Defense Security Cooperation Reform Day

Security Cooperation Reform Day, held 10 June 1999, was a Defense Security Cooperation Agency (DSCA)-sponsored outreach event that provided a forum for exchanging information on Security Cooperation reinvention activities.  The audience included approximately 213 Department of Defense personnel, 32 representatives from other U.S. Government organizations, 115 industry representatives, 53 foreign government representatives, several congressional committee representatives, and several members of the press.  The National Defense Industrial Association (NDIA) hosted the event.  The following is a bulletized summary of Security Cooperation Reform Day:

0830 - 0835  National Defense Industrial Association (NDIA) Welcome &                                        Introduction of LTG Davison - LTG Skibbie, USA (Ret)

0835 - 0855  Opening Remarks and Overall Scene Setter - LTG Davison, Director,                                 Defense Security Cooperation Agency (DSCA)

·         Two white papers have been published and distributed.  The third white paper (Arms/Technology Transfer) is in draft and has been submitted to DoD for comment.

·         HJ Ford, Inc. was introduced.

Challenges to reinventing Security Cooperation:

·         Make the infrastructure supporting across DoD more efficient while reducing redundancies and operating costs.

·         Continue to achieve benefits with our Defense Security Assistance Information Management System (DSAMS) by replacing 13 legacy systems throughout the services

·         Improve oversight and performance in the FMS development and case management process – timelines and responsiveness in supply discrepancy reports, case closure, delivery reporting, development of P&A data and Letters of Offer and Acceptance (LOAs).  Keep a customer focus.

·         Pursue legislative initiatives via Arms Export Control Act that will enable a tiered administrative fee structure, firm fixed price LOAs, cost recovery for USG exceptional support to industry and for work done by FMS administrative infrastructure in licensing, drawdowns, and FMF Direct Commercial Contracts.

·         Revise the paternalistic system that punishes the FMS customer for buying from the U. S.

·         Quoted Dr. Hamre - - "We need to get over our hang-ups in doing business with our foreign customers.  We need to stop punishing them for doing business with us."

0855 - 0915 Acquisition Role in Security Cooperation Reform

            The Honorable Dave Oliver, Principal Deputy Under Secretary of Defense

            For Acquisition and Technology

·         The country has remained focused on our Cold War strategy for fifty (50) years.

·         What is your goal today?  We are not all as focused as we should be -- how are we going to keep the peace for a hundred years.  This is the challenge.

·         Cold War - closed camps and we hid all information.

·         Now - open, mixing of legislation, business, and governments, foreign interest in US markets, joint reciprocal interests in global business (Trends, FMS, merging of all business interests).

·          Presently, many different processes within the government, military -- do not work; need for change.  Must change here before try to change foreign partners.

·         He is looking for egregious cases where we have performed badly and have not been responsive (Supreme Court cases) to use as keystone to change the system.  British have supplied such a case.  He wants real life examples to stimulate the impetus for change.

·         We need a Vision -- Maintain the peace for 100 years.

·         Need to recognize the changes in the world.

·         Change policies to accommodate those changes.

·         Need a paradigm shift.

0915 - 1030  Customer Roundtable

International Perspective on the FMS Process and Perceptions of Progress to Date on Reform

Capt. Simon Bunt - Netherlands  (Moderator)

BG Hamed S. Saraireh – Jordan

·         Short and urgent needs not being met.

·         Case Closure takes a long time.

·         Desire for fixed price list.

·         Repair and recovery -- it takes a long time to ship materials both ways, streamline process.

·         Obtaining licenses - difficulties in getting details needed.

·         Listen to customer complaints.

LTC John Wong - Republic of Singapore

·         LOA process is a problem for us.  Need information on US products.

·         Choice between FMS or DCS.  Not sure if extra cost of FMS is worth the value received.  Cost items in FMS should be broken down into cost elements as with DCS.

·         Third Party Transfer - Time to approve applications takes too long, and costs are too high.

·         DSCA has provided tremendous support, but there is too much money tied up in cases that take too long to close.

Col. Pieter Ven Zijl - Republic of South Africa

·         Expects to acquire significant military equipment in the future.  Gun and butter issues due to scarce resources.  This should be of importance to USG.

·         Resources are scarce in developing economies:  both in funds and project management personnel.  Bureaucratic requirements will possibly make US equipment too expensive.

·         Consider Offset agreements or counter trade possibilities, emerging countries can not afford FMS otherwise.

Ken Perou - Great Britain

·         While basically good, FMS needs to be overhauled.  FMS will be kept as an arm of foreign relations; not just a mechanism.

