 2 years—3 years on the other body across the way 

here. 
7 

I was particularly interested in reading the summaries of your 

industry roundtables. My experience when I was at AIA [Aerospace 

Industries Association] was certainly that you never were in doubt 

as to what the large primes wanted. They made sure you knew. 

But for small guys, you really needed to go out to them because 

they weren’t set up in Washington to express what their concerns 

were, and they didn’t particularly want to necessarily express them 

in front of primes or DOD. So you had to go to them. 

I think this is going to be a very challenging time for the small 

guys, as the procurement budget shrinks. Not only does the procurement budget shrink but the primes pull work in house, so it 

is double jeopardy for the small guys and that means that people 

who aren’t in the defense arena are going to be even more hesitant 

to get into it when they look at the newspapers. So we need to 

work to get them involved. 

The big thing about small companies is they are small. They 

don’t have contracting and accounting experience or capabilities 

that the big guys have. In the private world, they basically focus 

on inventing and manufacturing and marketing their product for a 

price. They don’t deal in a world where contracting, accounting, 

and even lobbying are comparative advantages, which they are in 

the world we deal here in Washington. They are also handicapped 

by the fact that it is probably easier for DOD to deal with a prime 

than it is with those guys, and that means the primes have the— 

the primes are better able to search out capability and to use commercial market prices to buy stuff. 

On the other hand, this risks the small companies losing their 

technology to the primes, and of course, the primes are going to 

take a percentage as they work with DOD. So bottom line, if DOD 

is going to directly seek out and take advantage of innovation that 

maybe in the small business sector, it has to go out of its way to 

do so. 

There are several suggestions I would have, most of which you 

are familiar with, use FAR [Federal Acquisition Regulation] Part 

12 commercial contracting where you can; raise the threshold for 

TINA [Truth in Negotiations Act] maybe to a million, possibly 2 

million; make sure that you have extended SBIR [Small Business 

Innovation Research] and STTR [Small Business Technology 

Transfer] programs if they are funded; assure small companies 

they won’t have their intellectual property hijacked either by DOD 

or the primes; develop good outreach programs so that the small 

guys actually know what is available to them and the DOD really 

‘‘honest injun’’ is interested to them. 

Finally, because I spent much of my professional career tilting at 

export controls, I noted the subject consistently came up in your 

roundtables, and both of you mentioned it this morning. I would be 

happy to discuss, if there is anything more mysterious than FAR 

and DFARS [Defense Federal Acquisition Regulation Supplement], 

it is ITAR. And if there is anything that small companies know less 

about than FAR and DFARS, it is ITAR. And if there is a valley 

of death, this is the kiss of death very often if you want to get into 

the export world or even in terms of what you have to do on your 

own shop floor in protecting your technology from your own engineer, for example, who happens to be Indian born and on an H– 
8 

2 visa. In any case, I appreciate the opportunity to talk with you 

all, and over to you. 

[The prepared statement of Mr. Johnson can be found in the Appendix on page 46.] 

Mr. SHUSTER. Thank you very much, Mr. Johnson. 

With that, we will open it up for questions. I am going to start, 

change it up here a little bit, start down with Mr. West for the first 

round. 

Mr. WEST. Thank you, Mr. Chairman and also Mr. Ranking 

Member, and thanks for the panel for being here today. 

I think one of the things that are really causing us to bust budgets in the military is the acquisition process and system, the special weapons system development, I mean, 10, 15, 20 years. So 

when I read and I look at, we have the Acquisition Systems Reform 

Act of 2009, I would like to get an assessment from you two gentlemen, how do you see this act in its early stages? Have we seen any 

changes moving toward a betterment and a streamlining of this acquisition process? 

Dr. BURMAN. I think, clearly, the act is meant to try to improve 

how these major systems are acquired, but frankly, I think it is too 

early to really get any sense with new systems to see whether 

things have really improved, so I would say it is a wait-and-see 

kind of an effort. I think the policies are in place to try to improve 

the process, but I don’t think we see much at this point. 

Mr. JOHNSON. I couldn’t disagree with that. Or let’s put it this 

way, I would agree with that. The policies are just getting underway. I think some of the basic notions are, you know, do 80-, 85- 

, 90-percent solutions, but don’t push the state of the art to the 

point where you wind up procuring forever but not getting a product at the end of the day, which has been an Army problem, obviously, over the last few years. 

Mr. WEST. Yeah, I know that well. 

Mr. JOHNSON. You design for the absolute best and ultimately 

don’t wind up with a product—— 

Mr. WEST. So my question then, when is the first maybe evaluation point that you all would recommend? I mean, I don’t want to 

see us, you know, go 5, 6 or 7 years down the road and no one asks 

the question about, okay, have we seen anything? I mean, is there 

some type of, you know, measuring of effectiveness that we have 

at a 2-year, 3-year point? 

Dr. BURMAN. I don’t think anything has been set up in terms of 

doing that. My recommendation would be to have a GAO [Government Accountability Office] investigation, a GAO report and review, but wait 3 or 4 years, pick the systems that you want to look 

at, and see what has been going on in terms of dealing with this 

question of are you asking for everything or are you actually trying 

to deal with these issues? I know the same complaint has been 

made about the new fighter plane in terms of how long that is gone 

through an acquisition process. I mean, people are talking 30 years 

or so in terms of the time frame. It is sort of incredible. And then 

when you think about the technology development that occurs in 

an 18-month timeframe, you can see why dealing with the integration issues and the other kinds of issues, it becomes almost an impossible job to get that resolved and to bring anything in under 
9 

price, you know, and on schedule, given these kinds of problems. 

So I would say that would be the suggestion I would recommend, 

and clearly, the GAO is well accustomed to doing those kinds of reviews. 

Mr. JOHNSON. I think I would add, at risk of offending some of 

my former employers, but there is a problem when the colonel or 

the general says, I want to do this, the contractor says yes, sir; no 

one asks, what will it cost and is it worth it? And you add on, you 

add on, you add on. That is what happened to the President’s helicopter. I mean, you start out with a perfectly serviceable helicopter 

that had 100,000 hours of combat experience, and first the Navy 

wanted to do it the Navy way, and so you start dismantling a helicopter that is supposed to be off the shelf, and then you keep adding electronics, and everybody says, yes, sir, we can do that, and 

you wind up with Air Force One with a rotor. And somehow the 

system somewhere, whether it be in the Pentagon or even on the 

Hill has to say, well, what does that cost and what percentage improvement is it going to give me? And somehow that doesn’t happen. 

Mr. WEST. Next question. Last week, I sat down with Brigadier 

General Avieli, who is the Israeli one-star general, head of their 

Israeli Defense Export and Cooperation Department. Question, can 

we do a better job, do you think, when it comes to our acquisition 

process of working with our allies to, you know, look at how we can 

have common operating systems and maybe getting more commercial off-the-shelf technology instead of going through these long, exorbitant procurement processes that we have here in America? 

Mr. JOHNSON. Well, now you are starting to get into the old 

ITAR issue among other things that is very difficult to talk to some 

of our allies, even our closest allies, at least at the company level, 

as to what do you do, what do I do, and we played around with 

these notions of different kinds of licenses; which by and large, 

State has never been terribly enthused about. We had a—you go 

all the way back to Clinton-Bush, the so-called ITSI initiatives, 

they were a set of initiatives where, one, they were going to issue 

a program license where, say, two companies could get together 

and brainstorm, and if they came up with something, then they 

will tell you, come back and get a license, but at least let the engineers talk to each other about what each of them could do. It was 

used once for a Raytheon-Talus program, you know, at the big 

think level. It has never been used again. Somehow you have to— 

we need to find ways, I know engineers always talk too much, and 

they all want to solve the problem, but, you know, that is the only 

way two companies can find out what they know. They don’t know 

what they don’t know until they talk about it, and again, this is 

an area where I think we could be much more imaginative in how 

we work export controls, especially at the pre-think level. 

