arms sales to taiwan and will not exceed the qualitative terms of the level of recent years that meaning of the carter years but you look at what is happening above the 6.4 billion u.s. dollars self weaponry to a part of china and who the u.s. side calls a partner. so this is obviously a violation of the code of conduct and the nation's and this is a violation of the communique issued between china and the united states. i think the chinese people and government have every reason to feel indifferent about this thing and we approached the side, made a representation very

seriously on many occasions did the united states still went ahead. of course the chinese government and people will have to react. it is a sovereign right to do what is necessary so i think what this the question, the central question here is whether a country is feeling stronger or not or country's big or small strong or weak should equals. ..

and will abide by august the 17th communicate and will start arms sales to taiwan, which is actually having more progress together with us in the peaceful development of cross state relations. in the united states supports the peaceful development of relations across the state. so, we urge the u.s. side to do things which will contribute to this good development -- development of trent, not the other way round. thank you. >> thank you, administer. i know there have been a number

of questions. i think we can only take one or two more. the next one on my list was john gross and east-west institute in new york. john. microphone. >> could we talk for a minute about cyberspace. and i know it seen as a confrontational issue but also a lot of governments and businesses are concerned about the common threat that we are faced to the digital economy, coming from increased cybercrime in other areas. i'm wondering if you could give us some perspective on cybersecurity. >> to be quite honestly, i don't want to offend me daycare. but when they say one thing very clear, that these days actually i listen to chinese radio and tv news program far more than i listen to some western media. i'm the foreign minister of china. every morning i have to have

solid news before i go to my office. so, i have to use every minute i spend on news very, very carefully. and i found that i have more solid news from china's radio and tv programs. and when i go to the office, i feel quite confident that i have most of the news, if not all in the world. this is not saying that i'm not watching western media -- and news. so i do like it. i continue to do that. what i wanted to tell you is that the average man or woman in china, they are entitled to same expensive, i think more extensive coverage is used in every corner of the word then i'm afraid some western media. this is a fact.

they have all the information at their fingertips, like foreign minister. and every year, 15 million chinese are proud for business, for travel, for tourism and so on and so forth. and every year 15 million foreigners come to china. so i hope everybody knows that the chinese people are well-informed and, you know, the french -- foreign minister is not here, my good friend bernard kushner. at the bottom of the eiffel tower you might hear blasted chinese spoken there. so freedom of speech is what we advocate spirit and the chinese people are well-informed. they go abroad. they see the things around them and they compare what they seemed abroad with the things at home. of course we still have a lot to

learn from either countries, including the developed countries. on the other hand, they feel quite proud of what china has achieved. they have listed 30 years, lifted almost the total population of the united states out of poverty. that's what china has done and we have given lots of aid to our friends abroad. i think for the developing countries, most important thing is to build up the social structure, the basic infrastructure. that's what it helped to sustain the developing china. china will do its best to help. we hope the developed countries will do. for now i don't know how come this google thing has brought death. yes, we are supporting free exchange of information. yes, we are supporting freedom

of speech. on the other hand, every company which comes to china or goes to another country. they are countries of different social systems in the world. and so, people have to respect a country's historical background, culture or tradition in the chinese government, as any other government has to do regulatory work according to law and according to what is in the best interest of china. so that's what we have been doing and i hope the foreign countries, while they try to expand their business or do business in china, will continue to respect the public interest in china and the culture traditions of china. yes, we are totally against hacking attacks. turn as a victim of this kind of attacks. china will cooperate with the international community. so that's what i wanted to say

on this google thing. and in conclusion i will say that we welcome international companies coming into china. this has to be no consistent policy for the past 30 years or so and the people who come into china, basically they don't regret. and this company is, who choose a wise path, will never regret. thank you. >> last question. >> thank you very much. we'll take one more question. jim hoagland. make it brief, jim. >> mr. administer, thank you for your remarks in a place to see you again, sir. i did want to follow up a little bit on the last question that you partially answered by saying china feel stronger. it is not only arms sales to

taiwan that is recently elicited strong reaction in the diplomatic area from china. there are credible reports that china's also vigorously reject teen new stations on iran. as you well know, there's also the matter of the copenhagen summit, where china's putting together a four country block that president obama had to engage with, was seen as newly assertive. as i talked to european and american diplomats and politicians, they do see a new stronger china. but when you add in the currency management issue, does you fear that this new assertiveness is going to produce conflict more than harmony? >> that's more than one question, sorry. [laughter] i see somebody has to raise the question that i'm obliged to answer these. let me first talk about copenhagen conference. china made its position very

clear before hand. and i suppose the basic interest is in brazil and south africa come only depositions very clear before hand, taking into consideration the necessity of maintaining sustainable development in their own countries while contributing to the efforts against the climate change. yes, there is this basic country's mechanism. on the other hand, china has solicited the opinions of many other countries, developed and developing ones. and there's also the 77 plus one structure in the developing countries. so it's not just the basic countries whose the things more or less on the same wavelength. there are many other countries who have complemented china's efforts. of course, this conference still

leaves something to be desired. that's why we need to make concerted efforts to next conference to mexico conference a bigger success. on the other hand, the conference has achieved something because it has reaffirmed u.n. sec and protocol as the main framework for dealing with climate change. because it has recognized we have to continue to work on it to track -- and nature trackway according to the bali roadmap. this is because in term of some long-term goals, and tactical and capital support to developing countries, the voluntary actions that control greenhouse gas emission from the developing countries, there are all these achievements of the copenhagen conference.

i think we have to continue along this track to make sure that the mexico conference will achieve even more. and china is ready to continue to make this contribution. let me say that on the question of relations with the united states, we were continued to exchange views with the u.s. side because we do believe that a stable and healthy and developing relationship between china and the united states is in the best interest of our two countries and in the best interest of the world. is there anything i'm missing? any other questions? >> no. >> sorry? iran, iran.

iran actually was not part of my agenda when i studied this about ten days ago today. it has emerged in many of my discussions. so let me say again that china is fully supportive of maintaining the nonproliferation international nuclear nonproliferation regime. on the other hand, we believe that iran, on the basis of the iaea rules has the right to peaceful use of nuclear energy and we believe this issue should best be solved through diplomatic means so as to maintain peace and stability in the gulf region and in the middle east.

we believe that iran has not totally shut the door on the iaea proposal on nuclear fuel supply to the tehran research reaction. and we believe it is very important to have on the ground of p5 plus one dialogue. we hope on the basis of the proposal put forward by c-5 plus one and a package deal proposed by the iranian side somehow a mutually acceptable formulae can emerge. there are chances for us to explore. so china's view is very clear, in order not to complicate the situation, it's better for us not to concentrate on

consultation and dialogue. so as to achieve a satisfactory solution. let me say that many, many countries see china as a force for peace and stability and development. we have one fifth of mankind. we're not saying that only one fifth of the mankind -- their views should be taken good care of. but at least we deserve a chance to express our views on how things should be run in the world. what we are trying to do, like other countries is to improve on the international mechanism, on the ways to make sure that both the developed and developing countries will benefit from our

cooperation in the future. so we are offering our views, but we have the modesty to listen to others. it has always been the tradition of china. but i think we also deserve a hearing of one kind or another. i say this in a very humble way. but if we are talking about equality, freedom of speech, we are not only talking about such attributes to decent society an individual basis. but also on the basis of countries. democratization of international relations. one country, two country, or three or four countries can definitely not decide the future of the world. china is not talking about

locks. china is talking about common interest. that should be the language we all speak in the future. thank you. >> thank you, mr. administer. [applause] >> thank you very much.

>> we know historically that margins were, but they forgot about that. >> the pentagon released its quadrennial defense review on monday. the report is a congressionally mandated analysis of long-term strategy and resources for the military. today the center for strategic and international studies hosted a discussion about the gdr. this is an hour and a half.

>> were going to have an interesting -- we promise will let people out by 4:00, they tell us that's going to be when the town panics and closes down. thank you offer coming. we're delighted to have you here. this is a very important session, which is part of the time to fill out the intellectual story around the defense budget in the cutie are that's been released. and we're going to talk about it dimensioned that really doesn't get a lot of attention and that's industrial base. i honestly -- i think the most important decision we made to win the cold war was the decision that we made 40 years before the start of the cold war. and i was when we decided as a nation that we were going to -- we were going to be building military aircraft in the private sector, not in our source. prior to that time, we been

largely building, you know, equipping and providing the kid for military force is and an arsenal basis time. and we all know, i mean, arsenal have an appropriate role but when you're looking to really harness the creativity and energy that comes really with the profit-seeking sector, we did that. we made this brilliant decision, i think, when we harnessed the energy of the free enterprise system and national security. we did that 40 years before the cold war. we didn't win the cold war because we put a larger military force in the field. we had to put military force in the field that would offset the superior quantities in the warsaw pact with superior quality. and that came with having these partners in the private sector that gave us back and helped us design it. so it's in every sense of the world, it's the fifth service or

six if we count the coast guard, which i won't count. the sixth service that actually made it possible for us to win the cold war and everyday makes it possible for succeed in the battlefield. now the problem is, we create the six services company neglected step son of a family and give it the least amount of attention we were making resources decisions in the department. and i will plead guilty. you know, that certainly was what i did when i was comptroller. that was before i became virgin, you know. when i was deputy secretary, we did not pay any systematic attention to the role that the private sector played as an indispensable partner. and i learned painfully, about two thirds of the wager my time and i was the deputy, that we had at that time and industrial base that was in crisis and we need to spend some time about

it. i rather think we're coming to that time again and were going to have to spend some energy and time thinking about this. now, we're fortunate to have read with us this morning. you know, he chose this over staying home with their children. i'm not sure which of the needs of the worst problem he is working with, but we are glad that he didn't -- did choose to come with us. we have a worthy panel. it looks like an old dutch masters with a bunch of grade grumpy white guys been around a table. that is of the best intellects that we have that can bring to bear crosscutting perspectives on a shared problem. it's going to be an exciting morning. the glad you're here. unless, david did you have anything you wanted to say? let's welcome brett lambert to be with us.

