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by now but let me remind everyone of a 

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few points First . The house requires 

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that we see you so please have your 

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cameras turned on at all times . Second 

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members appearing remotely who are not 

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recognized should remain muted to 

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minimize background noise and feedback 

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I heard I will recognize members 

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verbally but members retained the right 

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to seek recognition verbally in regular 

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order . Members will be recognized in 

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seniority order for questions . Lastly , 

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if you want to be recognized outside of 

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regular order , you may identify that 

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in several ways you may use the chat 

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function , you may send an email to the 

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majority of theft or you Mayen mute 

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your mic to seek recognition . We will 

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begin the hearing in just a moment when 

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they tell me they are ready to begin 

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the live stream . Do you want to move 

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it ? Come on , 

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okay thank you . The meeting 

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will come to order without objection to 

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chairs authorized to declare a recess 

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of the committee at any time . I now 

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recognize myself for an opening 

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statement . Two years ago this 

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committee held a hearing to examine a 

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defense contractor was charging 

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outrageous prices to our military on 

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mission critical spare parts for 

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aircraft , democrats and republicans 

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came together to demand that the 

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company calls trans dime repay the 

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excess profits . I was pleased that 

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following the hearing Einstein paid 

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back the money but trance time not 

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paying his behavior . I called this 

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hearing today because the Defense 

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Department's inspector general recently 

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released a report report of showing 

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trans time is back at it gang . This 

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new I . G . Report reviewed contracts 

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from more than 100 spare parts and 

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found that Trans Time received 20.8 

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million excess profits as I'm 

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excess profit margins on individual 

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ports range from 2.8% . A 

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whopping 3850% . 

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No company could be making over a 

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$3000 profit from american taxpayers . 

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Yet the I . G . Found Einstein's 

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business model is specifically designed 

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to raise prices on defense contracts . 

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Hence dime identifies companies with 

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specialized sole source contracts , 

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buys those companies and then hikes 

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prices on mission critical parts . Our 

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message message to Trans Time today is 

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simple pay back the money . 

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Let me give you one stocking example . 

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Einstein manufactures a product called 

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the linear linear actuated 

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which was used in 15 and the C 

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1 35 transport aircraft according to 

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France time . The part only costs 

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$189 to make the company charged the 

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Defense Department over 

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$7000 ig 

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found Weinstein repeatedly refused to 

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provide cost data that D . O . D . 

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Contracting officers asked for even 

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when it was needed to determine if the 

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price being offered was fair and 

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reasonable . Einstein fourth 

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contracting officers to choose between 

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accepting prices that were blatantly 

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unfair to taxpayers are denying our 

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military the parts it needs to protect 

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our national security . The last time 

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Transit time at our last hearing 

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at the same time Trans time is gouging 

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our war fighters . Its executives are 

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being rewarded with jaw dropping 

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compensation . 2020 . 

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Einstein's founder and executive 

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chairman Nicholas Howley received more 

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than $68 million in salary . 

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It would take the average american 

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family around 1000 years to earn as 

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much as tran dimes chairman earned in 

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one year while overcharging our 

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military Today . Ben stein is going to 

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tell us that did nothing illegal or 

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wrong . I disagree 

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overcharging taxpayers , even if you 

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get away with it under the law is just 

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plain wrong . Einstein will 

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claim the I . G . Used a flawed 

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methodology calculate excess profits . 

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That's simply not true . The I . G . 

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Determined that profit above 15% with 

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excessive based on information Trans 

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time provided according to Trans stein . 

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Similar aerospace industry contractors 

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generally have profits ranging from 8% 

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to 22% . The selected 

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15% for its analysis . The middle of 

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that range . What's more 

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the nearly 21 million in excess profit 

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identified was based on a sample of 

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only 3% of Trans times defense 

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contracts . So the total amount of 

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overcharging may be far higher 

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enhanced time wants to deflect 

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responsibility . But we are here today 

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saying enough is enough . Congress must 

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act to empower contracting officers 

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when they're negotiating with greedy 

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contractors like Einstein today , I am 

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releasing a discussion draft bill that 

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would require companies to provide cost 

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information when necessary to determine 

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if proposed prices are unfair and 

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unreasonable . This will enable 

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government contracting officers to 

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ensure the government is paying a fair 

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price . I urge my colleagues on both 

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sides of the aisle to work with me on 

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this reform . Mr Howley and mr 

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sign the last time you both testified 

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before this committee in 2019 . You 

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were evasive and refused to provide 

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clear answers to many questions . We 

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expect you to answer our questions 

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today and take responsibility for your 

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company's actions . Most importantly , 

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we expect France time to pay back the 

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outrageous profit it received at the 

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expense of our war fighters and 

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american taxpayers . Thank you 

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all of the witnesses testifying today . 