Mr. WEST. Okay. 

Thank you, Mr. Chairman, I yield back. 

Mr. SHUSTER. Was there a reason why they never used it again 

or just—I mean, just did it and said, ah, enough of that? 

Mr. JOHNSON. I think basically State never liked the whole idea. 

I mean, there were several approaches to this, and basically you 

had to trust people to do, work within parameters, and the system 
10 

would much rather define very carefully exactly what you can and 

can’t do. Well, the problem is you don’t know what that is until you 

have had a chance to talk, and talk about that a little, I will give 

you an anecdote later if we are still on ITAR. 

Mr. SHUSTER. Yeah, I am sure we will be. 

With that, Mr. Larsen. 

Mr. LARSEN. Well, don’t let me stop you. Let’s get on with ITAR. 

I know that there has been legislation introduced in Congress to 

look at the export control policies of the Government, and efforts 

started under Secretary Gates and continued under Mr. Panetta 

along with the other relevant departments to rework the munitions 

list. What specific reforms do you think would be most helpful that 

this panel should be promoting with regards to export control and 

ITAR? 

Mr. JOHNSON. Well, I realize it is not your jurisdiction, but as I 

pointed out in my testimony, most export control legislation in the 

last 10 years has been done in Armed Services bills, not—in fact, 

SFRC [Senate Foreign Relations Committee] sometimes have problems getting their bills done and out. One thing one might want 

to look at, for example, is 250—DOD has chaired all of the interagency review panels to argue, try to figure out, what do we want 

to keep on the munitions list and what can go over to the commerce list that is easier, of less interest, which has never been done 

before. I mean, people think of the munitions list, as if there is actually a list there. It is a list of tanks and guns, and then down 

below, it says, and anything designed or modified for anything 

above is on the munitions list, so this is what kills the small guy. 

He has got a machine shop. In theory, if he has ever worked for 

a defense contractor, he should be registered with the State Department at 2750, 1750 the first year and X amount. Even if it is 

never exported, the law says he should be registered. Most of them, 

of course, aren’t because they never heard of the ITAR. 

One of the things at a minimum that was done is DOD ultimately identified a bunch of stuff they thought, we don’t care at 

all about this stuff: this radiator hoses, hydraulic hoses, engine 

mounts, with all due deference; in the Air Force, piddle bags. I 

mean, all of these are on the munitions list, and they said, no, no, 

no, no, this is commercial stuff; we don’t care. It has been identified. Someone should ask the Administration, at least send that, do 

their 38 E—38 F notification to Congress and see what Congress 

says. Congress will probably say, fine put it over here, and when 

it is over here, we are not going to even—we are not worrying 

about it. A whole lot of small companies suddenly then are completely free of this business. They don’t know anything about ITAR. 

They will never have to know about ITAR because what they are 

building isn’t that kind of stuff and that is not the kind of stuff you 

are terribly interested in, but at least it would solve an immediate 

problem. It may be that one might want to look at legislation that 

would say, when you are exploring a technology with a small company, maybe DOD decides upfront whether this is something they 

want to control as a military item or not. And I go back to one of 

my first field trips 25 years ago, and nothing has changed. I was 

at a university, and the Army was putting some money into a program where, this is all, of course, pre-Nooks and pre-all kinds of 
11 

things, this is 30 years ago. They wanted a flexible display sheet, 

just something like a piece of paper that you could fold up, but 

when you got to a table, you could open it up, plug it into your 

computer, and out would be a whole map, and the Army was so 

afraid of talking, of getting this stuff caught up in the ITAR that 

they didn’t dare talk to the people they were giving the money to 

as to what they wanted. It had to go circuitously, because as soon 

as it was built to a military spec, it became an ITAR item, and the 

Army knew that if it had been an ITAR item, they could never afford it. They had to get it out into the commercial world. That is 

what they wanted to do, make, you know, gazillions of them, and 

we will ruggedize it, and that can be on the ITAR, but don’t get 

the immediate technology on ITAR or this company is never going 

to have a market. 

And so that might be one thing one could look at is when you 

start putting money into the technology, you decide upfront whether you would like to see this commercialized or not, and then we 

will pick the cherry off the tree when it does, and now I can afford 

it because in the electronics world, the stuff that is most affordable 

is the stuff that you can buy at Best Buy, and then you can 

ruggedize it, but don’t start out with it as a military item upfront, 

or you are in this morass. It is not the valley of death; again, it 

is the kiss of death. So there is a couple of thoughts. 

Mr. LARSEN. Dr. Burman, do you have some thoughts on this? 

Dr. BURMAN. I would say the same thing, it is very analogous to 

the kinds of issues that we were dealing with on the acquisition 

front, and back in the early 1990s, just trying to get someone to 

move away from putting specifications, military specifications on 

everything was just a tremendous, tremendous problem, and you 

couldn’t get people to want to participate because of all of these 

kinds of constraints. Ultimately Bill Perry, Secretary of Defense at 

the time, put in a requirement that said that people had to justify 

it if they were going to put military specifications for commercial 

type items, and we had legislation passed that encouraged people 

to buy commercially. 

I mean, one of the problems that I tended to deal with is the 

community, the acquisition community tends to be a very riskaverse community, and so people, even from Congress, would say 

to me, well, you know, they can do these things, they can buy that 

stuff, they don’t need to do all of that. But when push came to 

shove, unless there was something there that really gave people an 

opportunity to see that, yeah, they weren’t going to get in trouble 

by going down that path, they weren’t going to do it. And so ultimately, we had legislation passed—this committee certainly supported that legislation—to try to make it clear that we were looking down this commercial product path and commercial services 

path and reduce, trying to reduce the burdens for people and small 

businesses doing business with the Government. It was a major accomplishment. It was a bipartisan accomplishment, but it took a lot 

of work to get there. 

Mr. LARSEN. I yield back. 

Mr. SHUSTER. Mr. Schilling. 

Mr. SCHILLING. Thank you, Chairman, Ranking Member. 
12 

Thank you, gentlemen, for being here. I am going to start with 

Mr. Johnson. Your statement also touched on ways for the DOD to 

reach out into the communities to encourage small businesses to do 

contracts with the DOD. Are public-private partnerships like those 

under 4544 with organic industrial bases, are those a good way to 

bring in the very small businesses and get them used to doing work 

with the DOD? 

Mr. JOHNSON. I mean, anything that gets their feet wet, as long 

as it doesn’t discourage them in the process. I mean, I was also 

thinking about everything from—most States have economic development offices, if you want to reach out to those. A number of 

States, like Florida, I am trying to think of—you usually see at 

least seven States trying to attract aerospace at the Paris Air Show 

and at the Farm Bureau Air Show. Those are States that obviously 

are interested in the subject. They must have outreach. Could the 

military or DOD work with some of these State organizations that 

are economic development operations or, more specifically, aerospace because that is where an awful lot of the technology is. 

But the little guys don’t necessarily, you know, read the daily 

Federal Register or they don’t read the—they don’t know what they 

don’t know. So I think you need to find some intermediaries that 

do know how to touch these folk, not just from Washington but 

from—again, probably the States are the best instruments, although some big cities have these kind of things also, where they 

do know who is out there and who is looking for money and who 

is looking for expansion. Some of the—another place you might 

want to look to again are some of the university communities. 

Obviously, universities know this stuff. But, again, they are terrified of O5 P (?) and they are terrified of ITAR. What, 40, 50 percent 

of all engineering graduate students are foreign born. So what they 

don’t want to do is if the touch of the military touches them, suddenly half their students are inaccessible for this work. So, I mean, 

again, one needs to be a little careful as to when do you militarize 

and when do you—or what kind of arm’s length can you have so 

you can stir up the animals that you want to stir up and pick the 

right time to intervene as this style becomes an interesting defense 

issue. Going back to my Army analogy, how do you get this stuff 

going that you know you want going without crossing the line to 

when now you are doing mil specs or you are doing a specific military contract, getting a little distance between you before you close 

the door? 