·         Benefits:  Aligns us with DoD.  Many advantages; state of the art equipment.

·         Disadvantages:  Aligns us with DoD.

·         FMS needs an international view.  We want the right equipment, at the right price and at the right time, presently that is the exception.

·         Price/Financial considerations.  Visibility into the financial details of a case.  FMS needs to mirror the commercial contract process.  FMS takes too long to establish a case on average; will pull out all stops, but that is the exception.  Britain wants to buy equipment through competition.

·         Greater sharing of information, more open process – keep the customer informed.

·         Need revision to pricing terms and conditions, competition, larger buys, better price, more FFP.

·         Case Closure slow – requires too much money to be tied up in the system.

Werner Kaelin - Switzerland

·         FMS is becoming too complex and is considered a burden even for MILDEPS.  Bureaucratic straight jacket procedures surround the whole process.  Foreign customers restricted in option creativity.

·         Release process.  National disclosure process, export licenses.  Foreign officials left in the dark as to why and when.  Keep the dialogue open. Not transparent or timely to the customer.

·         Third Party Transfer.  State Department bureaucratic requirements.

·         Foreign Visit Requests.  Visit requests for 300 Swiss representatives are submitted annually to over 30 contractor sites.  This neither promotes customer satisfaction nor enhances national security.  Revise process to be per person or for contract term.

QUESTIONS:

Q.                  Why don't the foreign customers request that the USG put their deposits into interest-bearing accounts to partially offset the charge?

A.                 Foreign governments want to reduce or eliminate the deposits.  If the process could be made faster and leaner, it would solve most of the problems we have with it.  Concentrate first on the issues not requiring changes in the law.

Comment:  Foreign countries must keep funds in trust as a guarantee of payment; system is not “pay on demand”.

Q.                  Do you think this reinvention process, (especially in DoD), is focused on the correct problem?

A.                 DoD is not the problem.  State is the problem, especially in third party transfers.  DSCA/FMS can fix FMS, but the problem is elsewhere.

Q.                  Is DSCA trying to be responsive to the country's problems?

A.                 What we are interested in is that the personnel in the implementing agencies facilitate work throughout the process to expedite the solving of problems. 

Comment:  Navy IPO should be the expeditor for all Navy source problems.  FMS++ is an example of how we can do things differently to the customer’s advantage.  FMS should give an advantage to suppliers as well as customers.

Q.                  Could you give us some examples of what is good about FMS?

A.                 The focus here is on what should be improved.  To dwell on the significant good elements would not serve that purpose.

1100 - 1200  Industry Roundtable:  Building a Working Partnership; Progress to Date

Representatives from DPACT Members

John Richards (Moderator)

·         Consensus in government takes a long time.

·         The emphasis of the panel is on partnerships.

·         A better relationship needs to be developed between Industry and DoD.

Robert Ingersoll - Boeing

·         Global company, foreign sales account for significant military and commercial revenues for Boeing.  Products are sold internationally and have significant foreign content.

·         Issues and concerns over FMS will change over the next few years.  Partnering is important for viability of FMS.  Examples include foreign currency pass-through to Boeing accommodations by USG.

·         Provided several examples of partnering such as Japan AWACS, C-17, etc.

·         Reinvention areas of interest: customer requirements, simplify FMS process, and financing.

·         As global markets change partnering possibilities must change.

Barry Abrahams - Raytheon

·         There is a need for working partnerships.

·         FMS is an important USG foreign policy tool, and benefits the foreign customer and industry.  Work to increase lot sizes to benefit DoD, foreign customers, and industry.  Quicker, better and cheaper is being adopted by customers.

·         Environment that shapes our business today.  Inability to accelerate delivery of munitions due to regulatory impediments even with USAF willingness to cooperate.  How do we handle just in time inventory?  European industry is becoming more competitive.  Speed is imperative to success.

·         Regulatory/bureaucratic process should not inhibit competitive stance of U.S. industry.

·         TAA (Technical Assistance Agreements) is a place where big improvements can be made.

·         Should be no competition between USG and Industry, instead partner to satisfy foreign/US customer needs.

Steve Delp - United Defense

·         Get rid of the We – They syndrome.

·         The system, regulations and statutes are too complex.  Leads to multiple interpretations.  Focus where regulation needs to apply and eliminate the others. 

·         State Dept not keeping good track of status of licenses; there is no suspense system in place.

·         P&A data and LOAs should be coordinated with the prime contractor.

·         When bringing the customer in on negotiations, the protection of competition-sensitive data must be enforced with the foreign customer.