[applause] >> banks. that was a nice introduction, best one i've had in a few months. usually they say, who's that guy in the back row when i get introduced. but i wanted to start by saying just a couple of overall general things. i'm new to the building. and i was reminded by a friend of mine who took a job in a big foundation sometime ago when a lot of you in this room know that individual. he was told by the foundation direct or that in his new position he would never again give a sincere compliment or a bad meal. and what i've learned as that i'm a little bit worried introductions because i get nice compliment, but i can't accept the meal anymore. so anyway, i left a dollar back to the table and these guys from me for the coffee. but i want to thank dr. hamre

not just for his time this morning, but for over the years being a true mentor to me and i think most of the people i appear at this table. i've really valued and hopefully the building will benefit from your willingness, sarah, to, in essence, better ensure your experiences and insight and i know not the only one year. i'm looking around the room and i could see about half of you have benefited from your generosity. and david, it's an impressive group. so i appreciate it when you came out. my grandfather used to say that the value of a man was from a local farmers met for coffee and you weren't there, they would still say nice things about you. and i assure you we say nice things about you when we're having coffee. with that said, as a midwesterner, that you took under your wings and being from western kansas, i still want to try to convince you that south

dakota is part of the east coast establishment. so, just so you know. but thanks for everyone who braved the weather forecast to come out this morning. the good news is that i think this'll be the last meeting of your day. then, everyone can go home. i came from the pentagon, plan to go back to the pentagon, but i've realized as i was going there this morning that i don't have a good understanding of weather week in sourced or outsourced the snow removal. so i'm trying to figure that out before he had back. that's really meant for you, alan, the in sourcing, outsourcing minor. we're trying to get some verification. i want to thank david for setting this up in csi yes. it's a great topic and an incredible panel and i went to the last of those were scheduled to show up and i have to say i'm very humbled by this. i feel like i'm coming home. my first job in washington d.c. was actually in this building

when i was a freshman at kansas state i applied for a position or his stint at georgetown university. but we didn't have money and so i also applied for a statement and i'm happy to report that both georgetown and csis were more than generous. and so, even though my mom didn't know i did it, i arrived here. and so, i spent my first internship in washington under the famous l. taylor, colonel taylor and afternoons with senator robert dole when he was on the finance committee. so yes, i'm that old. that's how long ago it will be since i first came here. so i appreciate being back. i've been around csis for almost 20 years now in different forms than just a wonderful and the tuition. it's given so much to our nation and so much of the interaction that we are going to have here

today would not be possible without the good offices of csis. so i think dr. hamre and david for setting this up. they've only been in the department for a few months, so i did a little nervous when i speak publicly because i'm told to stay away from, well, it's more self-regulating at this point than anything else. but, i'm trying to bring to the department a new understanding of the industrial base and industrial capacity. i'm stepping on a lot of toes, which i did in my previous life and industry and i find the differences that these shows tend to be heavily armed and very dominating in many ways. so that's one issue. not to mention that when i accepted the position, i was asked that one of the things we want you to do is think outside the box.

think about industrial policy, about the industrial base. we really need to get a handle on that. and in the first few months, it's taken me some time to realize that my box has five sides and they lived. so this is more complicated than i thought it was going to be. so my transition has been interesting from a personal perspective. as many of you know in my life in the dirt, i spent a lot of time questioning the skills, capabilities and frankly, the intelligence of what the government was doing. i am happy to report that i spend no more time defending the skills, capabilities and intelligence of what we are doing a government. so it's a different dynamic. and make it specifically to some other experiences i've had in the building that i think arcs are quite positive, but for industry and the overall security of the country. i was asked today to talk specifically about industrial policy in the context of the

qdr. so that's where going to focus on how the threads were pulled through the qdr and outright best i can to answer specific questions about programs. but i'd like to set morbid tone in the overall context. and i want to start by saying, i can't say enough about my contemporaries and new colleagues in the building, particularly those that really pushed in the qdr for industrial policy to be a high priority. not in line is we wouldn't be having this meeting today without the acknowledgment of secretary for an eye, my best dr. carter the secretary himself into the secretariat win that industrial policy industrial-based issues are serious and concerning issues and they all get it. and for those of you that think this is lipservice, i can assure

you that it's not. one of my first task implementer in the department was to lead the effort in drafting the industrial policy industrial race language and qdr. it's an important distinction as a political point. it hasn't happened in sometime. it's important to realize this was not being pushed up for me. this was being pushed down to me. and all of those in the room here who have served understand and recognize the difference of that imperative. the leadership was very serious, very committed to understanding, sometimes at 2:00 in the morning which was a little too serious for my taste, but for getting clarification and insight into what are the issues that we need and the challenges we need to address in the coming years. and i can't say enough about the fact that when i type this position i was warned about the institutional barriers within the department. i was warned about beef done, all of that melted away and i

can't say enough about the work of the group in the policy shop and secretary in the access they gave as, the interaction we had. it is a true tribute to the policy community. and frankly, the qdr experienced as today has been one of, if not the most positive experiences i've felt, when my organization was able to move the ball forward for the war fight to the taxpayer and our partners in industry. again, i can't say enough about the often criticized, but too rarely recognized policy organizations and the pentagon. and if it is also important to put the qdr and a bit of commonsense perspective, going back to my kansas roots. no documents can answer other questions irrelevant musings about the people. if it could, i would suggest

that we rebrand it and nostradamus, goals and guarantee resorts in 2020, sold for $14.95 and try to pay down the debt. it just doesn't happen. is a tool in an exercise. i may climb her. and over the years i've learned the hard way that it's necessary to exercise before you carve. the exercise doesn't climb the mountain. but you can't climb the mountain without exercise. the qdr is an exercise that informs, but guys, that shapes our vision of the department. but it alone does not get us to the summit. it's a tool and for the first time in a long time i personally believe it's not only recognize the reality, but embraced in terms of industrial policy and again my thanks go out to those in the department who asked for input. when i was first hired, dr. related me a story that

secretary gates told him when he first assumed the position. that the military had gone to work, the department had not. and he wanted to change that. and i can assure you that this has not been lost on me or anyone in my group. so everything i say today should be viewed through that optic, as should the qdr. we are at war's, plural. my job as i see it is to focus on those areas, where from a policy perspective would make the right decisions for the right reasons, that had the greatest positive impact, not just on the war fighters in the field today, but those who are being deployed in that 18 to 36 months and the systems and individuals who will be deployed well after i leave this office. this is truly a high wire rack, where we are attempting to balance the requirements launcher instance of a long-term policy that maintains premier and i emphasize premier military

dominance over potential adversaries in the future. this isn't a u.s. government challenge. it's not a dod challenge. it's a national challenge. and we cannot achieve our objectives without the dedication and support of our industrial partners. despite spending, almost $2 billion a day, which is a loud, the department doesn't actually build that anything. we pay others to provide the goods and services for war fighters. we don't build fires on trade wars. we pay them into design, test, perform quality assurance, test again and then support thousands, hundreds of thousands of parts. we count on our partners to make it fly, make it sustainable and make it perform the missions we expected to be formed. i use this because we in the apartment again cannot do it alone and industry cannot do it alone. but the department in industry for better or worse are codependent on one another.

we're not going back in most cases to an arsenal system, as dr. hamre described because we realized it didn't work. we cannot to fill her responsibilities and they cannot rebuild their patriotic responsibilities without the department. even with this recognition on as the qdr states the federal government as they hold the pentagon in particular needs to do a better job of understanding the true nature of our industrial base. i wish i could stand here today and say that the decades long primary hands-on approach to our base could be remedied quickly. unfortunate, i can't. the problems we face in the solutions we seek will take time to fully recognize and adequately address. as have in the path of the permit will rely on market forces to shape and sustain our base whenever possible. with that being said, department must be prepared and thus retain

the ability to intervene when necessary to create and sustain innovation and essential industrial capabilities and skills that promote our national security. this means that a greater understanding of the industry is needed. the industry as a whole is a complex web of ad hoc team agreements, shifting stock symbols and company mergers. keeping track of this is a job in another file. on a side note, before anyone jumps to the inclusion that were seeking to become some kind of smithian hand wording of her industry, let me assure you that i want on my tombstone and as soon as i can figure with a printing office in the pentagon firewall. what we need is more insight e4 would offer advice for more oversight. we simply do not have the insight we need today. we need first to know the facts, so that any prescriptions to problems identified are not gunslinging, but gunsmithing. and dr. hamre i stole that line

for me because i was quite taken by some time ago. so one of the myths i wanted to thought today is the notion the defense industry as a monolithic sector of the economy, whose key players are made up of a few individual companies. it's not true. the goods and services of the worst at the pentagon reaches into the economy. there are unique items that only the department of defense procures. it even better, we must recognize that they are dependent upon a complex and integrated supply chain of product suppliers paid when the supply chain is constrained with a second, third, or even fourth little tears come the ability of the price to support our troops in battle is jeopardized. i realize that the effort we're undertaking this complex. but we believe it's necessary. many of the defense industries jobs that require the most perishable skills preside with the smaller, non-prime suppliers.

their survival is dependent on factors largely out of their control. they are small, highly specialized companies, depended on the primes and unique requirements to fund the continued existence to the cascading effect that the subprime is one of the primary reasons why we better need to understand, truly understand the structure of this industry and the situation at that tier space. this will help us understand potential impact for programmatic decisions that we make. it will allow us to understand critical lowers your providers, do we ensure that they have the capacity to respond to these immediate needs, to get systems in the battlefield. but the continued supply of critical subcomponents to our base will not be jeopardized and to ensure that the critical skilled jobs, and i want to emphasize that, skilled jobs are not lost to this nation. i'd like to cover one other area that i've long believed as far to over to look to the health industry basin that is the financial community.

and i think biron for his years of wisdom. thank you. from small technology startups, we seek venture capital funding and debt markets that provide the capital support of programs mature and evolve. the department must simply ensure that we don't take the access to capital for granted. and we must work to form a more transparent view of our requirements and long-term investment plans in that we recently conducted a roundtable for dr. carter with wall street analysts to give them more transparent feet, more vision, more understanding and to what the was planning. there are no shortage of other issues at our office has been engaged with the defense production act with conflict of interest to wear minerals to buy a defense to export controls, export promotion, solid rocket motors, x. generation bombers,

so that's what are folks who did this morning, worked on those issues. the bottom line is i firmly believe we simply need an industrial policy more holistic approach. and it will be led by three goals. getting our office in front of issues instead of chasing them, striving to adopt rules of reason in all things related to industrial policy. in reestablishing a true partnership with industry and the financial community. finally, i want to make clear that we should not confuse support for the her as advocacy. the department's renewed engagement with industry doesn't mean that as the qdr says we will support sunset industries or pop-up for business models. a secretary greats has clearly demonstrated with his budgets to

medals, he is clearly prepared to terminate programs not needed in the current threat environment or simply not performing. i'd like to conclude on a personal note. and although it may sound somewhat hokey to those who haven't had the opportunity to be in public service, in the short time i've been in the building, i've learned that industrial policy, my office in particular and particularly my bosses, this is not in academic exercise. it's not a nine to five job as my wife and children have learned. if we want to maintain a competitive industry and an increasingly resource constrained environment, the industry and government must work together to outline the requirements for future programs, to stick to those requirements into keep the skilled jobs necessary to bring those programs to fruition. the bottom line is i wouldn't come to work every day if i didn't firmly believe that

industry and the department have at this moment in time, with this leadership team an opportunity to get in front of many of these key issues before they become problems. and i hope my office is a small role to play in that endeavor. we must open and keep open honest, transparent, clearly understand the lines of communication. and i believe that those threads and that vision is pulled through the qdr and is a good start for that client. i appreciate csis hosting this event. i think it's very important i particularly appreciate everyone coming out. hopefully the plows won't go buy your your cars before you leave today. thank you very much. [applause] >> will take a few questions. brett, if you want to take a few questions from the podium before you move onto the panel. just a couple to get them on

opportunity to get questions than before move on to the additional comments. >> okay. >> the only one. terry murphy in the back row there. identify yourself please and your affiliation as you ask your question. [inaudible] to a fellow midwesterner and that is it is not just -- particularly wwii -- [inaudible] and the kaiser shipbuilding produce chips once a month and everything else is amazing performances when i was done. so i would only simply rewind the real one more back. so, nice chat. >> i appreciate those comments. and that's an important thing.