Mr. SCHILLING. Very good. Thank you for that. 

You mentioned in your statement that the DOD should be able 

to interact with the private sector in a way the private sector is 

used to doing business, a more open and interactive forum. How do 

we restructure—you kind of answered a little bit of that there with 

maybe talking with the universities, so on and so forth, but how 

do we restructure DOD acquisitions and procurement offices to address this, or do we need to focus more on changing the culture 

within the DOD? 

Mr. JOHNSON. Allan is smarter on this than I am, but I will just 

come back to the point he talked about, you know, whether it be 

in acquisition or in export controls, the incentives are all, never 

make a mistake. The incentives aren’t, do really great, find the 
13 

golden chalice. The incentives are never make a mistake so I don’t 

get in trouble, and I don’t know how you turn that around. I mean, 

procurement guys in the private companies do get rewarded when 

they find good technology at good prices. They also may get cashiered if they screw up, but there is a rewards incentive, and there 

is not much of that within the Government community. 

Similar, the export controllers have really no, there is no incentive to make the thing go out, which is why those of us in industry 

are terrified at the idea of a standalone export control agency because their only incentive is to make sure nothing goes out that 

shouldn’t go out. There is no incentive to say we have to do cooperative programs with our allies or we have to do cooperative research with our allies. They are saying, if I never let anything out, 

I will never be in trouble. How do you incentivize people to go the 

other way around? But Allan knows. 

Dr. BURMAN. And I think you are right, it is a cultural issue, and 

there are consequences. If you are a procurement person and somehow it looks like you are giving special treatment to somebody, you 

can get in a lot of trouble; the company can get in a lot of trouble. 

So the more that you can get information from the leadership of 

all of these organizations that deal with this to demonstrate that 

it is in the Government’s interests and it is in their interests to 

have this kind of communication, and clearly you have to put in 

enough constraints so that somebody’s not providing sensitive information or proprietary information to someone, but that can be 

easily worked out, but people have to understand that this is the 

way the Government wants to go because this is the way that you 

are going to bring more people into the Government marketplace, 

more companies into the marketplace. 

Mr. SCHILLING. Very good. Thank you, gentlemen. 

Mr. SHUSTER. Ms. Sutton. 

Ms. SUTTON. Thank you, Mr. Chairman. 

What are your thoughts on the other transactions authority as 

a means to increase opportunities for small businesses? 

Dr. BURMAN. Well, I think it provides an innovative way to allow 

companies to be able to participate where there is a lot of flexibility 

in exactly how do you structure things. So I would say this authority, it was actually something that I understood was put in place 

many years ago with NASA [National Aeronautics and Space Administration] with Paul Dembling, who was a member of the Procurement Round Table, trying to come up with a way to figure out 

how to invite some issues where you don’t really know what the 

answer is or the approach should be, and offer an opportunity and 

some flexibility to do that. Anything that offers openness, flexibility, another approach to be able to encourage businesses to come 

into the Government I think is a good thing. 

Ms. SUTTON. Okay. What can be done, and certainly you have 

talked about this some, what can be done to reduce the risk-averse 

culture in DOD so that contracting officers are more inclined to 

contract with small businesses? 

Dr. BURMAN. Yeah, that is the—yeah, no, that would be great to 

have that solution. 

Ms. SUTTON. I am counting on you. 
14 

Dr. BURMAN. I have been plugging away at trying to do that for 

a long time to, again, make it clear that the approach is something 

that is in the best interests of the Government and something you 

are not going to be held accountable for, but the community itself 

tends to be very risk averse. 

Frankly, when I was doing that, I needed congressional action to 

get people to feel they could do something, or many people said you 

can do it anyway; the rules allow you to do it. So I don’t know if 

you need more emphasis from this body to try to make that point. 

Clearly, my successor at OFPP [Office of Federal Procurement Policy], Dan Gordon, who just left to go over to GW, had a major effort 

to try to get that kind of word out, encourage people to have conversations, better communications, and I think that is clearly a 

benefit to the Government and to the industry because if both sides 

know what the other wants, you are going to get a better deal ultimately. But the more, at least, the leadership of the organization 

will back you up on doing these kind of things, then I think the 

better chance you have of people being willing to stick their necks 

out a bit. But it is a community that doesn’t like to do that. 

Ms. SUTTON. Mr. Johnson. 

Mr. JOHNSON. Again, you know, maybe you need some appropriate threshold under which you don’t have to—I have had these 

experiences as a consultant personally where DOD said yeah, I 

would like to do this study, but, gee, I would have to competitive 

bid it for $100,000. I am not going to do that. It is too much trouble, so go find somebody that has a task order that you can attach 

yourself to. And we will funnel the money through. And of course, 

10 percent goes off the top. Somebody writes 12 checks, and they 

are happy, and I have seen this happen, but maybe there ought to 

be some authority at some level to say you have the authority to 

do this. 

And similarly, on the private sector side, I mean, back at AIA 

days, when somebody, one of our guys screwed up, you would say, 

just, please God, don’t write another reg, put them in jail. White 

collar workers hate jail, you know. The word gets around, but don’t 

write another reg. I mean, that is when you get FARs and DARs 

[Defense Acquisition Regulation] like this. I remember a friend of 

mine, board of administrations, would say, only bottle common 

sense, you know. We would solve a lot of our problems. But I think 

you can’t ring every possible thing with a regulation. You have got 

to have some ability for human beings to make some decisions, and 

occasionally they will make a wrong one, but as long as they are 

not doing it because they are lining their own pocket, in which case 

they should go to jail, there ought to be some flexibility for people, 

at least at the small level, to do things that aren’t necessarily competitive bid. The guy has a really bright idea, and yeah, that is 

worth 100,000 bucks for me to figure out whether it is really a good 

idea. How do we do that? 

Dr. BURMAN. Just another example in that whole area was the 

use of purchase cards. I mean, purchase cards were a tremendous 

advantage in terms of reducing some of the burden on contracting 

people, giving program people more authority, but then all of a 

sudden, people are, you know, buying Christmas gifts and Jeeps 

and other kinds of things, and pretty soon, where did the purchase 
15 

cards go? Well, there’s a tremendous savings by getting people to 

use that as opposed to paper and pencil and having the acquisition 

community doing that job. So here is a case where you need the 

balance, you know. You recognize somebody is going to do bad 

things, you want to do something about those people doing bad 

things, be able to monitor it, know it, but don’t take away the ability for 95, 99 percent of the people to use a device that we are all 

very familiar with and that most people are going to use successfully. 

Ms. SUTTON. Thank you. 

Mr. SHUSTER. Mr. Runyan. 

Mr. RUNYAN. Thank you, Chairman. 

And I always love the word common sense because we lack a lot 

of it around here. 

But just talking about, and really to both of you, how changes 

in procurement acquisition regulations and that, and we see this 

happen throughout our economy, our tax structure. What are the 

rules of the game? How much of that are we creating ourselves on 

a yearly basis? 

Mr. JOHNSON. I mean, again, every time one adds another regulation, one, you are almost guaranteeing somebody is going to foul 

up because nobody can possibly know all the regulations, and again 

there needs to be some way to just have a little bit of human discretion with a little penalty. If you do wrong, wrong is not the same 

as making a mistake. If you take a lot of your exploring technologies, you often learn the most from when something blows up 

in my world or it falls down. That is not necessarily somebody 

doing evil, it is somebody exploring the boundaries of science. 

If somebody does wrong, then they should be punished, but, 

again, no more—not another batch of regs. Maybe we need more 

recognition for people in the procurement world when they do do 

something innovative so that there are some positive upsides. I 

don’t know how much. I know there is a few—— 

Dr. BURMAN. That generally doesn’t hit the Washington Post. It 

is kind of the other side that you read about in the newspapers unfortunately. So you are not seeing a lot of gold stars for folks. But 

I agree with Joel, if you can try to do that, that would be a great 

way to at least try to deal with the cultural issues that Mr. Schilling talked about. 