·         Need for DFARS change to allow Government to state reasonableness of price. Invite customer to negotiations, however caution on customer inclusion because of lack of protection of data.

·         The hourglass effect: While the upper echelons and workers down in the weeds are aware of the problems, middle managers may or may not be protecting their “rice bowls.”

·         Licensing Items.  Reduce the number of requirements and the number of items requiring licensure.  Help process by preparing licenses properly.

·         We are worried about the three percent (3%) fee; industry and foreign customers are willing to pay their fair share.

·         Reduce competition between government and industry – Should partner to satisfy foreign and U. S. customer needs.

James Frey – Litton

·         There are a number of complex issues to work through.  We have the largest defense market in the world and should guard against complacency and resistance to the necessary changes in FMS.

·         FMS policies will influence Fortress Europe, Fortress Asia, etc.  We must understand the policies of the customer to really properly influence their politics.

·         FMS reinvention should cooperate with industry and foreign customers.

·         What we chose to export affects what others choose to make and export.

·         Use the ongoing capability to advantage, the present will influence the future.

·         Clients need commercial alternatives as an option.

·         Issues of predictability of policy and timing, should be goals of reinvention effort.

·         Need for government cooperation with both FMS and DCS.

John Richards – General Dynamics

·         Exports have fueled economic growth in last 10 years – importance of Defense exports.

·         Denial of a problem is not good foreign policy.

·         Issue of cost recovery not applicable with industry services.

·         Need for positive attitude for implementation.

·         Reluctance of industry to include foreign govt. in FMS transactions, in DCS it’s all right.

·         Allow some self-audit instead of repeated licensing of items previously exported to the same country.

·         State Department needs to look at the license process.

Q.                  What is your opinion on foreign customer involvement in the negotiations for DCS contracts?

A.            Requirements - yes.  Pricing – no, due to level of detail for FMS.  Industry provides more detail to U. S. Government than can be provided to foreign governments for proprietary reasons.

Comment:  The Netherlands takes exception to the above.  We want to see as much detail as possible.

Q.                  What about FA-18 Technology transfer and interoperability of equipment?

A.                 We want to insure interoperability is harmonized with USG and the Industry that is responsible.

Comment:  Any Foreign customer has to satisfy its own parliaments, treasuries and taxpayers just like the United States government, and wants comparable data for cost recovery and project assessment.

Comment:  In transactions with foreign customers there is an issue of data sensitivity, and interoperable sharing of country-developed data/technology.

Q.                  Offsets.  How do we deal with transparency?

A.                 The OSD Defense Procurement Office plans to modify the DFARS to allow recovery of offset costs.   Offset costs recognized as part of price along with admin and implementation costs.

Comment:  Netherlands - DFARS change should be compatible with nondisclosure statement.

Q.                  With High Tech programs increasingly going DCS, will licenses be needed (without USG having insight early on) so that we can win in the competition?

A.                 Industry must pre-brief government as soon as possible.  The infrastructure is in place in the DSCA Weapons Division.  Your control is the approval of the export license.

1200 – 1400 Lunch Speaker -  LTG McDuffie, J-4

·         Importance of focused logistics, and improving the level of Multinational Cooperative Logistics.

·         ACSAs (Acquisition & Cross-Servicing Agreements) great tools to build cooperation, presently 39 agreements are in place with 63 other nations eligible.

·         Small FMS sales, to Macedonia for example, became backbone to coalition efforts.

·         Provided an overview of the operations logistics for the Kosovo/Macedonia efforts.

1400 – 1440 Keynote Address – The Honorable Jim Bodner, Principal Deputy Under                                                        Secretary of Defense for Policy

·         Looking for ways to stimulate FMS; how to make it more responsive to the foreign customer.

·         Building a new Security Cooperation model to respond to changing global requirements, changing security environment, and changing market.  Decision will be made as soon as Congressional consultations are complete.

·         Publishing the four (4) White Papers is a priority.

·         Increased cooperation with government and industry.

·         Greater visibility for foreign customers into the LOA process.

·         Looking at the administrative fee.

·         FMS is a critical element in defense policy by sharing future interoperability of countries; benefits customers by investing in relationships, the primary reason to buy U. S.

·         The Defense Coalition Capability Initiative ensures we have superior military capabilities.  Technology must be shared.  Ensure export controls against unintended leakage.

·         The Cox Committee Report suggested recommendations for FMS improvement.  FMS must adapt to the fast-paced changes and requirements in the global business environment.

Q.                  Provide insights on discussions for streamlining licensing?

A.                 Initial efforts are focused in-house with participation of State.  We are looking at a wide area of policy and practices.  We need make the existing system work more efficiently while exploring changes to the system.