it's important to understand that users shouldn't that the qdr points out quite effectively. in all lines, on manufacturing lines eventually come to an end. that's just the nature of commerce. we at one point in time where manufacturing to aircraft per hour out in california. out of 150,000 employees who do great work in world war ii. and that was because the nation in industry responded to the call. and as we look at forward challenges, different challenges, it doesn't make sense to try to preserve, in my mind, that historic base if we're not also addressing or possibly address the future requirements. the defense department, despite our budget, it's a zero-sum game. for everything that we spend on programs and platforms that we no longer require to address the

threat. those are resources we are taking away for innovation and from technology. so, i certainly understand. i think what we need to do in the department is to better communicate to us industry and frankly capitol hill, where it is we are headed and what type of investments we need to make in manufacturing and in technologies. but there's no shortage of stories as the ability for our government and for the nation to surge in times of need in their true and great stories. my office is focused on thinking more forward about what's the next thing we need to surge on. >> we've got a couple more upfront if you wait for the microphone. and we'll just do a couple more of the senate will move on to the panel. >> thank you, mr. lambert.

i'm just curious, we at secretary gates announced a major 316 fort -- they're not turning back towards the for poor performance on jss piercing day, david got the mda had kind of a tirade about luck would've quality and the products that mda is receiving from its contractors. do you think those issues are issues that are indicative of industrial-based dispatcher feed? are they bad business models on the part of the pentagon or the part of the contractors? is it just for contracting? does that have anything to do this industrial-based issue? >> i'd say no, nope and nope. next. [laughter] no, i'm not qualified to talk to that point. that is dr. carter who has been following this issue closely. but i can't say is that the department has been working closely with the contractor.

it's obviously a very important program for us. we do and it's going to be successful. the understand what the base required to support the program is. and i think we've taken again, this is way out of my lane. and others here actually, byron may know more about this. but i'm encouraged by the interaction between the department and the contractors. it's a good thing to see that it's been honest and open dialogue. and i think all parties are where we need to go. [inaudible] >> is there an overall quality proper and that is industrial base situation worse? if companies are turning toward fees for quality work or poor performance, that's hitting their bottom line, which is hitting their r&d available dollars. >> again, i would be qualified. i mean, if only had small insisted that and i haven't had an attempt to make a judgment.

>> let's do one last question and that will have another question session after the panel has their performance. >> how concerned are what's the level of appreciation of policy problem around a shareholder arsenal development in the next decade bikes essentially companies that are down one product financing the per click aircraft? >> well, think it's a concern. we are, my actors in particular, has been asked to address some issues in that regard. everyone remembers of course the famous last supper that took lace and 93. in fact, my bosma dr. carter, was at that meeting. so i think we are cognizant of that issue, whether it be an shipbuilding or aircraft manufacturing, we understand that it were trying to get our arms around it. we have not come to any decision

about what the policy should be. as i said, right now are trying to get more insight than oversight piercer would expect to see any -- i would expect to see any kind of prescription for any potential issues in the near term. >> outrage. thank you tiered if you hold the next of your questions. will now turn to our panel of experts that have agreed to join us this morning. starting immediately to mr. lambert's left is -- he had the same job trackpad in the administration twice removed, the clinton administration. to his left is byron callan who represents wall street today and is noteworthy -- [laughter] and has not yet been arrested. [laughter]

it is useful to note that there has not been a qdr before that even had the phrase access to capital and its text. and so, there's a sea change has been the recognition of that dynamic is important to defense in the industrial base. to his left is alan chvotkin. he is here because in fact half of our industrial base now, half of the money that dod spent under contract is with services, rather than for platforms and systems in research and technology. and a recognition of that i think is something that is important for us to focus on today and to look at the qdr through that prism implants. so mr. chvotkin if you represent a method of the equation. and finally, bill greenwald was the previous deputy for the secretary in the bush administration. we've got a group you are who can provide a variety of this on the qdr itself and on what it

says than on what it doesn't say. i left that they'll each provide some remarks. you hold your questions when the four of them have finished will open the floor for questions. but i am reserving the first question for brett lambert u.s. agreed tuesday to the panel session as well. so think about what you're going to have these guys as they're going through their process. so with that, jeff, you've got the floor. [inaudible] [inaudible] >> helps to turn it on. being here with john hamre maybe

think about the change in errors, if you will, that we face. we been in the bull market in defense of the last 70 years here after 9/11. and it does look like where as something of a crossroads. and i think what john touched on is, you know, are we back to the late 90's in a period when he gave his speech, that the capital was less than martha stewart and her enterprise. and the question is, as budgets flat and, inevitably in the next period, is our industry able to weather the storm. i would submit. i didn't commute to others discussion per se but i would commit our customers are better equipped today to weather a flouting of demand then some acclamation than they were a decade ago. it points out the need for vigilance in an era when we're going to see potentially some flattening and declination of demand, you know, and your

advocacy concerns about the industrial base. and i think john's point was we have to watch out for the fragility is in this era. to put all this in context, we're here to talk about those in the context of the qdr. let me make a few general comments in the talk about the defense industry. first of all, the qdr comments evolutionary not revolutionary. and that's to be expected. we secretary of defense here in office and this qdr is entirely consistent and quite good i think, but entirely consistent with the speeches, actions and budget decisions over particularly the last year and a half am a bit relay his whole tenure in office. movie at this point it was a radical departure. i think that's good because continuity is good. but in that continuity is change because he effectively said, let's shift the focus, let's shift the balance somewhat toward the wars we're fighting as they completely pertains to

the acquisition community and the comment that bridesmaid that the defense department is at war and that is in. that shifted the wars were fighting. and i think that's done that in every which way. it's very hard to disagree with the judge erred in this qdr. other points that are noteworthy to relate in general ways in the industry. one is for structure. you know, if you're going to shift the balance, one thing to think about is making adjustments to the force structure. you know, we have an army under stress. we have an army that is shifted its focus toward the continuum of low intensity conflicts there fighting. but there are really two questions going forward, which is, one, is the army really is to show lies in this chance, away from the concept of fighting the big one to essentially becoming in some respects a large operations force. and two, can we ship the force

structure, the active force in the reserve that takes the stress is off. and i think these issues were not addressed in the cutie art is my impression is the address going forward. i would say it's hard to restructure the force when it's war, frankly. but i think it is an important issue. second, which again released to the industry, little discussion of interoperability among coalition forces, particularly europeans. but the discussion to deal with partnership, which is important. but i think there's not that much focus, less focus on europe and the rule of europe in our defense. in part, that's probably in deference to the fact that the teacher concept does not come out yet. but i would say there are two-point here. one, if you look at to it is the fight with an expeditionary warfare, who goes to war with us, it's our european brethren. and my own view is we need to do much more things more robust

agenda to drop our ability with that force. and that would help promote transatlantic integration if we did that in the defense secretary. two, i think that -- and so we need greater interoperability among the force is likely to be continue at the levels of capability for years to come. reality is europe has largely become to build sites. the two countries france in the u.k. most of europe is focused on petersburg. and we need to encourage that as we need to have that burden shared. and all of these points toward some cooperative defense programs at europeans and more efforts to ensure that we can work with them in an eccentric environment. and i think those two should pray birdies and i hope that as we go forward will not mention the qdr they become greater. i was heartened to see the mention of the e.u. in the qdr and i didn't go back and let up my guess is this is the first qdr that mentions the european union. and it reflects the fact that

the e.u. is taking on a more prominent on defense particularly in the thought in the intent to relate the defense part 2 of the chief colonel defense to market. one point i think it's not quite mentioned in the qdr but i think it's an important part is i believe the defense department needs to engage much more deeply with the european union on a range of issues from defense targets are military cooperation. we just did a study at john hopkins called fortress and icebergs and i was one of the key findings in that study. i think there has been forward open and the pentagon on this, to the point where you hear people on the policy side of the house they were open to engaging with the e.u. i think we have to move beyond that and develop a robust agenda with our most important partner in these areas. now, let me turn now to the defense industry. as i said, as i jokingly said there is not much in the qdr

specifically on the defense issue. but what they are a think is quite good and i think brett has laid out a good revision in this area. i think the qdr has properly focused on both the demand in the supply side of the situation if you will. and the question is, what are the acquisition system proficiencies on the demand side and what do we do when this is really the question to truly add the defense capabilities that are robust and competitive source defense capabilities to meet our national security deeds for the future. and particularly as i said, how do we do this in an era to potentially declining demand. we're back to that era potentially, where it's flat and and potentially declining. and how do we make sure that we address the fragility as they have been. on the demand side, the cutie

qdr asked the question is how we institutionalize the rapid wartime capability. there's been for many years to acquisition systems at the pentagon. there's the long-term when we all know with large programs that start with requirements and not spend the bulk of the spending. the second is one that wasn't all that big until after 9/11 and we started fighting these wars. and now it's become much larger and that's a short-term acquisition system driven by the needs of the combatant commander. and it's sprung up in the pentagon come a series of ad hoc committees, ad hoc approaches and lots of money. you bring it to aberdeen and tested and if it's good, we'll use it is one extreme. and things like that grew out of it. they didn't go out of the long-term system. the question is really the qdr asked the right question. should we do something to institutionalize this kind of a wartime for stem? do we reform the big system or

do we do something to give a good standing if he will authorities and monies to better organize our effort for this sort of more short-term and financially based system. i think that's a fundamental challenge going forward, not addressed. i think that's a challenge with this group for brett and his colleagues at the pentagon. on the supply side, and again i think the qdr does suggest a team that a more robust, not robust, and a more interventionist outcome if you will in terms of industrial policy. ..@ @ @ @ @ @ rb@ @ @ @ @ @ @h

ss and the supply base particularly relative to the priorities set forth in the duty qdr. shape acquisition strategies. work on the demand side of the pentagon taking into account. considering services of supply, establishing sensible organizational interest rules, adding commercial suppliers, making it more sensible for commercial suppliers to play, merger reviews maybe we need guidance as we get to the new

era and ensuring better stewardship by a good primer of the defense supply rates. i'm not going to talk about all those what i'm going to touch on a few. on the monitoring supply base that is what brett's office is about. and that is the historic responsibility. what you want to do here is a major the supply. the qdr lease all priority areas and what i would urge them to do is go sector by sector and look at each of these sectors. the issue is resources. brett's office has atrophy over the years i don't think necessarily by intent and today he doesn't have the resources to do this, so i would ask the pentagon leadership to give brett more resources to bring to the task so the ambition in the qdr can be realized because without more resources he can't do much more than react. so that is point number one. the second point, they need to -- >> [inaudible] [laughter]

shipping act causes and strategies. we began to do this in the 90's and it fell. when we look at the demand side in the pentagon, we need to look at industrial capabilities. again that does not mean we make the selection decisions based on many does industrial capability therefore we are going to do it that way. it means we shake my question strategies in the capability area like radar and pomontory we need to look at the industrial capabilities as part of the equation and i would favor a holistic look in capability sectors at but say sectors like radar and bring together the requirement, the budget acquisition and the user community and essentially to a set of trade-offs in a holistic and coherent way and that is not really done today and i think that is the way to bring industrial capabilities into account and you begin to ship

back was assess strategies you can do things like address supply these issues and say let's have some competition at the subsystem levelland program a, b, c. eland program redundancy if we do that, too. foreign service of supply, the qdr mentions foreign service of supply. i think we need to look at the defense industrial base and expand way and indeed we have practiced in the last eight years as the study we did showed foreigners have gotten a good portion of the uptick and the market and most of the major firms today have secure facilities here, ticket to the dance and i think we need to take more steps to encourage more globalization with our industrial suppliers and support of that. my second and last point is that when this country which segue into. i was heartened to see in the qdr and president's state of the union to focus on export controls, which is the key impediment to this kind of