Mr. RUNYAN. And that is obviously rewarding people for that and 

also taking chances I think a lot of times. You admit that that is 

where your cutting-edge stuff is going to come from, and we can’t 

be afraid to go out and ask people to take those risks sometimes. 

I think not only there, I think dealing on the small business aspect 

of it. You know, they are not either fiscally or just even in their 

heart of hearts, they don’t want to go out and take those risks, and 

I think, you know, not only from a regulatory aspect of it to, obviously, I use the term all the time, why are we always changing the 

rules of the game when we are in the middle of the game, and I 

think that weighs on the small guy a tremendous lot. 

Dr. BURMAN. And there are a lot of rules. 

Mr. RUNYAN. Yes, and I thank you guys for your insight. 

Chairman, I will yield back. 

Mr. SHUSTER. Thank you. 
16 

With that, Ms. Hanabusa. 

Ms. HANABUSA. Thank you, Mr. Chairman. 

Dr. Burman, in reading your testimony, I am curious about this 

Procurement Round Table that you are chair of that was chartered 

in 1984. What does the Procurement Round Table do? 

Dr. BURMAN. Yes, I am glad you asked that question. Elmer 

Staats actually was the first chairman of the Procurement Round 

Table and chairman for many years and one of the founders of the 

organization. We are a group that is limited to 50 people. Virtually 

all of us have had senior level positions in the Federal Government. We are now serving pro bono. We are all in the private sector at this point, and our goal is to try to help improve the acquisition process. We have meetings and talk to senior leadership in 

agencies and try to provide help and expertise to them. We provide 

an award to a young acquisition professional to recognize them and 

recognize their work and to try to promote good acquisition processes. 

Ms. HANABUSA. In the ending part of your testimony, you give 

a kind of a frightening percentage, and this is when then-Defense 

Secretary William Perry actually did this major study, and he said 

DOD paid a cost premium of 18 percent as a result of the regulatory constraints, and I assumed that was sometime in 1994. 

Dr. BURMAN. It was. This is the—— 

Ms. HANABUSA. So today—— 

Dr. BURMAN. This is the heavy document. 

Ms. HANABUSA. So today 17-plus years later, I mean, what do 

you think that cost premium is that DOD—and I assume that is 

18 percent above. 

Dr. BURMAN. It is. 

Ms. HANABUSA. So what is the cost premium? 

Dr. BURMAN. And, again, nobody has really done that kind of a 

detailed analysis. There has been lots of reviews about regulations 

and the impact of regulations, but a lot of the issues are the kinds 

of things that you have been hearing from the committee, anecdotal 

concerns about how it makes it more difficult for somebody to do 

something. This was an effort to try to put a rigorous evaluation 

scheme together. They had 10 companies that were looked at in 

depth. There was something like a thousand people interviewed, 

and they looked at cost drivers and what were the differences. And 

frequently the companies, they had companies that were doing both 

Government work and private sector work, like Motorola, at the 

time, and you could then see what was the cost differential, and 

that was the value-added cost, excluding materials. 

You know, I would bet, even given all of the kinds of concerns 

that we have had to try to improve things, just given Joel’s comments about the growth of regulation and how people continually 

see ways to address these problems through more regulations, I 

wouldn’t be surprised if we are seeing a similar number, even when 

that was put in place back then, and we had the Federal Acquisition Streamlining Act or FASA to try to address many of these 

kinds of issues. 

Ms. HANABUSA. So, Dr. Burman, you sit on a special roundtable 

of 50 people with exemplary experience, and you have been offering 

free advice to Government basically, and we are not doing any bet-
17 

ter than what we know we were doing in 1994, and I think Mr. 

Johnson made a point about, you know, I think what he was trying 

to say is that maybe there is just a percentage of people who are 

going to do bad things, and maybe we should calculate that in instead of overregulating and instead of overpolicing and overregulating. Maybe we should just have it like a loss leader in inventory 

that some companies do and say, we lose that much, it is within 

the margin. I mean, nobody wants to accept that, but is that something that all of you experts, 50 of you, have you ever thought of 

that, the cost of monitoring, the cost of doing this? You know, we 

have DCAA, we have all these people who do pre-, almost pre-application processing. Is that a consideration, that maybe we should 

just, you know, pack it up? 

Dr. BURMAN. I think one of our views are to see if for particularly 

lower-cost items, of which there are many, and if you look under 

a simplified acquisition threshold of $150,000, there are ways 

which you could try to make the process work more smoothly and 

simply. The issue becomes, even if it is only a couple of things, you 

know, we have all seen what happens when somebody does something that is a bad thing or a silly thing, the muffin business, all 

of a sudden that tars everybody who is doing the job with that kind 

of a complaint, and so it is awfully hard to do that and be willing 

to sit back and accept that because it then becomes a reflection of 

how the Government does its business, and none of us like to be 

accused of doing bad things. 

Ms. HANABUSA. Whatever happened to debarment? I mean, don’t 

we have any kind of teeth with that? I mean, what happened to 

the good old days—— 

Dr. BURMAN. I think that there is—— 

Ms. HANABUSA [continuing]. That people were afraid of being 

debarred and the shame that went with it? It has no value today? 

Dr. BURMAN. And there has been a serious effort to do that, and 

I think many of the companies have, in fact, been suspended over 

time because of these kinds of issues, but debarment was meant to 

be a tool to protect the Government from bad actors, and agencies 

use that, some more than others. I think in many respects Defense 

probably is more effective in using this tool than many of the civilian agencies, so it is certainly not ignored and agencies have been 

focusing on it, but you still are faced with the issue of if somebody 

does something bad, that is the Washington Post story. 

Ms. HANABUSA. Thank you. 

Mr. JOHNSON. And it is hard. I mean, debarment, the problem 

with debarment is you are dealing with somebody that is too big 

to fail, just as it is too big—you can’t debar Lockheed Martin because some guy makes a mistake somewhere in one of the subsidiaries. You have to be able to reach down and nail that particular— 

I remember Norm Augustine once in one of our very many scandals 

maybe 20 years ago saying, you know, I have 120,000 employees, 

show me a town in the United States of 120,000 that doesn’t have 

a jail. He said, somewhere out there, someone is doing something 

wrong at any given time, but, you know, we do our best to make 

that not happen, but you have got to find a way to reach out and 

debar or do whatever you are going to do that is of appropriate 

scale. 
18 

When you have huge companies, you can’t—you simply can’t 

debar any of these large companies. You have got to find measures 

that sort of fit the crime, and I think that is one of the problems 

on some of these cases; the Government doesn’t know what to do 

because it doesn’t know what the mechanism is to get at that guy 

over there. 

Ms. HANABUSA. Mr. Chairman, my time is up. 

But I did want to say too big to fail is not really a nice word 

around here anymore. Thank you. 

Thank you, Mr. Chair. 

Mr. JOHNSON. I chose it specifically. 

Mr. SHUSTER. Again, we have talked about a lot of things that 

we have heard before, about the Government not talking to business. How much of that is driven by the regulations, and how much 

of that is driven by the culture of I am not talking to them because 

I don’t want to get in trouble? I mean, I am sure that because of 

the regulations, they are doing that, but I mean how much of it is 

perceived and how much of it is reality that is going to be, can you 

quantify that at all? 

Dr. BURMAN. It is hard to say. Clearly, when you have got an actual procurement on the street, when a procurement is out, then 

that changes the picture because there you do have to be particularly careful about not giving somebody an unfair advantage. So 

that changes the equation. But prior to that procurement coming 

out on the street, there should be many opportunities to have these 

kinds of conversations. Sometimes it is workload; you don’t have 

the time. Sometimes it is perhaps people aren’t really seeing down 

in the long run what the benefits are of doing it so it becomes a 

burden. Again, it becomes a cultural issue more than a regulatory 

issue when you are dealing with those kinds of problems, Mr. 