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I am appreciative deputy I . G . Hall 

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for the excellent work of her office . 

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I want to acknowledge . Mr Chinaglia 

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from the Defense Department . I 

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understand the department's typical 

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practice is not testify on the same 

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panel as private sector witnesses and I 

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appreciate you making an exception for 

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this hearing so that we can have the 

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benefit of your perspective . 

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Especially given that D . O . D . Also 

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participated in the committee's earlier 

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hearing on this issue . Finally , I I 

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ask unanimous consent to submit for the 

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record a statement Senator Grassley 

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submitted for today's hearing . Senator 

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Grassley has been a leader in 

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combatting from it waste and his letter 

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highlights the need for Congress and D . 

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O . D . To address what he calls and I 

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quote , agreed with price gouging by 

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trans dime and its subsidiaries . 

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Senator Grassley concludes by saying 

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and I quote , we cannot keep shoveling 

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money into a fire watching as it 

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happens and pretending that everything 

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is fine . Our tax dollars go towards 

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supporting the war fighter not paying 

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thousands of dollars for a simple spare 

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parts that cost peanuts to make in 

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quotes without objection . So ordered . 

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I now recognize the distinguished 

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ranking member Mr comer for an opening 

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statement . Thank you Chairwoman 

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maloney and thank you to all the 

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witnesses appearing virtually today . 

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We are again here today to do what 

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committee democrats do best ignore the 

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failures of the biden administration . 

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This committee steadfastly refuses to 

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conduct meaningful oversight of the 

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biden administration . Last week , 

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myself and whip steve Scalise sent a 

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letter to Chairwoman maloney and 

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Chairman Clyburn requesting a hearing 

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into serious issues including the 

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surgeon Albert Kahn , the lack of 

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available testing . President biden's 

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declining a plan to order millions of 

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tests , political influence at the CDC 

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and FDA CDC messaging failures and 

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President biden abandoning his national 

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plan . I don't need to remind my 

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colleagues that more americans have now 

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died under president biden than 

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president trump these issues . Don't 

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even touch on the disastrous withdrawal 

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from Afghanistan . The origins of Covid 

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19 or the devastating inflation felt 

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nationwide because of democrats out of 

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control spending instead of focusing on 

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any of these crises . We're here today 

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to conduct a hearing that already 

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happened . We had this exact same 

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hearing in 2019 , not a similar hearing . 

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The exact same one with almost the 

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exact same witnesses . I know the 

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chairwoman is a big fan of recycling 

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but recycling hearings is new to me . I 

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agree the government needs to be a good 

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steward of taxpayer dollars and I agree 

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Department of Defense should not be 

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forced to pay exorbitant prices . I do 

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not agree with attacking one company 

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that frankly followed the law . The 

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inspector general concluded as much , I 

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can't remember a company that got 

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hauled in front of congress for 

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following the law and certainly not 

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twice further . I have serious concerns 

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over the methodology of the report 

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presented today , primarily the 

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arbitrary 15% profit ceiling 

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designed by the inspector general . The 

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IG admits a regulatory or legal profit 

229
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ceiling does not apply to any of the 

230
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contracts analyzed in this report . The 

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I . G . Says 15% should not be a 

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benchmark for negotiating fixed price 

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contracts . And the I . G . Does not 

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advocate for a 15% profit ceiling for 

235
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fixed price contracts yet that's the 

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standard they determined applied to 

237
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transition . That's the definition of 

238
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arbitrary . We operate in a free market 

239
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economy , profit ceilings are 

240
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inherently un american . This report 

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does highlight D . O . D . Struggles 

242
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with inventory management . So many of 

243
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these contracts with Trans time are low 

244
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quality and low value low quantity and 

245
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low value for some parts there are even 

246
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multiple orders for the same part in 

247
00:11:09,946 --> 00:11:11,890
one year . This is inefficient and 

248
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undoubtedly leads to higher prices . D . 