globalization in collaboration. i just came back with a trip to the u.k. were senior acquisition officials are talking about, i talked free programs when his majesty's government or closest ally starts talking about programs we need to listen. it isn't the root of all evil to be sure and we need export controls but we need to listen. oci is an important issue going forward and i know the rules are coming out of his indirectly mentioned in qdr but i think having organizational conflict of interest rules and implementation of the weapons acquisition act as a critical issue for the industry going forward. and i think there's things that we need to be done and i do worry we need to set rules that provide greater certainty to the industry. we need to carve out the most sensitive task of omnibus contracts and on the demand side and lay out a policy that says it's good to have on this contract on the support side of those on this contract is part of the source selection and test

of activities that create these conflict situations. i think we need merger guidance on what happens when you have a company with a lot of support services by teeing the company with products in the same field and i believe that we need to look at the guidance here to say we are going to have structural solutions in those kinds of mergers. firewalls don't work. finally we need is the regulations that creates a far worse. i don't think it makes any sense to get all the discussion in the program managers to carve solutions out to the oci and the solutions are destructive to the industry. i think we have to create some broad safe harbors and clear rules for example of the example is a separate subsidiary will cure and mitigate some oci's i think we need to lay that out explicitly and not leave the parameters on a program officer of if culbert if activities between company a and b are going to give rise to the oci in

the industry where the team is the more i think we ought to leave that to a program officer. finally on the merger review as we get into this year again here on the flattened demand you are apt to see more consolidation and i do think again we are going to look at some guidance on a couple of points. one is all i would like to see some guidance on distinguishing innovation markets from legacy markets. i think we probably should be more willing to accept consolidation in the legacy era and of market where innovation is critical. number two thing we've to think about the role of private equity and what is the feeling in the pentagon and private equity as a steward in the sector where we would prefer stewardship with a long-term vision in mind. let me close on that but i think the question is directed needs the resources and can't depend taking the set of tools i just

outlined and use that to implement the vision to articulate. thank you. [applause] >> thank you. now we will turn to an exploration of what is perhaps one of the most complex bi old karina's and western civilization and that is the dialogue between wall street and washington. for insight on that and the industrial base views of the qdr i will turn over to byron callan. >> thanks, david, thanks everyone for being here this morning. i want to keep my thoughts fairly brief and start out with financial market perspective. i guess the first is just as the qdr talked about a nuanced defense industrial base the financial markets are obviously very nuanced as well. we tend to think of wall street as akin to the large defense contractors, but the financial

communities are also very nuanced. it's not just the large research analysts that are quoted in the newspapers. it is a range of institutional investors both here in the united states and globally. jeff just mentioned the private equity community. there have been very important player and i think will be an important player in shaping the industry. venture capital is important that sewing the seeds for the young emerging companies and it clearly commercial banks provide credit lines and assist in the merger acquisition activity are part of this broad financial community. so, i would expand that notion it's not just wall street it's the financial markets in general. i do think it was very significant that they chose to acknowledge on just the defense industrial base and approximately two pages but the

about the acknowledging the role in the financial community and basically maintaining and shading the industrial base was unique. it's not just in the united states, it is something i haven't seen in the papers that have come out of australia or the french white paper last year, the papers yesterday and i think there was one on acquisition paper that just cannot come so the capitol markets had been the key strength in shaping this industrial base and i think that role and acknowledgement is very significant coming forward. my perspective right now the large public companies are in a fairly good shape financially but the midsized companies are going to continue to tap capital for their growth and consolidation and i think it is going to continue there will be a restructuring in the industry going forward to reading and really kind of across the spectrum for the publicly traded

companies at least equity is going to be important component to the chain and attract people and provide a stable career paths. i know boeing four nixon presented in equity contribution on the pension plan that provided security for their people going forward. so, this isn't just about the mergers and acquisition it's also about a a component of compensation that the defense has to compete against private companies or public companies sell side defense as well that i think is important. there was a lot in the industrial part of the qdr mevel dialogue and transparency, and i think this administration has gotten off on a good start. brett mentioned a meeting recently with wall street

analysts and i think that is extended to this aeolian the industry as well, too. i think those are important means. they are not obviously ends of themselves. from my perspective the most important issue for the financial market is going to continue to be risk and return and i think the nature of this is just can't be inherent in the defense industry as it is in other sectors. investors inevitably are going to want stability and predictability but the future is apt to be unstable and unpredictable. nothing unique or insightful in that comment but there's always going to be that tension. this dialogue and openness and a transparency can help that but even other parts suggested there's going to be continued uncertainty and things like the aircraft modernization programs, what happens to spare parts as

youthful shoulder generation aircraft those are parts of the financial community to work through. there was language about fixed-price contracts and a line of profitability with performance, so those issues continue to weigh in on how investors will get this sector. i think in the past where a capital has been spooked by what has happened in the defense sector has come from the big surprises, and supplies is that all changes. the 753 decision into those of for where we saw a number of programs canceled abruptly. the f-22, the c-130, that came as a surprise and i think it really cost people to pull back from the sector. the other top yes era -- obvious era where they've shied away from the sector have been where the risk overwhelmed particular companies to get lucky in the early 1970's with the's program

or mcdonnell douglas with a 17 program in 1990. so i think this dialogue and transparency addressed in the industrial base i think it's very important that a good part of that is going to acknowledge the risk of returns that are expected on both sides. finally, the qdr encompasses all the issues we could have a thousand page document pretty quickly maybe 200 or 300 pages on the industrial base. but there were things kind of left hanging and maybe these will come up in the q&a discussion about the qdr and industrial base i think brett mentioned the comment about sunset industries and poor business models. i don't know at this point what is the sunset industry. i've got my own ideas but we could argue ten or 15 years ago that maybe track and wheeled

vehicles might be something in the sunset industry and yet it program like mrap is a shift in how important this can be. there was a comment in the back of the room about willow run and it is a reminder that it's not just defense industry is the broad economy and the skills and capabilities of the broad economy brings for the defense to the national security of the united states. thinking of this about how do we sustain a quality that advantage in the defense when other companies have access to technology and lower-cost manufacturing skills i think is going to be very critical going forward and something that we can write a book on easily. those are my earmarks. >> we will turn to the service side of the equation as we mentioned earlier the defense now spends about as much money under the contract services as

it does and procurement and research and development. that is a slide actually to call with industrial base sort of implies a level of in precision in the term but as some of you know we at the center for strategic and international studies have for a number of years spent a good bill will analytical time what we call the professional service industrial base, that is those industries and companies and workers who do provide those services to the national security. so now we will turn to allan chvotkin for his views. -- before, ladies and gentlemen for the invitation and opportunity to be here. the professional service is a national trade association that represents over 340 companies all to sell professional and technical services to the federal government. so naturally focus on the way the defense department buys goods and services generally and services in particular. i was struck by the qdr because it starts with the description

of changing department missions and of course and our perspective the industrial base exists to support the department's missions and the recognition of this involving the two devolving changing missions is important because the industrial base has to exist to support that. the qdr talked interestingly about a whole of government approach reiterating some of the secretaries views in support of the president's views of the three the strategy of defense diplomacy and development but then went on to raise concerns about the quality of the interagency coordination and so i think we have got some goals set out, some challenges ahead and it talks about the importance in the industrial base of a total defense force which recognizes the contributions that the active military guard and reserve can make along with the defense civilian employees and the contractor community and contributions each of those make it proposes to reduce the amount

of support contractors working for the defense department so there's some questions about the priorities and signals. it recognizes the industrial base is not monolithic. in fact i would submit it is not even very well organized and so, as we look at differentiating among the the many suppliers it is important that at some point in this qdr isn't the place to do that otherwise it would be 10,000 pages, not simply a thousand or 160. but to look at the contributions and the wall of domestic versus foreign. there's almost no mention of small business and the role of the small matured large firms that we are looking at. the difference addition the template from companies and integrators and services providers britain touched on the importance between prime contractors and subcontractors particularly those who are critical technology providers

and byron already talked with the role of financial institutions. second there was a discussion of the work force although not a very leverett discussion of the work force a petition that is aimed at some of the clear department policies already in place to grow the size of the federal workforce and defense department work force in particular and that is a goal that we support. it is unquestionably the defense department work force of atrophy not only in the critical areas of acquisition policy that in some of the most technical skills as well is important to approach the murphree growth on some of that. but it has to be done strategically. the guidance the deputy secretary defense issued some of the statements undersecretary carter has made and office of management budget discussed focuses on the strategic nature identifying the the king of the key skills and how to accomplish during the work force and a strategic manner.

unfortunately what we have seen so far is growth that it is opportunistic rather than strategic and some of the in sourcing and i can take the rest of the time to talk just about in sourcing but i won't. we see much of the in sourcing activities taking place in the defense department today being driven by the budget rather than any overall strategy and i think to the extent that the work force issues can be addressed as a part of a four year strategy the department has to come to recognition how it wants to address the in sourcing issues and baked into the budget are arbitrary savings from this and sourcing activity and i think that means a little bit more inspection as well. -- we have got a new strategy for the department's missions and we look at an industrial base capability. we have to look at how the government buys goods and

services or with the acquisition system is. that links these two to support the department's mission. i think that as brett mengin and his remarks and the qdr's properly notes one size cannot all in the industrial base and norton one slice it all in an acquisition system. the qdr talks about the importance of agility in the acquisition but there is little indication to me that there is going to be changed the course system. but i do see is several preferences to developing ways to circumvent the current system whether that is the creation of a contingency acquisition fund or rapid acquisition signals the start recognitions of the challenge of the core system and the importance of the agility and the ways to make sure the department can meet its mission and if we have that at the edges we ought to consider doing so at the core as well. we need to look then at the techniques that are available

and byron mentioned some of the techniques available i felt the qdr did a masterful job of acknowledging some of the acquisition techniques around fixed-price development for the simple but noted that is to be used only where appropriate and i think that is a signal to the folks that this is not the only policy to be available and in fact recent report from the defense business board highlights the findings that the fixed price contract and particularly in terms of development is rarely a pre-and i would hope the department and its acquisition techniques would take a look at that in a slightly related context. norm augustine said the area is not punished by success and i think he could talk specifically about fixed-price development as the poster child.