Chairman. 

Mr. SHUSTER. Right. That is occurring with the large primes as 

well as the small guys? 

Mr. JOHNSON. Well, what I mean, again—— 

Mr. SHUSTER. Or significantly. 

Mr. JOHNSON [continuing]. This is your one-size-fits-all problem 

in that it is one thing when you are dealing with a large procurement, you have got three or four big guys competing for it; yeah, 

there’s all kinds of rules and regs that should be there, that no one 

should be given an advantage. And they have the overhead to deal 

with what a procurement requires, and DOD has the overhead to 

deal with what procurement requires. It is when you get down to 

the small guys, where you are talking $100,000 or half a million 

dollars, then trying to run it the way you would run a large procurement may simply not be in the cards. 

Mr. SHUSTER. Right. 

Mr. JOHNSON. I mean, particularly if you are dealing with someone that has got a unique something, that is the whole reason you 

are wanting to reach out to him is we think he has got a unique 

innovation, then how do you deal with that, you know, that entity 

in a way that doesn’t get you all caught up in acquisition regulations because there isn’t another one out there right now? And all 

I want is a little bit of seed money to go do something and see what 

happens. 
19 

Mr. SHUSTER. Right. And we talked, you mentioned about Congress, and I think we have done some of this to try to go in and 

change the regs, but it seems every time we change regs, we just 

pile more on top and make it more and more difficult, and so trying 

over the past 6 months to listen and hearing these things, you are 

trying to think how do you go and change the culture over there, 

how do you—you mentioned that small businesses don’t have contracting or even the accounting department to be able to deal with 

DOD. Nobody is really doing a lot of cost-benefit analysis on some 

of this technology, and you talked about intermediaries, being able 

to reach out to the small guys to help them. So as I am thinking 

through this, how do you—and Ms. Hanabusa talked about being 

debarred, and that brings up, I think to myself, we have got different segments of different professions out there, different industries that self-regulate. Lawyers debar themselves. Accountants 

throw themselves, I mean, they debar them, whatever they call debarring an accountant, we have got an agency, a self-funding agency, FINRA [Financial Industry Regulatory Authority], that regulates the, a lot of the securities and exchange industry. So is it possible to change the culture over there, or do we have to do something dramatic and maybe pull it out and let the industry self-regulate itself, especially when you are dealing with these smaller and 

medium-sized companies. Is that something that even in your 

mind, is it in the realm of possibility, or am I out of my mind? 

Dr. BURMAN. No, but I think one of the things that is done in 

the acquisition world is one company can complain about the other 

company when the other company has done something that they 

perceive to be incorrect or improper or the Government has done 

something through the protest process. So, in some respects, there 

is a way to redress these kinds of problems by protesting to the 

GAO and/or the Court of Claims or going back to the agency to 

complain that the process hasn’t worked right or they have been 

unfairly treated. So you do have a mechanism that the industry 

more or less works itself that then still comes back to the Government. But, again, then, you have got a regulatory process with the 

Government to try to deal with that. 

Mr. SHUSTER. You say there is a regulatory? Because that didn’t 

happen on our tanker program. 

Dr. BURMAN. Yeah, I mean—— 

Mr. SHUSTER. Where does that occur out there? 

Dr. BURMAN. I mean, it can become a very complicated process, 

but I mean, one of the reasons for having a protest system in place 

is to try to allow firms an opportunity to go to somebody to complain. 

Mr. SHUSTER. But does that happen? You say that happens out 

there? 

Dr. BURMAN. And it does happen out there. 

Mr. SHUSTER. Within the DOD or outside? 

Dr. BURMAN. I think the Government-wide numbers, I mean, 

they are not huge, I think the Government-wide numbers in terms 

of protest for the GAO is around 4,000 something. There is about 

70 cases before the Court of Claims. A significant number of those, 

though, get turned around one way or another. The suspension rate 

isn’t that high, but the agencies do make some changes. So it is one 
20 

means to try to offer a way other than the regulations themselves 

to try to make sure the process works fairly. 

Mr. SHUSTER. Mr. Johnson. 

Mr. JOHNSON. Again, it is one thing to have—you mentioned the 

tanker program, one of the all-time largest acquisitions in history 

as opposed to some little guy that you want to do 100,000 bucks 

worth of business or 500,000. 

Mr. SHUSTER. Right. 

Mr. JOHNSON. And there to pick up on Congresswoman 

Hanabusa’s comment, I mean, the price of perfection is very high. 

It is a lot cheaper to have 99 percent perfection, and it is even 

cheaper to have 95 percent perfection. One of the questions is sort 

of, what is the pain tolerance level or the political tolerance level 

that one can put up with? I remember—and this town is pretty 

awful for that. I remember in Desert Storm when, with all due deference to someone from GAO who may be in here, if the only thing 

you had ever read about Army equipment was in GAO reports and 

some other press reports, you would have been astonished to know 

that the M1A1s ran, that Bradleys ran, that A–10s ran, all this 

stuff worked, amazing, in really miserable, rotten conditions, but, 

you know, during the time you are fielding this stuff, bad things 

happen. Until you put something in the hands of 21-year-olds, you 

really don’t know what you have got—— 

Mr. SHUSTER. Right, right. 

Mr. JOHNSON [continuing]. No matter what you do at Aberdeen, 

and so you have to have some risk tolerance, and it seems to me 

the risk tolerance should go up the smaller the program is, and 

somebody is always going to find out that somebody’s Uncle Todd 

got the $100,000 program from somebody who was in DOD. Well, 

okay, fine, it is going to happen. But 99 percent of the time the 

guys are going to try to do the best job they can, and they may find 

some little nuggets out there if they have the flexibility to take a 

little risk. Some of them aren’t going to pan out. Some of the—but, 

again, how do you—what we are talking about, if you are looking 

for innovation in the small guys, how do you take risks, how do 

you—— 

Mr. SHUSTER. Well, that is the idea, you want it taken out of 

DOD, again, not the large contracts, but the smaller guys. Let it, 

like FINRA, for 70 years, they have self-regulated, and the industry pays in. They go to these people at FINRA. They do protests. 

They regulate them. They tell them things that they can do, can’t 

do, and it just seems to me, I can’t imagine we are ever going to 

change the culture over there unless we do something dramatic because there is some reporter sitting down at the Washington Post 

looking to get somebody so they can write a story on, you know, 

Uncle Todd getting that contract. 

So, again, back to my original question, am I completely out of 

my mind even to think that there is something out there that exists today, a model for how we can—again, maybe it is just DCAA 

or maybe it is, you know, regulating small contracts. 

Dr. BURMAN. Again, Mr. Chairman, there is a—there is something called the Defense Industry Initiative. I don’t know if the 

committee is familiar with that operation, but it is something that 

one of the former procurement administrators, Angela Styles, is 
21 

now the chief person working with, but this was an effort by the 

industry, and this is largely large businesses in the industry. It has 

a very robust system for identifying what you can and can’t do and 

trying to get the word out and providing training and that sort of 

thing as a way, again, to try to ensure that their staff are doing 

things appropriately, and this is not something that is done or 

forced by the Government. It is something that is, again, a self-regulated effort. 

Mr. SHUSTER. What is it called, the defense industry—— 

Dr. BURMAN. The Defense Industry Initiative. 

Dr. BURMAN. And that may be something that the committee 

might want to look at. Again, the problem is when you have small 

businesses, I mean, small businesses, sometimes they don’t—they 

don’t even know who to talk to in the Government. I mean, just 

the basic question of, you know, you don’t talk to a contracting officer. They are not going to know what the program is that you are 

going to try to deal with. You need to talk to the program official. 

Well, that is very elementary information, but if you are not doing 

business with the Government, how do you know this? So you need 

somebody to help you to know these kinds of things. 

