August 18 OSD Conference Call Notes

August 18, 2021 OSD COVID Conference Call with Chamber and Associations:

This is conducted under Chatham House Rule and not for attribution. Names and affiliations here are for the sake of context and for internal use only

Small Business Programs, Industrial Policy:

Dynamic and fluid week with the situation in Afghanistan and the earthquake in Haiti. Encourage industry to visit defense.gov. in the newsroom part of the site for the most up to date news and transcripts. OSD press secretary has been holding daily press briefings and all of the full transcripts are on the website.

DPC:

Three priority issues with significant industry interests.

1. Situation with Afghanistan. OSD very much appreciates the collaboration with the industry associations to help identify and provide employment verification for SIV applicants, and trying to meet the State Department criteria for the verification. Working with the Defense Digital Service that's helping expedite that process and trying to make it least burdensome as possible for companies to help do those verifications.

2. COVID and the White House Safer Federal Workplace Task Force. Department of Defense working closely with the Office of Personnel and Readiness to issue guidance on attestation of vaccine status. If someone has not attested to having been vaccinated or if they declined to attest to that, the DoD is working through guidance, in close contact with the OMB, OFPP, to ensure DoD is consistent with the rest of the federal government, in understanding what requirements will be levied. Final guidance for workforce and contractors is forthcoming.

3. Priority issue. OSD is working with industrial policy colleagues on the cybersecurity front, and concerns that have been raised by some of our member companies in the last couple days about compliance with the NIST 800-171 requirements of what we call the 7020 clause, and certain nations and their company's inability to comply with that in furtherance of the guidance. This is a priority issue that OSD is working to provide relief, if that is appropriate, so that the contracts that are held up by this issue can get through that impasse. More on this matter soon.

Question to DPC: On the UK Ministry of Defense issue on the cyber 7020 clause, any estimate on when a final decision might come out or when our companies can anticipate some kind of guidance?

Answer:

OSD/DPC recognizes this needs to be addressed in a matter of days. OSD convening all the stakeholders in DOD to include DTSA, International Cooperation, Industrial Policy, and others that need to play a part of that, but OSD recognizes the urgency of this, given the fact that significant contracts and subcontracts are being held up so it's OSD’s intent to get at this immediately.

OUSD (I&S): “The one thing I just want to mention, aside from the 7012 with 800-171 language for controlled unclassified information ultimately that requirement is derived from the CUI federal rule. The 32 CFR 2002 published in 2016 for information systems that store, process, and transmit CUI and so just want to make sure that you understand the requirements for non-federal systems for the safeguarding is derived from the CUI federal rule.”

OSD/DPC: “Yes, we need to understand what are the offensive aspects, from the UK perspective, of that clause, and then work from there. I suspect it may have more to do with third party accreditation or eyes on those other nations’ companies and less about the standards and adhering to the standards themselves, but that is just my speculation. At this point we need to get to the bottom of what the offensive language is.

Special Guest Director, Industrial Base Analysis & Sustainment (IBAS) Program within the DASD Industrial Policy shop. Briefing on IBAS Program:

IBAS is one of two investment programs that OSD has within Industrial Policy to work with industry to solve problems or create opportunities that we need along our shared interests. Reach out to Adele for a brief overview of the program with a few slides. IBAS has some powerful authorities associated with it. DPA authorities are numerous and cover 50 pages, IBAS established by 10 USC 2508 in 2014 and is one paragraph: Secretary shall have a program to (1) support and monitor the assessment of the industrial base, (2) address critical issues in the industrial base related to Urgent Operational Needs, (3) support efforts to expand the industrial base, and by extension sustain them, and (4) address supply chain vulnerabilities. We've used those authorities downstream, both independently and in complimentary efforts with the authorities of DPA Title III. DoD wants to use its investments to strengthen industry’s competitive posture. Match military force posture, fortify traditional defense capabilities and forge new ones. 4 priorities: (1) Ready the modern industrial base, (2) prepare for the future by identifying, cultivating, and attracting new emerging defense members, sectors, (3) prepare the next generation workforce, and (4) assess and shape DoD risk and then strengthen DoD position by partnering with allies and industry partners in global supply chain.

Since 2016, $200 million annual appropriations from Congress. Helping companies where they might need to upgrade equipment, expand capacity, address a supply chain vulnerability. Big enterprise-wide issues--example working in tandem with Title III on a Rare Earth Minerals Strategy or Workforce issues.