249
00:11:14,260 --> 00:11:16,482
O . D . Is the largest purchaser in the 

250
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U . S . And has massive buying power . 

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It can exercise it to avoid some of the 

252
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issues we see here today . It can 

253
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consolidate orders to ensure its 

254
00:11:26,540 --> 00:11:29,360
negotiating prices once instead of four 

255
00:11:29,360 --> 00:11:31,900
or five times per year . It can better 

256
00:11:31,900 --> 00:11:33,956
leverage I . T . Systems to forecast 

257
00:11:33,956 --> 00:11:36,067
demand signals to know how many parts 

258
00:11:36,067 --> 00:11:38,122
it needs to purchase and it can hold 

259
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more parts in inventory to ensure that 

260
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there's not a last minute scramble to 

261
00:11:42,470 --> 00:11:44,692
order more . All of these changes would 

262
00:11:44,692 --> 00:11:47,430
be good for the taxpayer and for the 

263
00:11:47,430 --> 00:11:50,520
warfighter . These are changes we 

264
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should be focused on making the 

265
00:11:52,690 --> 00:11:55,310
government more efficient . What we 

266
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should not discuss today is placing 

267
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more burdens on businesses , especially 

268
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american businesses because of the 

269
00:12:03,750 --> 00:12:05,583
biden economy . There are worker 

270
00:12:05,583 --> 00:12:07,750
shortages in every sector , prices are 

271
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skyrocketing . The last thing needed is 

272
00:12:09,972 --> 00:12:12,850
more burden and more regulation if 

273
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there are common sense reforms that can 

274
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benefit the taxpayer and not 

275
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unnecessarily burdened business or slow 

276
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down the procurement . We're happy to 

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discuss that . I hope this hearing will 

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be productive and include questions 

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00:12:25,239 --> 00:12:27,406
about how D . O . D . Can improve some 

280
00:12:27,406 --> 00:12:29,350
of these problems . I also hope my 

281
00:12:29,350 --> 00:12:31,461
colleagues will not resort to shaming 

282
00:12:31,461 --> 00:12:33,406
one company for what is a systemic 

283
00:12:33,406 --> 00:12:36,370
issue . There are major issues facing 

284
00:12:36,370 --> 00:12:38,314
americans right now . We should be 

285
00:12:38,314 --> 00:12:40,230
focused on driving down prices , 

286
00:12:40,240 --> 00:12:42,190
increasing access to covid test 

287
00:12:42,190 --> 00:12:44,412
therapeutics and treatments and holding 

288
00:12:44,412 --> 00:12:46,468
the biden administration accountable 

289
00:12:46,468 --> 00:12:49,160
for a series of failures , not 

290
00:12:49,170 --> 00:12:52,340
disparaging one company and I thank you 

291
00:12:52,350 --> 00:12:53,350
and yield back . 