Mr. SHUSTER. I am way over my time, but I wanted to ask you 

another question about—before you decide that you are going to do 

something with DOT [Department of Transportation], maybe you 

decide you want to commercialize it. Some things I know are going 

to be simple. In your experience, how difficult is that to look at 

something and say—is it pretty straightforward, you can look at 

something and say, we need thousands of this, so we need to have 

them produced by the millions to be able to drive down the cost? 

In most cases is it going to be smaller projects, or the things that 

are going to be larger? 

Mr. JOHNSON. I guess it will depend. 

Mr. SHUSTER. Yeah. 

Mr. JOHNSON. I mean, it certainly—if you can commercialize 

something, you are bound to drive the price way down. 

Mr. SHUSTER. Right. 

Mr. JOHNSON. I mean, if you can produce—you know, if you go 

back 30 years, if I remember correctly, you know, the military was 

85, 90 percent of all microchips, and today they are about 1 percent, 2 percent. I mean, the commercial world drives electronics. So 

if it is something that has commercial applicability, that is what 

you want. You know, you have to weigh the probability that, okay, 

this is commercialized, then all the bad guys can go buy it off the 

shelf, too. They all have cell phones, and they use garage door 

openers for IEDs [Improvised Explosive Devices], and you are stuck 

with that, and you have to make that call. But by and large, if you 

can commercialize—because the other thing is going to be very 

unique stuff that only DOD would be interested in, and that is 

going to be high unit cost. 

Mr. SHUSTER. So do a cost/benefit analysis on that, and say, is 

it worth commercializing and letting bad guys—— 

Mr. JOHNSON. The trouble is you don’t know until you—you 

know, Steve Jobs invents things that nobody knew they needed. 

And so, that is one of the hard parts in electronics is—— 

Mr. SHUSTER. Right? 
22 

Mr. JOHNSON. You don’t know what you don’t know. 

But getting back to your point, you know, maybe—and I will 

probably have some of the audience that is going to tell me this is 

already the case, and what can I say? You may need particular offices in the Army or the Air Force or the Navy, but you have some 

guys that just do this. That is their thing is going and looking. 

Mr. SHUSTER. Right. 

Mr. JOHNSON. And they are familiar with the top technologies 

you guys are interested in, and they are empowered to make some 

decisions, and they are told, go take some risks. And if you pan out 

1 out of 10 times, you are going to make colonel. 

Dr. BURMAN. And I think the system does, in fact, react at times 

to meeting needs and helping agencies meet needs. There was a 

major transformation in the late 1980s, early 1990s to shift to a 

best-value procurement process, evaluation process. And essentially, one of the reasons for going down that path was you had all 

of these IT [Information Technology] companies who weren’t interested in doing business with the Government. And, you know, they 

weren’t interested in somebody saying the requirements, and this 

is how you are going to do the job. So the only way that the Government could get them to come in was to say, okay, we will evaluate you. This is a solution we want. You show us how to get there, 

and we will have to measure apples and oranges and come up with 

the best result for the Government. 

So, I mean, the system does adapt, it seems to me, when you 

have these kinds of major needs. And again, you have to have 

somebody say, yeah, this is what we want to do, and we will take 

the risk of going to best value, and we will take the risk of actually 

paying more for somebody than the low-price offer because it is 

good for the Government to do that. So, I mean, there are certain 

things that are of benefit in how the Government does its business 

as well. 

Mr. SHUSTER. Let me mention, a skunk works for procurement 

in the development. Let us go out there, and—— 

Mr. JOHNSON. Or three or four of them, wherever you want to 

put them. 

Dr. BURMAN. Yes, and DOD has used that kind of technique. 

Mr. JOHNSON. So think small. 

Mr. SHUSTER. Right. 

Mr. JOHNSON. And think radical and be unleashed a bit. 

Mr. SHUSTER. Right. Does anyone else have—yes, Mr. Larsen. 

Mr. LARSEN. Mr. Johnson, back to ITAR. Do you have any specific examples that you can think of, maybe give us a couple of examples for the panel to consider about the impact ITAR has had 

on the U.S. companies maybe with regard to Europe, losing business to European companies? 

Mr. JOHNSON. I mean, when you read in the paper that—I mean, 

you can read in Defense News this week Northrop Grumman is developing an ITAR-free DIRCM [Directional Infrared Counter Measures] in Europe. Northrop Grumman. So even U.S. companies are 

inventing ITAR-free products overseas to avoid our system. This 

doesn’t help our industrial base any. It helps large companies, and 

more power to them. 
23 

I mean, Lockheed Martin is doing an ITAR-free—if I remember 

correctly, it is a fire-control system for a Canadian frigate, and they 

are going to do all of the development offshore so that they are not 

constrained. They don’t have to go through what they have to go 

through. 

As you all know, I mean, you know, Alenia advertises ITAR-free 

satellites, I mean, a U.S. satellite, and it is the component guys 

that really get nailed on this. It is not the end item. I mean, in the 

satellite issue, you know, Lockheed or Boeing can get a license to 

sell a satellite to pretty much anybody as long as they don’t launch 

it on a Chinese launcher. But when you are in Europe and you are 

buying in bulk so that you are going to make a standard satellite, 

and you are going to have a minimum of 10 buses—— 

Mr. LARSEN. Right. 

Mr. JOHNSON. The basic satellite. I want to be able to buy the 

same thing for all 10 for economies of scale. Now, one of those may 

turn out to have a Chinese buyer, or one of them may turn out to 

be launched on a Chinese rocket. I can’t pull an American—one 

American component out and have to—have to requalify my satellite, so the best thing I can do is not have any American content 

in my satellite, because they are all ITAR-controlled, as you know, 

thanks to the law that was passed about 10 years ago. 

And so it is the component makers, it is the guys that make 

thrusters, it is the guys that make actuators, it is the guys who 

make stuff that goes on a satellite bus. They have now lost that 

entire market, and, of course, the Europeans can sell back to Boeing and Lockheed Martin because they don’t have any constraints 

on selling into our market. 

So it is those kinds of things that, you know, that is part of what 

the Administration is trying to deal with by moving stuff over to 

the export control is where you at least have de minimises. If it 

only has less than 10 percent American content, we don’t try to 

control it. There is no de minimis when you are an ITAR product. 

If there is one American-made screw on an end item made in the 

U.K. or in France, they have to come back and say, ‘‘Mother, may 

I,’’ to State Department to sell it to anybody, including, you know, 

Belgium, or the Netherlands. They still have to come back and say, 

‘‘Mother, may I?’’ So you have a major disincentive to include the 

American components. And as I say, primary in that works against 

are the component makers. 

Mr. LARSEN. They tend to be smaller businesses, suppliers. 

Mr. JOHNSON. Yeah, and item makers; the airframers, the tank 

makers. Okay, they are going to have to get a license to sell a tank 

to anybody, but it is the little guys who are selling to people who 

don’t at the time know who they are going to sell to, what we 

would call in the aerospace industry ‘‘white tails’’; that is, you are 

building on spec. In the case of satellites, you do build on spec, or 

you buy on spec in terms of, I am going to buy 10 ship sets of this, 

and I know who the first 5 are going to. I don’t know who the last 

5 are going to. 

Mr. LARSEN. Yes. 

Mr. JOHNSON. I would just say in passing—more than you ever 

wanted to know—I mean, there is a couple of bills kicking around 

now that in order to get cosponsors, not only do they keep the 
24 

China exclusion, they have added an exclusion for terrorist-supporting nations. Well, that is all well, it sounds good, but that 

means you couldn’t sell a satellite to ArabSat, or to IntelSat or to 

AsiaSat because they all have—Syria or Iran have little bits and 

pieces. They never see these satellites. They are up there. They are 

delivered on orbit, but, you know, if you spread that tentacle 

around without being really sure what you are doing, now you are 

suddenly knocking our guys off of even more things that you really 

didn’t intend to, but it looked good. And again, that is part of the 

problem on export control. Things that look good aren’t necessarily 

very good when you start to see the unintended consequences of 

what you have accomplished. 

