**Washington D.C.**: During a House Armed Services Committee hearing, industry leaders highlighted critical concerns over the U.S. defense industrial base’s ability to meet production demands, advocating for reforms that prioritise surge capacity in contracts and better support small businesses amidst challenges like inflation and continuing resolutions.
During a recent hearing before the House Armed Services Committee, industry leaders voiced their concerns regarding the U.S. defense industrial base and its ability to meet surge production demands. This hearing, held on February 26, focused on the Pentagon’s contracting practices and the implications for munitions and equipment production. David L. Norquist, president and CEO of the National Defense Industrial Association, stressed that requirements for surge capacity must be incorporated into contracts and appropriately funded.
Norquist highlighted a fundamental issue within procurement processes: the preference for efficiency over capacity. He explained, “Typically, if you have two bidders, and one builds excess capacity, they will bid a higher price and lose.” To remedy this, Norquist argues that surge capacity needs to be explicitly valued in contracts. “If surge capacity is penalized because it has a higher price than the one without, you’re going to get what you asked for in the contract,” he said, advocating for a shift in the Pentagon’s longstanding efficiency-at-all-costs mindset.
He elaborated on the significance of maintaining an adequate supply of parts to enhance production capabilities. “You want to move away from ‘just in time’ inventory,” Norquist clarified, suggesting a strategic focus on logistics that would allow for larger inventories to be stored. This approach would not only facilitate the acceleration of production lines through longer work shifts but also provide a buffer during conflicts when supply chains are challenged.
Eric Fanning, head of the Aerospace Industries Association, echoed similar sentiments, calling for a culture of “thoughtful risk” within the Pentagon to expedite production timelines. Speaking about the existing contracting framework, Fanning remarked, “Congress provides plenty of authorities to go faster in contracting, but these contract vehicles aren’t widely used by the government workforce.” He indicated that the current incentivisation structure within the federal workforce prioritises problem identification over problem-solving, further complicating the ability to adapt quickly.
In his remarks, Fanning warned against continuing resolutions (CRs) due to their adverse effects on new business initiatives and small companies. He stated, “We’ve lived with CRs for many years… it’s happening at a time when… the supply chain… [is] stretched thin.” He attributed many of these supply issues to inflation, emphasizing that the full extent of inflation’s impacts on the defence industrial base might not yet be realised by the Pentagon.
Norquist added to Fanning’s points by stressing the detrimental effect of CRs on small businesses, noting that the instability they create can deter these companies from engaging with the Defence Department altogether. “If you’re a small business in these supply chains, it becomes very unappealing to stay in this world,” he said, suggesting they may choose to pivot towards commercial work instead.
The testimony from both Norquist and Fanning highlights the pressing need for clearer communication regarding the Pentagon’s demands on contractors. Without a well-defined demand signal, companies are less likely to maintain the workforce or materials necessary for potential surges in production, leading to a cycle of inefficiency and lost capacity in the defence industrial base. Fanning concluded, stating that the Pentagon often represents the “single customer” for various businesses, and fluctuations in demand directly impact workforce retention and production capability.
As the discussion continues, the focus remains on how best to align the contracting framework with the realities of national security needs, ensuring that the supply chain remains robust in the face of potential crises.
Source: Noah Wire Services
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