finally, if we understand that we had a workforce of a land acquisition system that can support how the department by its goods and services and we are using the right techniques to do that then we have to look at a set of potentially conflicting policies and priorities that have been addressed and jeff mentioned some of them and bring it mentioned some of them but i think the department, the qdr doesn't really talk about how to balance some very significant challenging priorities and policies from competition to the role of organizational conflict. how do we handle job retention and predation particularly the technology level with issues about by america particularly in the contingency contract is a there is a whole list of policy issues that i think are touched upon because of the strategies in the qdr but certainly not resolved i think that gives brett and his colleagues in the

department plenty of opportunity for more work. i am hopeful the partnership will bring lots of opportunity for dialogue but these are just a few of my favorite things. >> thank you, alan very much. our final panelist, brian greenwald served on the policy during the second bishop ministration and here to reflect on his view of the qdr, bill. -- before, dave. they pretty much touch on most of the issues, but i think the qdr is extremely important for the first time institutionalized industrial base in the qdr and that is safe thing about side observers have been hoping to

see and i think it is a very positive first step. i think we have heard a number of things in their and the industrial base section is asking the right questions i might take this to the next step and say how should that be implemented and what are the challenges to implementing it and i think the first issue is to gain visibility of the supply chain and to do that i have to key off on jeff bialos's but they need the capability to do that and since the production and acquisition work force over the last 20 years industrial base analysis hasn't been, isn't as strong as it used to be and to build that it is hopeful that of the 20,000 acquisition work force decisions that the secretary would like to get

hopefully a few of those happened to the industrial base analysts who can cut across and look at the industry. brett has tremendous step and a tremendous capabilities. denney to kalona them and they are so good even david hilliard one of them. >> is that outsourcing? >> that is a good question. we have to look into that. the work force will be key therefore it isn't just a to be the work force hiring. it is getting into the p.o. and the capability managers to have them start looking at what is it we need to kind of cut across these programs and getting into the snt community to look at and institutionalize these are the type of industrial base is and partners we are going to need in the next decade and beyond.

once you have a visibility into the supply chain you need a criteria for intervention if you are actually going to intervene. and that is going to be one that is going to require a lot of soft and analysis by you can break it up into various time frames like what is it you are going to need to do that decrepit acquisition to read what you need to support the mrap and the needs of the teacher and how is that industrial base looking. looking into the midterm, your typical smaller programs and then out into the future in terms of future technology. i know your office started developing the type of criteria and a number of studies dealing with the base in the future and

that criteria may be a good one to start applying to the various segments. what are those technologies in areas where we need to be ahead of the world? or those areas where we can partner with our european and other allies industrial basis one of the areas we're happy to be dependent upon the commercial and industrial base and so that is getting that criteria for the intervention is going to be key. i think the third area to be successful here is going to be funding and there are a number of programs designed on how to intervene in the industrial base and support the industrial base with this de p.a. title iii orman tech money but the problems one faces in these are

more near-term than that in other words faced with how do i intervene i've got a supplier that is going out of business. what we need to do here and where do you get the money? if it is the program is sweet deal with it but if this cuts across a multitude of programs there is -- it is difficult to get the resources to actually help to intervene and i think the congress tried to set up the industrial innovation fund to do that and the issue is whether that is the appropriate mechanism but something like that is probably needed. and then if you -- the department is going to continue to partner with the commercial industrial base the industrial base policy needs to really look at the acquisition process and acquisition system and incentives and disincentives to

nontraditional commercial contractors continuing to be the industrial base and this is a long history acquisition reform. the mid-90s essentially they try to bring the companies and was very successful. some of that consensus may be under threat of the current time and this is a good time to ensure that those companies and those processing the barriers are maintained and obviously there are a number of areas where there is still barriers to bringing in non-traditional contractors which could help the base and obviously looking it would offer disincentives to look at future innovation we can. with that, since the jet pretty much all the rest of my topics i will keep over for questions. >> thank you, bill. let me give you an

administrative announcement before we proceed into the questions. at 10:00 and right now it is about nine minutes after ten. at 10:00 another event began here in the basement from the other side of the back wall, the minister is giving a talk, so -- >> you want us to go over? >> nope i want to alert you to that. we won't take a poll on which one you would rather attend. but i do want to alert you to that because there may be some -- dave asked to be respectful of our needs for noisette we've been asked to do this and when we get ready to leave i will last you to exit with a quietness of new falling snow. [laughter] i am also here to tell you that it is not yet snowing so we are all still flying in that regard. let me now open up the floor to

questions. we do have staff with microphones. i would ask you to raise your hand and i will recognize you. we for the microphone and identify yourself and affiliation and then you can direct your question to one, too, or all of the panel. that may start on the left since i ignored that side of the rim pipe it. my left the door right during round of questions. here comes the microphone. >> the last supper was referred to. how did the consolidation after the last supper work out on balance? or any lessons learned that would be helpful for what may lie ahead if there is flattening and perhaps decline in defense spending? sprick don't think we knew the answer to that. what i take away and this is a personal view having been in the industry when it occurred was

that it was necessary. it was the right thing to do at the right time. i think what we struggle with is from a business point of view it is largely a consolidation of stock symbols not necessarily capacity and perhaps overlooked the need to promote the consolidation of the capacity levels we bore not working at 20 or 30% of the factory's capacity and the taxpayer was paying the overhead rate so i think again it was the right thing to do at the right time and a tremendous respect for everyone involved in the process they look through and if there were to be another last supper because i don't think that the screen to happen but maybe a first breakfast at some point that we would try to think more about the business implications, the financial implications and what incentives

and disincentives we would look to. i would actually be interested in everyone's comment on that particularly byron's because the seed is in the financial community all the time, the implications of that consolidation. >> i think you certainly created maybe jeff mentioned it and i alluded to it the large companies that were up the forefront of the consultation you have a much more financially stable industry right now of the large companies some have more cash in the balance sheets than debt so with whatever comes out of the budget the next couple of years i just don't think -- companies should be able to work through this without the kind perils we've seen in the past of lockheed martin mike alluded to in their early seventies or mcdonald in the 90's. so i think from a financial perspective that is probably the most significant change. >> if i could just add one of

the other implications is the way the department approached the marketplace. so the growth of large contracts, multiple award contracts, growing the size of procurements in part as a result of the shrinking of the acquisition work force, those two factors i think both have to be addressed. one of the industrial side and one how the department goes to market, and thus over time we have lost some of the agility and flexibility the department has and think from a capability standpoint as well as a contracting standpoint we are now seeing the results of that consultation as new markets and new requirements are emerging and compromising. >> as i alluded to i think there are lessons learned from it.

one is because we going to if and as we go into the percoid the consolidation we need to be more vigilant about the effect on the industrial base. the fragile levees have been emerged in the last cycle the debt rate on and lockheed or no net but only became a focus lead in the game and i think their needs to be this goes back to the monitoring plant, more monitoring. i will say it was inevitability and the question you have to ask yourself do we have a sufficient number of robust competitors in the core sectors of the industry and i think we kind of came out of it and the answer special exception the answer was by and large yes we have as much competition as we can afford in the major sectors. >> all right, of your questions. i'm having trouble seeing hands because actually the lights are more white than your faces.

there is one in the back and then we will come over here to read >> from the ferre institute. my question pertains to the issues addressed around bringing the suppliers were attracting new suppliers that are capable of addressing some of emerging needs and suppliers bringing new and emerging technologies. could you speak a little bit about -- we have written a paper up the barriers to entry in the federal market from a defense market specifically defense sector specifically. what do you see as the key barriers to entry and key barriers to attracting those companies developing the new technologies? >> i guess i will start by saying having spent my previous career working with those companies you might want to switch your question to what isn't a barrier to entry into

the federal marketplace and this is why i think the qdr was hopefully effective in at least illustrating a hour commitment to begin to understand the complexities of that issue because every one up here has a different take. there is a financial take. can they get access to capital. byron he listed to the fact that many of the primes have to your backlogs. the second and fired tear may have six months. some 12 months. the restriction to access for capital and the procurement process we have and how we pay them and how they can get paid from the crimes has a tremendous effect on the capacity for both innovation and growth and we have not i think adequately addressed the complexity of that issue. there will always be barriers. we can't rewrite of the defaults that need -- it's not going to

happen so we go back to we have to rule with reason and do what is practical and in the best interest of the taxpayer and war fighter. one of the vehicles i think has been effective is this rapid acquisition process and to the points made earlier there is always a danger of that process and in fact i've seen it with one program where i was looking at something into a rapid acquisition process of 2018 so as the system adjusts, the building will adjust so that's always a danger but i think it is a serious question whole bunch of different levels how we promote this innovation and i think what is exacerbated at least in my concern with this exacerbated in the issue is the collapse of access to capital and i see this quite often at

the smaller firms and it's not just the firm's trying to offer innovative solutions for the rapid deployment is the second and third tier providing to programs of record that can't get access to capital. it's forcing the primes to actually make investments that are in fact unnatural acts so i don't have an answer to that question. i think we don't understand the intricacies of that question enough yet. samet historic the concerns have always been around commercial firms from intellectual property rights, the issue of what to do with technology and whether it can be, with the export process is going to do. in general unique acquisition rules and regulations and auditing and financial burdens you to place and historically there been a number of ways to

allow those companies to produce pete whether this commercial light and exemptions or other transaction contracting authorities and the issue i think in today's environment is we can easily buy commercial off-the-shelf and can we actually get modifications to those and will those rules have an impact so we are kind of in that transition but it's a number of issues historic kleeb the congress and administration trying to address to bring access to the contributions. >> and it's probably worth noting that is an issue that you never actually get to the end of and say okay we got that one fixed now what because it will constantly evolves. i think i saw a couple hands up. let me take the guy at the mittal table. we haven't had a metal table question from this side. ischemic in the context of the in sight for oversight comment as well as some information i've heard from secretary lynn the

past fall who is kind of framing the issue which is operating the railroad at the same time you are leaving the track it meant a lot of the ideas cannot here today from the nature of looking at the industrial base in addition to the intertek perlstein we took the industrial base. how do you intend, to propose these ideas here and get the inside at the same time you know some congressional decisions are pending and industries are changing and reforming and restructuring very quickly at the same time which will ultimately impact the defense capabilities. >> well, of course i constantly and fervently agree with the

secretary -- [laughter] >> i've known the secretary for some time. he has a unique perspective having been in the industry and government and i think his insight as well as those of dr. carter and frankly secretary gates bring again a new paradigm for understanding of these industrial complexities. in terms of priority, i have to say it is everyone said this when i came in drinking with a fire hose. i had no idea what the challenges that the department faces across the services and across policy. we immediately set out to understand items better. we've met with your ceo. we met with most of the company ceos and that is new and we can't figure out, and i had this discussion with dr. carter.