Mr. LARSEN. Yeah. Dr. Burman, on Federal workforce, in your 

testimony, page 3, you mention in your oral about the amount of 

dollars, that we have seen an increase in contract obligations of 

122 percent, but staffing is about 20 percent. I don’t think you are 

making an argument that staffing should be 122 percent. It 

shouldn’t be one-for-one. 

Dr. BURMAN. No, I am definitely not. 

Mr. LARSEN. And I am not sure you are arguing for a formula. 

However, can you enlighten us a little bit more about what you 

mean for the Federal acquisition workforce? 

Dr. BURMAN. Well, one of the issues that results from that is— 

and we—I was a member of this SARA [Services Acquisition Reform Act] panel that was set up by Congress as well, and my report 

was produced in 2007, to look at services contracting. And we were 

looking at how do you do services contracting more effectively. And 

it turns out that there is the—I am sorry, the workforce was spending all of its time trying to get to award, doing proposals, getting 

solicitations out, and so you end up with an issue where there is 

no time to do the monitoring, the contract management, the contract administration. So you end up with a system where because 

people want to get those solicitations out, but you don’t have 

enough people looking at the back side of the process to see how 

you are getting what you need, are they doing it well, and that 

kind of thing. 

I think it is those sorts of issues that come to play here when 

you put so much pressure on people to do the front end of the process. You don’t think as much, or worry as much, or pay as much 

attention to the back end of the process. And that is a common 

complaint I find across the Government, and so having more resources to be able to do that, I think, would be a real benefit. 

Mr. LARSEN. Okay. I see. Thanks. 

Mr. JOHNSON. Or needing less resources up front. I mean—— 

Dr. BURMAN. Either way, maybe easier to do it on the front end, 

less complicated—— 

Mr. JOHNSON. Or spending less time on the back. 

Mr. LARSEN. Thank you. 

Mr. SHUSTER. Anybody else have any questions? 

Okay. Well, thank you very much for being here today, and I appreciate your testimony. It was excellent, and hopefully if we have 

further questions, we can ask you in writing. Again, thank you all 

very much, and the hearing is adjourned. 

[Whereupon, at 4:09 p.m., the panel was adjourned.] 
A P P E N D I X 

FEBRUARY 6, 2012 

PREPARED STATEMENTS SUBMITTED FOR THE RECORD 

FEBRUARY 6, 2012 

(29) 

Statement of Hon. Bill Shuster 

Chairman, House Panel on Business Challenges within the 

Defense Industry 

Hearing on 

Doing Business with DOD: 

Contracting and Regulatory Issues 

February 6, 2012 

Good afternoon. As most of you know, this panel has traveled 

around the country over the past few months to hold roundtable 

discussions with companies that are trying to do business with the 

Department of Defense. No matter where we went, or what sector 

of the industrial base we met with, we heard time and again that 

red tape and bureaucracy are getting in the way of innovation, efficiency and jobs. 

In Rock Island, Illinois, we heard complaints that export controls 

are overly restrictive. Many of the businesses we spoke to highlighted that we currently take a ‘‘one-size-fits-all’’ approach to determining what is placed on the U.S. Munitions List; there is no 

mechanism for items to smartly be moved off the list as technology 

advances and specific items become readily available on the global 

market. 

In Santa Clarita, California, we heard from a gentleman who 

owned a company that was last audited by the Defense Contract 

Audit Agency in 2005 and the audit was still open due failures on 

the part of DCAA. He estimated that having this open audit on the 

books had cost his company $3 to $4 million in lost business over 

the last 6 years. 

In Akron, Ohio, we heard that although programs like the Small 

Business Innovative Research Program aid in technology development, the technology rarely goes anywhere because there is no 

mechanism to assist in completing the stringent military test requirements, nor is there resourcing to get the technology into 

production. 

In Honolulu, Hawaii, we met with a small business owner who 

commented that small businesses are simply not equipped to deal 

with the bureaucracy of the DOD acquisition system. In San Diego, 

California, we heard from a businessman who felt that the large 

primes don’t want small businesses to innovate and another who 

commented that anyone that wants to partner with a small business simply wants your technology. Both of these gentlemen agreed 

that more needs to be done to protect the intellectual property of 

small businesses. 

Here’s the thing: It wasn’t just one guy in Ohio, or a CEO in 

California or a small business owner in Illinois. These issues were 
30 

consistently raised everywhere we went—from the shipyard workers in Hawaii to the nanotechnology developers in Ohio. 

We invited three witnesses to be with us today to explore these 

issues and provide us with recommendations to eliminate some of 

this red tape. Unfortunately, one of our witnesses, Mr. Raj Sharma, 

President of the FAIR Institute, needed a few more days to recover 

from a surgery he had last week and he will not be able to join us 

today. He did provide us with a written statement and is standing 

by to respond to any questions we may have for him following the 

hearing. We wish him a speedy recovery and I ask that his written 

statement be entered in the record. With us today are: 

• Dr. Allan V. Burman, President of Jefferson Solutions 

• Mr. Joel L. Johnson, Former Vice President of the Aerospace 

Industries Association of America 

Gentlemen, each of you brings a unique set of experience and expertise to the table. I hope that we will have a fruitful exchange 

today and that you will be able to assist this panel in formulating 

recommendations to improve the business environment out there. 
31 

Statement of Hon. Rick Larsen 

Ranking Member, House Panel on Business Challenges 

within the Defense Industry 

Hearing on 

Doing Business with DOD: 

Contracting and Regulatory Issues 

February 6, 2012 

Mr. Chairman, I’m pleased to be joining you and the other panel 

members here today on what is the last hearing of the panel’s first 

6 months to look at challenges of doing business with the Department of Defense. 

Since this panel kicked off, we have heard from countless large 

and small defense contractors, DOD officials, noted academics, and 

non-profit and think tanks about doing business with the Department of Defense. While each individual had their own take on 

doing business with DOD, many common themes emerged: 

• The Federal acquisition process consists of many onerous 

rules and regulations; 

• There is not enough communication between industry and 

the Government buyer; 

• The technology ‘‘Valley of Death’’ continues to grow; 

• The accounting and auditing standards used by DOD agencies are antiquated and don’t differentiate between large and 

small companies; 

• There is a lack of skilled acquisition professionals; and 

• Government export control policies hinder the sale of U.S. 

goods and services to foreign buyers. 

Today’s hearing focuses on some of the most complex issues that 

negatively impact small business’ ability to become and remain viable partners to the Department: contracting and procurement processes as well as regulatory policies. 

While U.S. goods and services, and the process in which DOD 

buys goods and services, has repeatedly proven to be world-class, 

it is not without limitations. For many companies doing business 

with DOD, either the cost to enter the defense market, or the cost 

to comply with defense regulations, is prohibitive. This panel would 

benefit from hearing recommendations from our witnesses that 

might lead to DOD’s contracting system becoming more flexible, allowing more entrants into the defense market. We would also like 

to hear your recommendations for ideas to bolster the existing defense industrial base, while taking steps towards creating a 21stcentury defense industrial base that is more diverse, more agile, 

and more able to respond to an array of potential threats. 

Shifting to a more agile 21st-century defense industrial base will 

mean making hard choices about what we want our defense industrial base to look like, and what goods and services we want them 

to provide. 

I would like to thank each of our witnesses for appearing before 

the panel this afternoon and ask that they offer the panel their ex-
32 

pert viewpoints on what they feel are some necessary steps needed 

to create a more flexible acquisition process. I am also interested 

in hearing about what steps DOD and industry can take to increase communication and transparency—not just at top leadership 

levels, but trickling down to the buying commands and program 

officers. 
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QUESTIONS SUBMITTED BY MEMBERS POST HEARING 

FEBRUARY 6, 2012 

(67) 

QUESTIONS SUBMITTED BY MR. LARSEN 

Mr. LARSEN. What is/should be DOD’s strategy for transitioning innovations developed at small businesses to the battlefield when such companies and the PM offices often lack the proper funding to pay for the qualification effort which can cost 

many times the development costs? 