Q.                  Technology transfer - do you believe that the USG will take a more international view?

A.                 Want a balance, share technology with our allies, but prevent unintended transfers.  There is a need to improve this process.  Progress is being made.

Q.                  Will DSCA be funded through appropriations?

A.                 That is not the intent and is not being sought.  Looking at adjusting fees does not mean funding by appropriation.

Q.                  If FMS is a problem, Industry is not responsive in providing price quotes.  Isn’t it a joint problem?

A.                 It does take a partnership, and all parties must work together.  FMS must remain a viable tool for USG foreign policy. 

 1440 – 1550 USG Inter-Agency Panel – State/Commerce/Hill

Bob Keltz – Deputy Director DSCA (Moderator)

Turk Maggi – State Department

·         Outlined State Dept’s role in managing U.S. foreign affairs, including oversight of Security Cooperation (SC)

·         Exports difficult to control, both military and non-military.  Combining certain non-military items can result in a military capability that changes regional balance, especially in lesser developed countries.

·         Approximately 45,000 export licenses processed annually; 80% go through with no problem.

Marshall Billingslea – Congressional Foreign Relations Staff

·         Sales of military equipment are to bolster national security.

·         Market systems designed to counter proliferation threats.

·         Political significance, FMS sales demonstrate a diplomatic policy, support for friendly governments.  Diplomatic tool.

·         IMET Program increases interoperability and pro-US sentiment.

·         Presently, IMET decisions appear to be made in a vacuum.

·         Sustainment of the defense industrial base.  Industry must support Security Cooperation policies.

·         Need to prioritize the list of Security Cooperation tasks and these should be targeted to the nations that count.

·         FMF has been cut far too much.  Need to target FMF funds.  Foreign Military Loan policy needs reform.

Bill Denk – Department of Commerce

·         Outlined Commerce’s role in the cooperative process, which resides primarily in the MOU arena.

·         The number and types of items under Commerce control are changing as a result of the Cox report.

·         Commerce plays a major role in international agreement development and implementation.

·         Countries are developing an increasing dependency on Commercial Off-The-Shelf items.

Dave Tarbell – Defense Threat Reduction Agency (DTRA)

·         Mission.  Pull together disparate agencies to eliminate the proliferation of weapons of mass destruction.

·         Cox Report is driving more legislation, keeping those who are tasked to review licenses very busy.  Effect causes the average age of license reviews of 40+ days.

·         Formed Tiger Teams to clear the queue and now less than one percent (1%) are older than 60 days.  The norm is now below 30 days.

·         Intent is to put the entire licensing system into an electronic format.

·         FMS/DCS cases are becoming increasingly complex and customers want greater participation.

·         Applications are becoming much sloppier.  “Help us to help you. Use plain English on license applications; tell us what the foreign competition is selling and to whom.  Make it clear and understandable.”

Q.                  Is Congress willing to pay for Security Cooperation when countries cannot?

A.            Congress is willing to fund where it is critical.  It will not “throw cash” where there is not or has not been a real Administration FMF policy, i.e., the Balkans.

Q.                  Should we not be looking/exploring appropriated funds rather than funding DSCA through fees?

A.                 Much of what is being discussed is direct customer support.  If there is a specific project that needs to be stood up to support a foreign policy issue, then there is willingness for Congress to share in the costs.

Domenic Cipicchio, Foreign Contracting – Representing Eleanor Spector’s Office (Defense Procurement)

·         Change in foreign customer participation in LOA negotiations – foreign customer may now observe negotiations, under certain conditions.  Industry must agree.  Customer will not undertake separate negotiations that undermine the Contracting Officer’s authority. 

·         Offset Costs – What is allowable and what is not.  Need to clarify with a change to the regulations.  U.S. contractor can recover the full offset costs.

·         When a foreign buyer has conducted a competition of potential systems, we will move to eliminate the requirement for price information review for LOA development.

Q.                  DoD software releasability policy.  What is it?

A.         The issue is over source code.  Customers request it and normally never get it.  The policy focuses on what it is that you are trying to transfer; what is in the Source Code.  DTRA will allow the documentation to be transferred if it is in the best interest of the country.

Q.         What about creating a regionalized list for licensing?

A.         We think that we already make judgments of licensing issues on a regional basis.  We are not trying to decontrol licensing but to remove layers of review and to streamline the process.  Deregulation of some technologies in certain areas could cause destabilization of a region, regardless of the age of the technology or its direct/indirect military application.

Q.         Risk analysis in license applications review.  Will this continue and/or expand?  Is the State Department thinking about that?