Workforce challenges limit industry ability to produce products that meet cost and schedule. Making targeted investments in localities. $100 million worth of awards made in last two years in targeted defense communities, helping schools modernize equipment, modernize curriculum, expand training capacity, establish new curriculum to respond to new requirements. OSD would like to know where your workforce challenges are, where they reside and how they can align on those. Workforce is a growing topic within the department, they have gained a lot of traction inside their senior leadership and support on the issue and they need to continue to collaborate with industry.

Another opportunity regarding workforce development for industry is project MFG. Details are at projectmfg.com. One of the big enterprise-wide ongoing efforts is a study on the state of the US machine tool sector. China's rising in that area and outpaces the US both on sales as well as exports with a diversified footprint in the global supply chain and presence in other countries. OSD referred to a public private partnership on machine tools recently established with Oak Ridge National Lab.

Audience Comment:

We'd love to work with you on identifying some opportunities on workforce and skilling. In the end, all the training and education in the world doesn't make any difference unless there's a job waiting at the end of it, so important to keep that in mind.

OSD: Really need assistance from industry on Project MFG, which is a really unique and innovative campaign. Industry invited to partner with DoD. They are in 17 states. DoD can draw interest into more communities at a faster pace with industry participation.

DCMA: Getting positive feedback from industry partners regarding COVID-19 impacts to facilities and programs. Currently only two facilities impacted.

Reminder: DLA’s Research and Development Industry Day on September 8.

Reminder from INSA: Upcoming Intelligence & National Security Summit September 13-14 at the Gaylord National Harbor register at intelsummit.org

Associations:

Question about the R&D tax credit which expires at the end of this year. Has DoD, particularly industrial policy or DPC been asked for input to an administration position on the extension of that R&D Tax Credit?

OSD MIBP: We have not been asked for an opinion, would be unusual for DoD to be asked for an opinion on the position and tax policy.

Note: Calls will continue once a month, third Wednesday of each month, next call September 15.

Other Matters from DAEC:

Afghanistan: Other than the associated Administration paralysis on matters other than Afghanistan at the moment I want to highlight a critical issue. The Afghan loss of control of various US provided military capability—from helicopters, airplanes, vehicles, etc., which the Taliban now have position of has already caught the attention of a bi-partisan group of Congressional members who are calling for a hearing and information on exactly what has been lost. We all know that the material transferred to Afghan forces over the past two decades was not cutting edge or overly sensitive, however, this loss of control will bolster those on the Hill who prior to this moment were arguing for fewer sales and more controls. As a reminder, the enhanced FMS End use Monitoring and reassigning control over night vision foreign sales from the Services to OSD was a direct outcome of material found in position of terrorist when we first moved into Afghanistan twenty years ago. This is a critical DAEC watch issue.

SASC and the NDAA: met with a SASC staff member over two weeks ago just after they moved the NDAA to the House. The +25$B to defense by the Senate was not in response to pacing concerns with China but horse trading for future votes specific to the debt ceiling. It was predicted that the increase would hold in the House and that seems to be the case. Note that this increase does nothing more than match the current rate of inflation year over year so defense spending will remain flat if appropriations match this increase. The Pacific Deterrence Initiative—brief received and committee not pleased. Sent team back to SecDef to harmonize PDI plan with DoD planned spending and to show offsets to current DoD planned programs vice viewing PDI as an unfunded program. PDI like consideration for SOUTHCOM and NORTHCOM AOR under discussion within SASC. Arctic focus for the north and China incursion and influence growing south of the border. SASC will press in FY23 DoD investment in green programs. Regarding China: growing committee concern that both the Hill and Administration “may be going to far.”

SFRC hearing 10 August:

State’s Mira Resnick and OSD’s Dana Stroul. Chairman Murphy wanted to better understand the need for America to continue selling military capability to the middle east when the Administration is focused on the Pacific and he is not convinced regarding the argument that if not the US then it will be China and Russia. Both shared that the US still views the middle east as important and that there are already signs of both China and Russia working to displace the US as the preferred mil to mil partner in the region. Senator Young clearly emerged as a proponent for continued US engagement in the middle east to include agreeing with the argument that we need to continue providing our friends in the region with military capability. Senator Van Hollen noted that in the mid 80s he was an intern at then DSAA (now DSCA) working in the legislative office drafting congressional notifications. He was focused on Sec 3 AECA violations and what if any rumored violations the administration was currently investigating. He convinced Mira to provide him a list of investigations underway (which as a side note is inconsistent with Sec 3 of the AECA and I suspect and hope that State Legal stopped her from doing so).

About the authors

Keith Webster

Keith Webster, president of the U.S. Chamber of Commerce’s Defense and Aerospace Council, guides the focus of the council to strengthen the U.S. defense and aerospace industries by influencing domestic and international policy on behalf of its members.

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