Dr. BURMAN. [The information was not available at the time of printing.] 

Mr. LARSEN. How can the DOD better facilitate communication between PM offices where the technology needs are vetted and small businesses which often lack 

access to PM offices which tend to be dominated by big Primes? 

Dr. BURMAN. [The information was not available at the time of printing.] 

Mr. LARSEN. U.S. allies typically bar use of ITAR restricted items for space and 

military applications, marketing these capabilities as ‘‘ITAR–Free.’’ I understand 

that State is investigating these ‘‘ITAR–Free’’ claims. Nonetheless, manufacturers in 

those same countries, however, do not face similar restrictions when selling their 

product to the U.S. primes working on USG programs. And those same companies 

leverage the experience they have gained in their home country where U.S. companies were not allowed to ‘‘compete’’ to outcompete U.S. companies on U.S. programs, 

touting their qualification and field experience gained in their home country. How 

does the DOD plan to ‘‘level the playing field’’ in this environment? Can the DOD 

impose a ‘‘domestic preference’’ or would it require some sort of legislation to allow 

it to do so? 

Dr. BURMAN. [The information was not available at the time of printing.] 

Mr. LARSEN. What is/should be DOD’s strategy for transitioning innovations developed at small businesses to the battlefield when such companies and the PM offices often lack the proper funding to pay for the qualification effort which can cost 

many times the development costs? 

Mr. JOHNSON. There are at least two major impediments to DOD supporting efforts to test and qualify innovations for use on the battlefield—a dependable and 

flexible fund that can be used for such purposes, and the ability to act and think 

small and hence affordable. There are examples of such programs that might be examined for both positive and negative experiences. The Foreign Comparative Testing (FCT) program, run by AT&L, provides a structure and funds for DOD to test 

existing foreign developed hardware for applicability to U.S. requirements. The 

Joint Improvised Explosive Device Defeat Organization (JIEDDO) was created to 

identify and test equipment to defeat IEDs. Congress might examine the strengths 

and weaknesses of such programs to see whether an additional fund to transition 

successful Phase II Small Business Innovation Research (SBIR) projects might be 

possible. Such a fund and its administration should be kept ‘‘lean and mean’’, avoiding the excesses of the JIEDDO program in terms of staffing and testing. It should 

be possible for the services to test design mock-ups in existing testing and training 

facilities to see if basic concepts show promise before making a decision to package 

and ‘‘ruggedize’’ a technology, thus keeping costs down. Such testing should allow 

for feedback and interchange between service testing personnel and the small company engineers to allow for improvements and modifications. If such a testing program indicated an innovative technology showed real promise, at that point additional funds might be made available for assisting a small company to move into 

a manufacturing stage for the technology. Such assistance might include funding 

that could be reimbursable if the program moved forward, or involve an advance 

purchase contract that would allow the company to obtain financing from the private sector to gear up for manufacturing. Another option might be to have DARPA 

and/or the services institute an office where smaller companies could outline their 

ideas and provide funds for testing technologies in the field, while they are still in 

the experimental stage. 

Mr. LARSEN. How can the DOD better facilitate communication between PM offices where the technology needs are vetted and small businesses which often lack 

access to PM offices which tend to be dominated by big Primes? 

Mr. JOHNSON. My understanding is that communications between PMs and defense companies, both large and small, seem to have declined in recent years. There 

appears to be a fear of perceived conflicts of interest and any perception of favoring 
68 

any one company that might draw a protest down the road. With small companies 

this problem is compounded by not having the personnel that can interact with PM 

offices on a constant basis. Re-invigorating the competition advocate and giving 

them this function, or establishing a technology advocate that could serve as a point 

of access for companies to call attention to potentially useful technologies might help 

resolve the issue. Such points of contact should encourage companies, large and 

small, to present technology that may resolve, or to use the current buzz-word, resolve 80% of a problem at a much lower cost. 

Mr. LARSEN. U.S. allies typically bar use of ITAR restricted items for space and 

military applications, marketing these capabilities as ‘‘ITAR–Free.’’ I understand 

that State is investigating these ‘‘ITAR–Free’’ claims. Nonetheless, manufacturers in 

those same countries, however, do not face similar restrictions when selling their 

product to the U.S. primes working on USG programs. And those same companies 

leverage the experience they have gained in their home country where U.S. companies were not allowed to ‘‘compete’’ to outcompete U.S. companies on U.S. programs, 

touting their qualification and field experience gained in their home country. How 

does the DOD plan to ‘‘level the playing field’’ in this environment? Can the DOD 

impose a ‘‘domestic preference’’ or would it require some sort of legislation to allow 

it to do so? 

Mr. JOHNSON. The ITAR–Free problem is based on the fact that under the current 

ITAR, if a part or component that is considered to be on the U.S. Munitions List 

(USML) is exported from the U.S. and incorporated into an end-item produced by 

a foreign country, that country must obtain permission to export the end item to 

any other country. This is true if the part or component is no more than a trivial 

item such as a bolt, hydraulic hose, or shock absorber. In complex systems, such 

as the Swedish Grippen jet or the European A–400M or Eurofighter, there are large 

amounts of American content and the Europeans simply live with the ITAR rules. 

For end-items where U.S. content is not necessary, it is easier for bookkeeping and 

for foreign policy flexibility to simply keep out any U.S. content. Much of this problem would be eliminated, especially for many small business, if items that were not 

of major security interest were removed from the USML and either transferred to 

the Commerce Control List (CCL), or uncontrolled altogether. This is essentially the 

approach taken by the administration’s proposed Export Control Reform initiative. 

It is also true that if the U.S. has confidence in our allies export control policies 

with respect to what end items they sell to what countries; the U.S. should in turn 

be able to reduce concern as to the components we sell to our allies. That is the 

position most countries take with respect to the U.S. In general, countries selling 

components to U.S. companies for military products do not impose third-country 

transfer controls, as they assume the U.S. will not allow exports to countries they 

would refuse to export to themselves. Space, and particularly satellites, is a more 

complicated problem, as without a change in the law, the executive branch cannot 

move components from the munitions list to the CCL. The law not only requires essentially all satellite parts and components to be treated as USML items, it also 

bans any USML item from being sold to China or launched on a Chinese launcher. 

European satellite makers prefer to purchase components for satellite buses and 

payloads in quantity as a way to drive down prices. At the time of contracting for 

such components, it is not necessarily known if one of the satellite purchasers may 

include Chinese companies or shareholders, or if a satellite might be launched on 

a Chinese rocket. European satellite manufacturers therefore have tried to eliminate 

U.S. components altogether—hence ITAR-free satellites. Of course European countries do not attempt to impose such restrictions on U.S. exports of satellites with 

European components, and hence there is no incentive for companies such as Boeing 

or Lockheed Martin to European components. Again, European countries are generally comfortable that the U.S. will protect their technology when exporting U.S. 

satellites. The way to avoid the ITAR-free satellite problem would be to change the 

law to allow the executive branch to determine, with Congressional review, what 

components are so sensitive they should remain on the USML, and which might be 

transferred to the CCL (without a Chinese exception) so that foreign satellite makers could incorporate U.S. content without fear of losing satellite sales or having to 

strip out U.S. components and re-qualify a satellite. As for ‘‘domestic preferences’’, 

the U.S. has reciprocal procurement memorandum of understandings (MOUs) with 

most NATO countries and other close allies that guarantees the U.S. will not discriminate against their producers in DoD acquisition policy. Furthermore, as the 

U.S. still exports far more defense items and components than it imports, the U.S. 

and its companies have more to lose than to gain from any policies that encourage 

‘‘buy-national’’ policies. It makes far more sense to harmonize export policies with 
69 

respect to end-items with our allies, while reducing barriers to exports of parts and 

components to each other. 

Æ