292
00:12:56,340 --> 00:12:58,600
I think I thank the gentleman for for 

293
00:12:58,600 --> 00:13:01,050
his statement and I would like to 

294
00:13:01,050 --> 00:13:03,050
remind him and other members of the 

295
00:13:03,050 --> 00:13:05,217
committee that the subcommittee on the 

296
00:13:05,217 --> 00:13:06,994
coronavirus is having a hearing 

297
00:13:06,994 --> 00:13:10,350
tomorrow on a macron . We had one on it 

298
00:13:10,360 --> 00:13:13,710
uh and the crisis last weekend and last 

299
00:13:13,710 --> 00:13:16,270
week and we can submit for the record a 

300
00:13:16,270 --> 00:13:18,381
listing of all the hearings we've had 

301
00:13:18,381 --> 00:13:20,780
on the coronavirus and the reports that 

302
00:13:20,780 --> 00:13:23,920
we have issued also on Afghanistan . We 

303
00:13:23,920 --> 00:13:26,370
have held a briefing with the specter , 

304
00:13:26,380 --> 00:13:28,269
the special inspector general for 

305
00:13:28,269 --> 00:13:30,580
Afghanistan . We held a classified 

306
00:13:30,580 --> 00:13:32,691
briefing at the request of the of the 

307
00:13:32,691 --> 00:13:34,747
minority with the Defense Department 

308
00:13:34,747 --> 00:13:36,358
State Department DHS and the 

309
00:13:36,358 --> 00:13:38,640
intelligence community and we had one 

310
00:13:38,640 --> 00:13:40,790
in the national subcommittee with 

311
00:13:40,800 --> 00:13:42,967
chairman length in december . If you'd 

312
00:13:42,967 --> 00:13:45,133
like another one requested and we will 

313
00:13:45,133 --> 00:13:47,370
have another one on Afghanistan . And 

314
00:13:47,370 --> 00:13:50,090
in terms of the hearing today we we 

315
00:13:50,090 --> 00:13:53,140
have to take steps to make sure that 

316
00:13:53,140 --> 00:13:56,130
this abuse does not continue . Uh The 

317
00:13:56,140 --> 00:13:58,251
Department of Defense and the I . G . 

318
00:13:58,251 --> 00:14:00,550
Has come forward and said that roughly 

319
00:14:00,550 --> 00:14:03,410
$21 million was overcharged by trans 

320
00:14:03,410 --> 00:14:05,560
time . And that when they asked them 

321
00:14:05,560 --> 00:14:07,780
for fair pricing and for cost 

322
00:14:07,780 --> 00:14:09,750
transparency they're not able to 

323
00:14:09,750 --> 00:14:11,930
achieve it . I have sent you a copy of 

324
00:14:11,930 --> 00:14:14,300
a letter and also a bill that we have 

325
00:14:14,300 --> 00:14:16,630
drafted for your review called the fair 

326
00:14:16,630 --> 00:14:19,090
pricing with cost transparency act 

327
00:14:19,090 --> 00:14:21,580
which has been written specifically to 

328
00:14:21,580 --> 00:14:24,270
address this problem of overcharging 

329
00:14:24,270 --> 00:14:26,410
the the warfighter , the Defense 

330
00:14:26,410 --> 00:14:28,577
Department and the american taxpayer . 

331
00:14:28,577 --> 00:14:30,632
That's just an example of one of the 

332
00:14:30,632 --> 00:14:32,854
areas that were responding that we hope 

333
00:14:32,854 --> 00:14:34,990
the minority will join us in solving 

334
00:14:35,080 --> 00:14:37,380
this challenge . We have now I'd like 

335
00:14:37,380 --> 00:14:40,090
to introduce our witnesses . Our first 

336
00:14:40,090 --> 00:14:42,590
witness today is Teresa Hall who is the 

337
00:14:42,590 --> 00:14:45,020
deputy Inspector General Department of 

338
00:14:45,020 --> 00:14:48,630
Defense . We will hear from on paglia 

339
00:14:48,640 --> 00:14:52,340
who is the principal , the Assistant 

340
00:14:52,340 --> 00:14:54,560
Secretary of Defense for acquisition 

341
00:14:54,940 --> 00:14:56,940
and the principal director of vince 

342
00:14:56,940 --> 00:15:00,270
pricing and contracting department of 

343
00:15:00,270 --> 00:15:02,820
events . Next we will hear from 

344
00:15:02,820 --> 00:15:05,630
Nicholas Ellie , who is the founder and 

345
00:15:05,630 --> 00:15:08,060
executive chairman of Crans Stein . 

346
00:15:08,540 --> 00:15:11,120
Finally , we will hear from kevin Stein 

347
00:15:11,120 --> 00:15:14,390
who is the ceo of trans time witnesses 

348
00:15:14,390 --> 00:15:16,446
will be a muted so that we can swear 

349
00:15:16,446 --> 00:15:18,860
them in . Please raise your right hands . 

350
00:15:19,440 --> 00:15:21,607
I swear or affirm the testimony you're 

351
00:15:21,607 --> 00:15:23,773
about to give is the truth . The whole 

352
00:15:23,773 --> 00:15:25,996
truth and nothing but the truth so help 

353
00:15:25,996 --> 00:15:29,160
you . God , I swear . 

354
00:15:29,840 --> 00:15:32,140
Okay , let the record show that the 

355
00:15:32,140 --> 00:15:34,418
witness is answered in the affirmative . 