we don't know when and why the department stopped having these meetings and stopped gaining the insight and treating the transparency and dialogue. so we are learning and of real time and i think that goes to the secretary lynn's comments trying to run the railroad while you are leaving the track. in terms of priority i can only say that i have now learned from microsoft office how you move tasks to 8 a.m. but it is difficult when you get calls because our office is all these folks up here know and have had to deal with we have a reactionary portion which is lascivious and we are on blocks not on our own making swibel of the priorities are not of our choosing by law so our priorities literally shift daily by trying to do and i think what

everyone has reinforced its the office of industrial policy should be thinking ahead. we should be thinking about not solving mysteries mistakes but try to address tomorrows problems and i am desperately trying to get our office oriented in that direction. we are not there yet and its intake time to get their. >> let's see. let's go here. thank you. >> bill edgar. on the question this is probably more for the panel given that you're speaking -- >> he used to work with me so obviously -- >> i would never want to set you up [inaudible] -- if it ever comes back in that respect. laughter colin on the partnership through be interested in your faults from the impact particularly as you look at the development in the u.k. on the east pacific asia in

terms of acquisition procurement policies to repel the public-private partnership model and impact that ultimately comes down on a partnership with industry and government burden sharing which is driven heavily by the investment environment in the areas. is that apr looking forward in the economy with austerity on the budgeting right now and looking at how to balance the investment for the two wars and keep the investment going around and if so, or if not rather how does that affect the transatlantic relationship when the criteria for the businesses in europe want to integrate our changing against the fiscal course and budgetary constraints they are under? >> i will try the first question and then maybe jeff, you can go for the second. pfi and such and partnerships

going on around there rely on a long-term contract and a ranch that and now there are performance contracts in the u.s. which are ten years long. they are getting a little longer and a few others like that. but in the last few years what we see is the bank of contracts going down so you are going to have a hard time getting the industry to make the type of investments they are making in the u.k. long term because the need to know what the return is going to be in five, ten years and if you only have a three-year contract you will have a hard time making those types of partnerships so on the one since the acquisition system was moving away from that while our allies are looking for cost-saving ways to partner with industry and having a lot more long-term contracts. i don't know whether out as far as the latter part how that is going to mishmashes going to occur. i think the industry just kind

if adapt differently and while partners overseas might have a different perspective and ability to do that the question is whether the department of defense will want to do that or not and if they do then obviously there might be opportunities for them, do they have the experience. >> i don't have a lot to add. i agree with a lot of what bill just said. i do think that an unfortunate circumstance are rows over here when the other transaction authorities whether on the line so to speak under the political pressure and i think that is unfortunate in the period we are entering again here you would like to see more creative use of that kind of authority. you would like to see models like we've seen in some contexts like pfi-type malls. i heard laughing over here but it's the environment for it is

just not been great but it may be that the numbers flatten these types of things work. i can give you one example. there was a program that's a good example of the kind of future we ought to think about in some of these areas. this is a program that is designed by the defense agency that buys imagery and in the past the idea would be let's build a satellite system. build a satellite system for this imagery data they do this a different way. rather they said we are in a long-term contract to buy imagery. here's the data that we want and we will sign a long-term contract with the winner and then the winner signs a contract and took the contract to the bank and got the project and build a satellite system. that is the kind of model we would like to see particular vv areas where -- particularly in the areas where there is market

going on and companies can sort of value to the surface and figure out how to do this read you get the government out of it and the program will match. how to build satellite systems basically and i do think it would be great to be able to see more creativity in this field. as i said on fortune of leedy political overlay has made. >> we are reaching the end of the time to read i anticipated the time for another question, but i didn't anticipate the time for the answers and i think -- that isn't a slap because i think there was a very serious question and deserve a thorough answer as to all of them. clearly we have only begun to scratch the surface of the issues here this morning and we could go on for another hour and a half and move forward. i want to do a couple closing remarks. we try to end these on time because we recognize people have other commitments as well but we are happy to stick around and take some questions after the

microphones are turned off and help you out in that regard. these are clearly critical questions raised by everybody here this morning. csis is going to continue to analyze and report on these and told defense like these to sort of further the public debate because this has been a neglected area for many years. what did we hear this morning. we heard a bright describe the dod commitment to do a better job but we heard all of the panel described ways which they are going to need a lot of help in order to be built to execute on that commitment and i think that as we move forward collectively across the government it is going to take all of our efforts. where do we go from here? the qdr actually cites a number of additional areas in need of a study in space and access to forces and manpower and it isn't clear what the impact of the studies will be. clearly some programs and contracts are going to depend on the outcomes but we are not going to have them in times of congress will have to make its own budget decisions in a bit of

a vacuum and i think they are beginning to recognize that as a result of the hearings this week. those of us to analyze the defense and national security are still waiting in addition for the information that we usually get with a budget so we can actually tell whether what the qdr says it did shows up in the budget, and we will see that hopefully over the next few days and weeks and will give the details to be able to provide a judgment here. and then finally there is most of you know a congressionally mandated panel to review this review. earlier this week it was announced that panel would be cochaired by former secretary defense bill perry and adviser steve haslet. with command and i think everyone here would command that panel but in fact pay some attention to these industrial base tissues as it undertakes its review and report to the congress in late spring and early summer and this is good to be an ongoing series of discussions my final thing is i

would like to ask you to join me in recognizing and acknowledging the csis staff who made this possible. please stand and let's give them a round of applause. [applause] >> before we go want to remind you b the philippine minister next arcuri i want to thank you for coming in for your attention and support on these issues. have a great snowy weekend. [inaudible conversations] [inaudible conversations]

my name is hatfield mcconnell from minnesota, and i've been here since tuesday. this convention is very encouraging. >> tuesday? that is two days before you could even register. >> that's right. i wanted to make sure i was here and i flew from fargo, north dakota to atlanta, georgia. i was picked up and taken to a car dealership where i picked up a used car which i had bought for this convention and i drove that from georgia to national. >> why did you go through all those different hoops to get

your? what did you fly to atlanta, rent a car? >> the car is what i would like to think of as a demonstration of commitment, where i bought an unusual car and had it completely repainted just for this event, and that's because i think this event is so critical to the united states -- >> what do you mean by on usual karkh? >> it is a 1995 stretch limousine and it was black, but i had it painted brilliant purple, and brilliant purple is simply to draw attention to the event and god. >> how has this convention in going so far? >> to me it is encouraging. it's more than sold out. there were 500 people the waiting list and i understand there were only 600 tickets. and i tried to get some extra tickets for complete coverage because i have to dinner tickets and only one convention ticket and everything sold out and i think it is a great success for the convention doors as well as america. >> what do you hope comes out of

this weekend activities? >> i would like to think of refocusing both of the big parties, the republicans and democrats and i would hope they think about the policies going forward and this tea party apparently is catching on like wildfire all across the country and we as a nation regardless what party we used to belong to we all need to hope and pray this country can be restored. >> all right, sir, thank you.

according to an investigation by the department of homeland security inspector general, the agency spent $110 million on conferences and retreats between 2005 and 2007. on thursday a house subcommittee held this hearing to look into the spending. this is about one hour. >> the subcommittee on management investigations oversight will come to order. the subcommittee's meeting today

to receive testimony on furthering the mission or having fun waxed travel policies cost dhs millions. >> i would like to thank everyone for joining today. certainly ms. duke and mr. mann. today we will investigate the amount of dollars taxpayers spent on conferences, retreats and other of site activities. in addition we will examine the lack of internal controls, governing policies, oversight and reporting of conference planning and spending practices which prevent the department from being transparent and accountable to both congress and more importantly the general public. during fiscal year 2005 to 2007, the department reportedly spent $110 million on conference related activities approximately 60 million of which was in

direct costs and additional 50 million identified as salary expenses for employees attending the conference. .. >> information related to spending was not documented in a way that allows for

easy examination the result is most responses received from dhs components contained in this seeing it data and had discrepancies come a most alarmingly the reports that said "there's a reason to track conference expenditures because there are no spending restrictions of approach. the ig found "components are planning and sponsoring conferences without any consistent approval or tracking process when combined with conference cost and numbers dhs needs to develop better controls to make sure conferences are funded and attended for only mission critical purposes and costs are minimized to the greatest extent possible" end quote. the department needs clear and consistent planning and guidance and must define the term as conference, retreat, outside

activities and trading in a uniform manner so all organizational elements are on the same page. ltd depart from one procedures exist for the number of employees attending conferences or justifying attendance but the may test that appears to be in place for necessity of travel is whether funding is available. this must we fixed. the department has one mission to secure the nation from the many threats that we face. of selling the mission requires the the four men to participate in of site activities in the country and in the world. notwithstanding the department must exercise oversight, accountability and transparency regarding the amount a taxpayer money it spends on conference activities for our wanted they the witnesses for the participation and is certainly look forward to their testimony.

>> the ranking member is not here at the current tame but gave us the go-ahead to start. of the chair recognizes the gentleman from mr. -- mississippi, mr. tho mpson. >> thank you very much mr. chairman. it mr. duke, mr. mann. both of you know, that we requested the inspector general to look at the practices of the two homeland security relating to conferences and retreats on the request was made i was concerned about spending patterns revealed in other terminations days and wanted to see how but department fair. last month the office of the inspector general released the results before report entitled dhs conference

spending practices and oversight. it revealed it an extremely troubling picture of not only the amount of money spent also lack of internal control, minimal oversight in its affairs reporting throughout the entire department. according to the report fy 2005 1/3 fy 2007, the department spent approximately $100 million on a conference related activities. this money was spent on sending employees across the nation and around the world for example, the department spent almost $30,000 to send 150 cdp employees to a conference in georgette. and also spent $470,000 for

a three day event in dallas texas attended by over 300 customs and border protection employees. and tsa went at the cost of $643,000. this is just a sampling of that 8,359 conferences attended by department employees during the relevant time frame. let me be clear by no means by supporting that the premier personnel should not attend conferences are outside training that are reasonable and supports the homeland security mission. however, during the ipg investigation it was determined in the vast majority of these instances the department had not performed cost comparison to make sure it was getting the best price available. properly tracked spending to make sure it was on par with

other budgetary needs. all required justifications likud be shown that it was foreseeable. none of these have been leaving both congress and the public with the question what did we get for our money? moreover, the depth of mismanagement of taxpayer dollars discovered by that i g was troubling. according to the report data received from the department was unreliable, unverifiable and contained assurance that components properly tracked or accounted for all conferences and related cost. when i made the request i informed the by ginnie their ways or extravagance by the department in performance of the critical role should be accepted or condoned. i meant that when i said it and i continue to stand by

the statement no. at the conclusion of its investigation the ing -- ig made a recommendation increased oversight and internal controls to increase accountability and transparency for conference activities a fully intend to monitor the department's progress on these important recommendations for our look forward to receiving the witness's testimony on this important matter. i yield back. >> thank you, mr. chairman. other members are reminded under committee rules opening statements may be submitted for the record. i welcome both witness the first is under secretary of the management e elaine duke and serves as the department of homeland security undersecretary for management and responsible for the management administration for the

department of homeland security which includes management of the $47 billion budget, appropriation expenditures of funds funds, accounting and finance. ms. duke administers control over the department's $70 million acquisition and procurement process and tracking to recover all resources and personnel programs for the department 220 to 3,000 employees. issued minister's control of the department enterprise architecture through use of itt and communications systems and responsible for oversight for facilities cover property equipment and other material resources. prior to hurt appointment as undersecretary she served as deputy and his secretary and the chief procurement officer january 20006 until her appointment until current position 2007. ms. duke was deputy from

december 2004 through december 2005 she championed the acquisition of a professional career program to rebuild the acquisition and work force for the 21st century which i personally applaud. moves to expand a great deal of her career with the u.s. navy where she held various acquisition positions of various responsibility. she began her career as a contracting officer for the air force will the bachelor of science degree of business management and a master's from shaman not university in honolulu. the second witnesses to 15 he serves as the second inspector general and the department of:security office of inspector general. mr. mann has served in many positions appointed

assistant inspector general for office of inspections in november 2006 a charter member of home as security. prior to coming to dhs mr. mann was a senior programmer analyst with office of inspector general also held step in managerial positions with the ss office of strategic management and equal opportunity. dhs of assistant secretary for personnel administration and has served as a technology consultant for general services administration, faa's, depar tment of labor. a graduate of virginia state university which he has say b.s. degree in business administration burt or about

objections of false statements will be inserted into the record i now ask each witness to summarize your statement beginning with mr. mann. >> chairman carney, chairman tom said thank you for this opportunity to discuss recommendations to discuss spending practices and oversight. i will focus my remarks of five areas where improvements are needed. clear consistent planning guidance, reliable data, sufficient supporting documentation, compliance with applicable travel regulations and coordination of sponsored conferences. dhs conducts conferences for a variety of purposes for it training, information sharing common mission support. we review the conference spending practices and reporting of conference related expenditures and