A.         Yes.

Q.         Should the emphasis be on satisfying the concerns of the foreign customer?

A.         Visibility and dialogue with the foreign customer should be increased.  But we work under a system of specific laws and, if violated, we go to jail.  There is a broad range of concerns of which this is an integral part.

Q.         Will the foreign customer know what the offset cost is?

A.         The offset cost will not be totally visible, but will be broken out in the LOA.

Q.         What are the timelines for what is going to happen, and when, for this reinvention effort?

A.         The window of opportunity is over the next 18 months, but it will go on far into the future.

1610 – 1720 Service Roundtable – Service Reform Initiatives Underway

LTG Michael Davison, Jr. – Director, DSCA (Moderator)

MG Larry Smith, USA

Four Specifics for the Army;

·         Systems Reviews – Finding out where the people are and where the resources go.  Well down the road on those initiatives.

·         Army is the most decentralized service in Security Cooperation.

·         Need to improve pricing.  Problem for Army as well as foreign customers.  Goal is to get to near proposal quality pricing for the LOA.

·         LOA visibility/transparency  (NTE pricing, Methodology).

·         Partnership with Industry – Team America.  This is important for U.S. foreign policy.

Four Broad Categories for Reinvention,

·         Looking at training programs for personnel doing this.

·         Organizational relationships.

·         Process improvement issues.

·         Law and policy issues.

Gibson LeBeouf – Navy International Programs Office

·         Briefing Slides

·         Phase I:  Defining and Bounding the Problem

·         Phase II:  In-Depth Study – 12 Working Groups

·         Phase III:  Implement Change.  Request input from the assembled forum.

·         Partner with industry and foreign customers.

·         Implement DoD guidance.

·         Identify Winning Strategies.

·         Arms Control to go back to Strategic Systems Program Office.

·         DON Disclosure Process will become electronic by October 1999; Historical database, October 1999; Disclosure knowledge based on SPIRNET.

·         Industry and Customer participation in Navy initiatives.

BG Jeffrey Kohler, USAF

·         Simplify ITAR and Munitions list.

·         Disclosure – Improved the process from weeks to days.

·         Licenses still a problem both on the AF side and on the side of the customer.

·         Changes to the administrative fee.

·         Financial Management.  Lost too many people to DFAS.  Looking at reforms.

·         Training is and has been a problem.  Standardize across all services.

·         Improving handbooks for Desk Officers.

·         Kosovo operations.  All participants flew U.S. aircraft and/or used U.S. munitions.

·         Case execution initiatives to outsource reduction of 3% fee and lines in case.

·         All changes to benefit transparency and cooperation effort.

MG Timothy Malishenko, USAF, DCMS

·         Buyer protection Plan is what you get with FMS.

·         Quality Assurance – ISO 9000 quality products.

·         Quality Process – Keeps an eye on the producers.

·         Contract Management.

·         Fair Prices.  Negotiate with the Contractors.

·         Partnership across the board.

Jeff Jones, DLA

·         Mission change from managing common parts to major weapon system components.

·         Teaming with the Navy to expedite FMS cases.

·         25% of DLA sales are international.

·         Information on-line (WEBCAST) to foreign customers, expected within 6 months.

·         DoD Electronic Mall access for foreign customers by next Fall.

·         Need to develop the capability to write FMS cases.

·         Foreign customers could reduce their costs by reducing the requirements for special packaging.

Comment:  DISAM is out there for everyone.  Twelve (12) courses are available.

Q.                  When are you going to complete the reinvention project for DSCA?

A.                 The minutes will be posted on the DSCA Web Page.  Marketing briefing and the project plan are being developed as we speak.  What we are after is continuous process improvement and this will be a continuing program; not a finite endeavor.  We are committed to this process.

Q.                  For Supply Discrepancy Reports there appears to be little trend analysis.  Will DSAMS provide for this?

A.         We are working with MG Smith, and others. to show how SDRs can be tracked and used determine trends.  Yes,  DSAMS will enable SDR reports and trend analysis.

            (LTG Davison introduced Kent Wiggens the program manager for DSAMS who indicated that much of the information is available now and the working group is looking at improvements.)

Q.         Most cost reduction is focused on the admin surcharge, what about the above the line costs?

A.         We are interested in applying program management costs appropriately, and only where they should be applied to insure oversight.  We are looking at initiatives such as fixed pricing.  There is a need at the SYSCOMS to ensure proper application of program management costs.

            LTG Davison wrapped up the session by thanking all the participants and those who attended.  He indicated that the exchange of ideas is important for the reinvention process.