assess the total spent by the permanent producing and facilitating, birds is come retreats and other offside activities 2005/2006/2007. for each dhs component we look at the funds spent come in number, location coming employee attendance at conferences. from that analysis, we selected five components components, science and technology, immigration, cus toms enforcement and coastguard fema department of corporations and director of management. we analyze the conference spending practices for conference's associate with those five components to have a perspective on individual components conference related activities. carney conference is include the most expensive within and outside the united states and in addition there

is a conference in hawaii attended by 19 personnel. 2005 through 2007 the department reported they spent $110 million on conference related activities. when compared to the annual budgets of dhs the amount spent was less than 1% of available funds each year. however conference spending represents millions of dollars were vulnerabilities can existed areas and benefits and who comes are not been evaluated or measured. prior to october 2008 there is no formal dhs-wide policies and it was unclear who was to be communicating those policies. although the current planning document is intended coming it is still diversifying components with there existing guidance. it is unclear to what extent

policies has been announced to dhs headquarters were contractor personnel. as a result significant challenges have the monitoring of department of guidelines and regulations. dhs is not have a department wide definition of what constitutes a conference. the distinction between conference, training and routine meeting can affect justification requirements, how it is funded or who can attend. given the importance of conferences to help achieve and further the dhs mission, they should adopt and use one department wide definition the same should apply to training and meetings. having consistent terminology and guidance would reduce confusion and improve record-keeping, reporting and oversight of department wide conference related expenditures. dhs and its components maintain information related to conferences they sponsor

and many different in each component. conference planning data cohmad documentation with procurement of facilities and other services might be maintaining and contract thing, a transaction data might be handled by accounting and staff expenses could be attractive human-resources and travel costs and related documents might be handled within the travel systems. there is no central point* within dhs or the five components responsible for maintaining all documents are reporting on all cost elements related to spending. therefore central coordination point* tracking and reporting of expenditures should be established to minimize differences part of this will provide consistency of policy and guidance and the standard definition and consolidate cost and report reconciliation and able to

share common data among components. dhs officials unable to produce concise on a conference suspending the direct reporting from the program offices in manual review of documentation was necessary in each component. 2005 the 2007 this cfo issued two components requesting information not all compasses sponsored or attended however amounts reported by the components to the cfo we reviewed different from those we obtained from the same conference is. the discrepancies also existed in the attendance counts. we reviewed the cfo data in the burmese should we received with respect to the number of employees who attended the carney conference is. these existed in totals and we were unable to validate the accuracy of the information.

without using consistent methodology to maintain attendance records a final reconciliation of conference details, dhs could not effectively have oversight and compliance. we have observed dhs components for planning and sponsoring conferences without any consistent approval are tracking process when combined with conference cost in attendance numbers dhs needs to develop better management controls to assure conferences are funded and attended only for mission critical purposes and costar minimize to the greatest extent possible and in assessing tracking and monitoring of conferences, dhs must use tools and systems to minimize costs across the department. dhs has an efficient means to locate documents or information systems that could be queried to fine

detail or supporting information about conferences. >> [inaudible] >> chairman party and members of the committee thank you for having me here this morning the department encourages employee participation federal ninth theater of meetings and conferences such are an excellent means to communicate ideas and knowledge. harbor there is a need to ensure the attendance at meetings and conferences is mission critical as described in management directives and the dhs policy we appreciate the inspector general recommendation in the dhs conference spend insane day spending oversight report. when we review the data must be noted the report is based on the poor meant facilitating conferences of state facilities 2005 through 2007. these findings validate the

path we're on to richard dhs encompasses travel policies reflect best practices uniformly instituted throughout the department in october 2008 issued a department wide conference planning policy as part of the travel handbook within the office of the chief cfo. it delineates dhs policy returning employee travel expenses and conference planning. also provide official travel policies and guidance to dhs the employee's. the policy was based on current regulation inconsistent with the federal travel regulation march 2009 dhs launched the the part of a wide efficiency review to streamline costs and manage resources across the program more effectively to the initial initiatives under the efficiency review do with the subject of the hearing and travel

expand -- expenses and conference planning using government facilities for conferences the intent to richard dhs operates the most economical and efficient manner. specifically every effort should be made to conduct meetings conferences and training is using the least costly method to the government and dhs will ensure all travel is essential to carry out the mission and will make sure to use local area events come a web based communications and telecommunication to reduce cost. some key elements requires each component to have a senior accountable official to insure it is adhered to travel policies including making sure all troublous mission critical to have the appropriate documentation and includes requiring conferences or training to be held within a local commuting area of the majority of conferences attendees it requires conferences outside the

local commuting area may not be selected a less critical for mission aids and the cost benefit analysis has been done that. nationwide conferences we must break cost-benefit analysis to get at minimum, three proposals. further will selecting conference sites, officials must first consider government facilities a document the use of government facilities is not appropriate for a pro december 2009 excuse me, and november, dhs established a conference and you end playing it services working group with memberships throw the department and his task to make sure we leverage our dhs resources both in terms of ensuring we have adequate knowledge to reduce the government for seven days and spend through strategic sourcing. we had success stories from this to reduce the cost of travel using web based

conferencing and look forward to refining our policy further and making sure the policies are carried morale throughout the apartment. think zero. >> thank you ms. duke berkeley have been called two votes. we have about four minutes left we will suspend the hearing until after the votes and will reconvene 10 minutes after the last vote is held. i want to be respectful of your time. both of you i'd understand you have a lot of pressures but ms. duke especially we'll understand you have to leave to be someplace later but if you can stay for a least one round of questions of thank you so much. with at least the and suspended

[inaudible conversations] [inaudible conversations] [inaudible conversations] >> the subcommittee will reconvene. want to think the witnesses for their testimony and if no objection know by to submit for the record the written testimony received from the business travel

association it will be entered into the record with no objection i will remind each member he or she will have five minutes to question the panel and i will recognize myself for five minutes. ms. duke, starting with you you, when department operations how the new conference for administrative officers in d.c. is that of holding at a government venue, dhs posted 650 employees at the mandarin oriental a four-star luxury hotel and spa up the cost of $100,000 per day for three days. [laughter] was the cost comparison done to justify such a cost? how was that chosen as a big new? what happened? >> in that particular case there was a cost comparison and quotes from several vendors but the challenges

to find a venue for that many people. it is the annual training conference for that group of individuals. but since that conference, we have looked at not only the actual cost, but the appearance of cost to make sure dhs is not misrepresenting itself in a way that we have defense at those type of establishments. >> in your opening comment you mentioned you would need to use the least costly you could not have come down a couple of stars. >> yes. >> the number of folks attended 650 seems like a healthy number was there any criteria to screen how many people should attend? to make there are two types. conferences which we look at minimizing the number of attendees that particular conference really is a trading event the annual

event four dhs employs the the id been mistreated feel to get trading on the latest policies, a federal and dhs. it is important in that particular case for the employees that need the training to attend. >> we will return to this i'll ask mr. mann a question. in a dhs who was in charge of management and oversight of conference spending? >> it appears it is so decentralize the individual agencies run their own conference management shops. we did not identify any one in dhs who had sent to responsibility for managing conferences. >> who should have the responsibility given the organization chart? vermette the recommendations were sent to an office and that is where the management oversight should be.

>> you agree ms. duke? >> i agree management should have oversight i do believe with the functional integration model that some type not as decentralized as it was but centralized decision making is appropriate. >> mr. mann do think the conferences in the end help to further the mission of the agency was their guy you added? did we get the bang for the buck we were after? >> i think we did. it is hard to determine in some cases simply because we did not have a good system to measure the department does not have a good system to measure the success or the value of the individuals have gotten for their conference attendance but given the variety of missions that are within dhs, the need to exchange information, we don't

question necessarily the number of conferences or the purposes we do believe they do add value to the department. >> mr. mann, but when dhs officials told the office of inspector general there is no reason to track conference the standard -- expenditures come is that true? are there no restrictions in place with no guidelines? if they don't track spending how we even know it is 110 million that it was spent? >> raisin interesting point* that is one of the premises of the report we provided we're not certain. we certainly believe from the inspector general's perspective and from a reasonable method of managing anything, we believe there should be some accountability and tracking system is. third needs to be at least the ability to compare cost to determine whether or not the department is in fact, getting what it is paying

for and the affirmation i'm sorry the money is being allocated to events that further the department of dhs. >> thank you. i yield five minutes to mr. pass girl. >> thank you mr. chairman. think you ms. duke and secretary for your work at the request of the chairman of this committee and i would imagine that when you were examining what happened doing this 2005 through 2007 point* of time you must have some real by openers. you must have said yourself, this can be because the same transparency and accountability that we have asked of avery agency of homeland security as well as the department itself does not exist in most of the agencies of homeland security.

this is a systemic problem within the department in for they're not to be any checks or balances, so what we have here mr. chairman, i would think we could conclude that there is bureaucracy upon bureaucracy. when there is bureaucracy, there is no accountability. it does not matter whether we talk about december december 25th or budget stuff or talking about what happens here. the figures that homeland security gave you about the expenditures of travel and during this time and the figures from mr. mann are quite different. aren't they? >> that is correct this vivica can you have such a discrepancy?

we're not talking a few thousand dollars but a huge gap between what has been recorded and what you found specifically and briefly, why? >> it is our impression the decentralization of what might occur in planning a conference, acquisition of facilities could occur or unmanaged by one portion of an entity. the accounting, it is so separated it does not necessarily mean the costs are justified but not consolidated to a point* where the final cost of a conference could be assumed with relative to assure the because information is gathered. it is in within one place or any component. >> hooves responsibility to put these numbers together to have the facade of an

integrated system? >> that is a good question. i am not certain. >> what i think you're being very frank. [laughter] because when you go through the maze of the charts, who could you say is responsible? >> recently the last year we have identified what is called the component accountable official also then it is in the oversight of my office through the chief financial officer. >> these officials do know what receipts or vouchers are necessary to prove it work product? >> correct and apparently they did not know that before were there was no one person assigned to each entity court. >> that is correct. who is in charge of booking travel for the department? >> that is decentralized

there is not one central place where travel is booked. >> in other words, anyone of those agencies previously could have reached out to whom over to the procurement officer in order to try to get quotes and how much it cost? did they have one travel agency? >> for conference planning there is not for individual federal travel, the employee traveling there is a mandatory soars. >> this reminds me of another scheme that we came across four years ago, the five years ago remember surely limousine? remember that paper? i remember that very, very well and the person who control that organization was a felon. that does not make him a bad guy i guess, but he was a

felon and we cannot figure out how we got the contract. if there is such a huge discrepancy in the numbers, mr. mann, and using hyperbole to suggest there may be something corrected going on and id certain circumstances, but indictable or criminal? the way too far off? tell me i will come back. >> that would be hard pressed to say there is pivotal but what i think the department needs better documentation and does not necessarily mean the activities workable. >> but it is harder to find because the documentation is not there. if i was a criminal trying to cover-up the actions and no one accountable it is a lot easier. >> it would be.

>> i would hope and thank you for all of the work you have done ms. duke to clean up other people's illnesses in the past three years and i am sorry to hear you were the being. they had any brains there would make you a big offer. i am going to four but what can i tell you? i hope people will listen. >> i do you gavel me because i am telling things here but. >> no. because your time is up. [laughter] >> my time is always up i thank you for your service thank you, mr. chairman mann as well. >> thank you, they give. >> i will recognize the merck ranking member for five minutes. >> thank you so very much. tonight insert my statement in the record? figure. secretary duke, the inspector general's report noted the difficulty they

had to obtain conference data because the manual it was a process. much of the requested data is several years old. is the department better able to track data through the recent fiscal years and if not what plans do have to enhance tracking process to leverage tasks to better visibility? mckown stability is better now because we have wide sentral person but it is still a manual system and we're looking at to be part of the solution for automated controls and also yet moving to a standard classification system so things don't happen that things are accounted for in different ways for different components. >> thank you. next question to the portion of the secretary vicious a review initiative focusing on spending related to

travel and conferences but touched on some of the outcomes in your testimony could you elaborate on the findings of the initiative and does the conference data provide to the inspector general's office account for side visits or congressional trips? >> no. it was just on conferences. what we're doing in addition to the accounting is looking at the in addition of the number of people we sent, what type of facilities reuse, but it is comprehensive and also trouble. a cost of that is a huge part of spending some of the ku noted the importance of conferences as a learning tool and a forum for the exchange of ideas. a state that heavily relies on tourism i know they can

be viable to the local economy. how does the department and its components determine where to hold the conference's? >> enter the new role we look at where most attendees will be what from and look for local sites and require competition among the site's preferably again where most of the attendees are located so we don't have the travel costs and require a least three proposals to get a low-cost alternative. >> the key four that information is there a mechanism to determine return on investment for meetings and conferences with increased productivity or performance? >> currently we have satisfaction surveys but not a way to look at increased productivity. >> mr. mann learning best practices from other agencies what could you implement to strengthen conference oversight?

>> one of the things dhs did, the coast guard has the annual commander's conference. it is based on when coast guard individuals rotate. 2009 a commanding officer for this district recognized there was no rotation among the coast guard officers and decided not to hold the conference simply because it was scheduled which saved $113,000 for the department so broader scrutiny with regard to whether a conference is needed for there are alternative methods to providing conference information certainly should be looked at. >> a understand your report was completed last november. have you been monitoring the implementation of your recommendations since that time?

>> there were 12 recommendations in the report. we were able to close one of the recommendations almost immediately. the department is due to provide the corrective action plan within a couple of weeks spec based under review would you recommend any changes to federal travel regulations that promote greater efficiency throughout the executive branch? >> no. i think there adequate for their purposes. >> i yield back. >> thank-you wreaking member and witnesses for appearing as well. i am always sensitive when it comes to an issue of this kind. for two reasons. one, there are hard working employees who don't merit having a broad brush touch them.

what i want to understand is that this is not something that is so pervasive that all employees should somehow be viewed in a negative light. ms. duke would you kindly call bid please so the record will reflect an opinion about this? piven guess when you look at the conference's listed in the appendix the predominance it is clear of why they were needed it was going to meet with small businesses to do employment fares are those types of things. we need to be better about documenting and make sure do the necessary events but in the most cost-effective way including travel and hotel across did use of government facilities. to look at the list of conferences the employees have attended were mission critical we just have to handle the fiduciary side more effectively.

>> mr. manned? >> i think a part of the issue is a lot of employees are not familiar with travel regulations for example, in cases where meals might be provided as part of a conference predetermines of instances some employees were getting her dm it is our impression there is no criminal intent but just a basic unfamiliarity with the rules and regulations as it pertains what can be voucher down the travel expense versus what can knock. we see the value in having conferences of this nature we have our own conference where it is an opportunity to share information and did we hear the same thing at the same time so we certainly support conferences but certainly the real issue is

documentation that really does not make everything at to indicate the amount spent was in fact,. >> we do have a list of conferences of selected conference activity for review. and as i look at this summer by future gives some indication as to whether or not these are legitimate conferences. there is a case where 100 and 50 employees attended a leadership cost $28,000. was out legitimate? >> you have the same information i have. >> i am not sure which one. >> is the conference on an island. >> i don't have the.

>> let me do this. having been a trial lawyer, me i approach the witness? [laughter] >> ask your question. >> may i have this given to the witness? vivica yes. that this kind. [laughter] >> wow! is on its way to me i may have to interrupt now they have one minute and two seconds left. in me go through these the first 150 employees was that a legitimate conference? >> to be perfectly honest the scope did not involve determining the legitimacy of the conference. we took what we were able to

get at face value. it is a terrible thing to assume it is legitimate but that is my assumption it was. perhaps ms. duke can elaborate. >> ms. duke? vivica i can get back to you for the record but when we looked at these conferences, they were legitimate. i know that particular d-5 conference later years they did it by technology rather than holding an in person conference with that particular cbp. >> mr. chairman may ask one edition knoll qwest en? vivica appreciate your basking in because of that you'll be granted additional time. [laughter] >> thank you. we have this list i have a ford did you. is there any conference on this list that is not a legitimate conference?

>> i don't see any that are not legitimate we have to be efficient with the people we send but in terms of the topics that on the list i believe there are mission is essential as we have described it too. >> and ms. duke the dhs unreimbursed employees for gala tickets for $8,000 plane tickets where was that two or from? what would make a ticket cost $8,000? vivica there are cases of business class or first class travel that would leave the international business class would be in that range and we have tightened up quite a bit the policies and actual activities on business and first-class travel. >> is that but lunchbox fees

and luggage fees? >> what is troubling is people were reimbursed for free meals. why were they reimbursed? how did they submit a claim for a free meal? they knew the meal was free. not to put too fine a point* on what mr. pascrell was saying but is somebody trying to gain the system? >> the issue is that 10 employee gets a per diem so much per day if they have a free meal, they are supposed to deduct that it is a manual calculation. those are the cases that it was not done. we reinforced training and

also the official to look for those type of things to make sure it is done properly. >> the approval officials were not consistent? is that a problem? to make usually in the some one of the chain of command for the travel and travel voucher. >> within the various agencies there is not consistency or has not ben? >> correctly how closely they look at those. some approving officials did not notice that so were not looking closely enough. >> please tell me this is getting fixed. >> i am not certainly all employees are aware of trying the old regulations what they need to the doctor and that is a training issue. of course, we're could be some employees that are knowledgeable about the system and figure a way to get a few extra dollars and cannot discount that but i think it is a training issue more than individuals trying to capitalize on the free

meal. >> ms. duke the news reports indicate dhs spent on travel second only to department of defense. obviously we all agree we have a need for legitimate travel and conferences are by you will, when you get that big of a number closing on the dod numbers. [laughter] how can we be sure we're getting that kind of guy you that we need? folks are not gaming the system or we are not sending folks to four-star hotel when to start or three star will do? how to make sure that happens? >> one is to centralize that under an accountable official from each component and secondly, whether cultural change of really scrutinizing.

i think under the efficiency reduce there has been a cultural change to look at trouble and the necessity and the cost. we just have to continue the cultural change. >> the time of dhs before the study was done, 2005 or 2007 time frame, there was not the guidance or nothing in place that was built into the system for travel and conferences? >> there were a few policies but the first time it was aggregated into one policy was 2008 in the financial manual department wide. >> mr. mann from your perspective, i do think dhs now is tracking properly and rate calibrated properly? >> like to commend mr. duke

and her staff and those individuals we reacted with for study of cooperation and recognize that time point* from a dhs is still just seven years old and was even younger than. with a number of entities pulled together and the mission what it was, maybe not a excusable but understandable how the travel situation got to be the way that it is with the initiative of october 20008 guidance from a we believe dhs is on the right track to recovering in preventing the future occurrences of the same source of things identified in the report. >> will be interested in a couple of years. mr. bilirakis. >> thank you mr. cheer i appreciate it for grander stand for january 1st through september 30 last year the committee stage a

home is securities and $73,000 on travel related expenditures and this amount spending exceeds travel expenditures of all other house committees with the exception of the appropriations committee the past august 14 the committee staffers traveled to australia and thailand while i am sure there may benefits to the staff travel we must ask ourselves the same question that we asked the department was a necessary and reasonable? how also find it ironic that the same time the subcommittee was originally scheduled to hold this hearing comet traveling or furthering the mission mission, staff from the department was traveling from staff with this committee to las vegas at a cost of tens of thousands of taxpayer dollars per barrel

i don't doubt the value of the information provided to committee and the staff but wonder if we could find a more appropriate venue were something closer to washington d.c.. i have a question for secretary do. how will elements of the administration's recently read the last days released fiscal year budget request for the department of homeland security assist to better regulating conference of travelling expenses? >> the biggest, the budget does have request to collect data to give the right amount of visibility that is impossible with the current system with the centralization of the emanuel. that is the element of the budget that would help us. >> what mechanism does the department have to recoup to

provide funding? >> in terms of we improperly pay invoices there is the auditing system the four employees with travel vouchers to do have the ability to have there repave or we can burnish wages if they had overpaid for travel claims. >> i yield back. >> mr. green greg. >> back to the list i always start at the top now i would like to move to the bottom. there is the indication got some employees received a black belt iii trading. and there is an amount listed. was a training legitimate and is a related to the jobs they perform?

>> i am not familiar with that one i would have to get back for the record. i do not know what that training is. >> okay. i will tell you my feelings are somewhat ambivalent as i go through the material. i am ambivalent because of they are legitimate conferences or training is taking place, i do understand we have to account for the dollars and sense spent, but on the other hand,, but understand legitimate conferences don't always take place in my state or at a place that is convenient for me. so sometimes we find ourselves in places fed or nearly we might not travel to but if it is for a legitimate reason or a legitimate conference with legitimate training, and then and it is something

needed and related to the job, i'm a little concerned that i don't create an atmosphere where persons will be permitted to go to legitimate conferences or training that are job-related. i have a concern. that is my concern listening to what is being said. there are some places because of the glamour and the lights and the things that happen at night to after trading at that probably some people might think are just bad places to be, but on the other hand, if it is a legitimate conference for legitimate treating and you legitimately are saving money by going there as opposed to someplace else if you got a good deal, for the

taxpayer, then i am reluctant to be critical if it is all legitimate and for the benefit of the taxpayers ultimately because someone has received trading. -- training. and redo this i just want to be clear. i want to be careful not to overreact. there is a genuine reason to react no question. because of the disparity between the members submitted to congress and the actual numbers that were dollars spent. i think those are legitimate reasons but on the other hand,, i don't want us to get to a point* where we don't get people to places where they can receive treating that will benefit the taxpayers and they not

go for fear there will be some sort of reprisal or become a part of a last as a result some ways damage were turned ashley image. i am not standing up for anything that was wrong. i have seen enough that people sometimes will do things that are beneficial that other people don't always understand. the reason i was giving you the opportunity to respond because these stand out. i got an explanation of what was actually going on would be beneficial to those employees who may be under some sort of scrutiny because of the actual conference that was attended. if you would, looked into

those i have called your attention worthies on this page and would you kindly respond to be in writing? i knew out -- i know you're not expecting this specific list and caught off guard i don't want you to be demeaned in any way. now that you have it will you kindly respond in writing that way i will be able to give explanations as needed. i want to commit this to you, if it is legitimate to benefit the taxpayers and the employee was there a morale, and other things aside too be corrected, i will work with you on these things that are legitimate. thank you very much. >> i do want to echo what mr. bree was