356
00:15:34,840 --> 00:15:36,910
Thank you And without objection your 

357
00:15:36,910 --> 00:15:39,132
written statements will be made part of 

358
00:15:39,132 --> 00:15:42,740
the record with that Mrs Hall Miss Hole . 

359
00:15:42,750 --> 00:15:45,360
You are now recognized your testimony . 

360
00:15:47,840 --> 00:15:50,500
Chairwoman maloney Ranking member comer 

361
00:15:50,510 --> 00:15:52,880
and members of the committee , thank 

362
00:15:52,880 --> 00:15:54,824
you for inviting me to discuss our 

363
00:15:54,824 --> 00:15:57,110
report on the trans dime business model 

364
00:15:57,120 --> 00:15:59,760
and its impact on spare parts pricing . 

365
00:16:00,240 --> 00:16:02,600
I am Theresa Hall a Deputy inspector 

366
00:16:02,600 --> 00:16:05,020
general at the D . O . D . O . I . G . 

367
00:16:05,740 --> 00:16:07,560
I will discuss our longstanding 

368
00:16:07,560 --> 00:16:10,370
concerns about sole source procurements 

369
00:16:10,510 --> 00:16:12,950
such as those the diode conducts with 

370
00:16:12,950 --> 00:16:15,670
trans time . While these concerns are 

371
00:16:15,670 --> 00:16:18,130
not new , the prices charged by trans 

372
00:16:18,130 --> 00:16:19,800
dime provide another clear 

373
00:16:19,800 --> 00:16:22,620
demonstration of the ongoing problems 

374
00:16:22,620 --> 00:16:25,050
with negotiating sole source contracts . 

375
00:16:25,740 --> 00:16:27,920
Our recent audit examined prices that 

376
00:16:27,920 --> 00:16:30,142
Trans time charge the D . O . D . For a 

377
00:16:30,142 --> 00:16:33,880
sample of 107 spare parts . The 

378
00:16:33,890 --> 00:16:36,030
issues raised in this audit are not 

379
00:16:36,030 --> 00:16:38,086
limited to just this company and its 

380
00:16:38,086 --> 00:16:40,780
contracts with the D . O . D . Sole 

381
00:16:40,780 --> 00:16:43,000
source contractors unwillingness to 

382
00:16:43,000 --> 00:16:45,160
share cost data and D . O . D . 

383
00:16:45,160 --> 00:16:47,790
Contracting officers limited success in 

384
00:16:47,790 --> 00:16:49,960
negotiating prices for sole source 

385
00:16:49,960 --> 00:16:52,490
parts are common findings that we have 

386
00:16:52,490 --> 00:16:55,030
highlighted for more than 20 years . 

387
00:16:56,040 --> 00:16:58,400
Our reports have identified the lack of 

388
00:16:58,400 --> 00:17:00,790
cost data available to D . O . D . 

389
00:17:00,790 --> 00:17:03,490
Contracting officers as the root cause 

390
00:17:03,500 --> 00:17:05,880
for contractors obtaining excessive 

391
00:17:05,880 --> 00:17:09,540
profits on sole source parts using 

392
00:17:09,540 --> 00:17:12,140
certified or uncertified cost data to 

393
00:17:12,140 --> 00:17:14,320
perform cost analysis are the most 

394
00:17:14,320 --> 00:17:16,860
reliable ways D . O . D . Contracting 

395
00:17:16,860 --> 00:17:19,370
officers can determine whether a price 

396
00:17:19,380 --> 00:17:22,650
is fair and reasonable . The federal 

397
00:17:22,660 --> 00:17:24,830
acquisition regulation states that 

398
00:17:24,830 --> 00:17:27,420
certified cost data is required for 

399
00:17:27,420 --> 00:17:30,050
contracting officers to award contracts 

400
00:17:30,060 --> 00:17:32,410
above a certain dollar threshold which 

401
00:17:32,410 --> 00:17:34,188
is established by the truth and 

402
00:17:34,188 --> 00:17:37,880
negotiations act or tina . The 2018 

403
00:17:37,880 --> 00:17:40,160
National Defense authorization Act 

404
00:17:40,170 --> 00:17:43,930
raised the threshold from 750,000 

405
00:17:44,090 --> 00:17:47,200
to 2 million . Although the intent of 

406
00:17:47,200 --> 00:17:49,422
raising the threshold was to streamline 

407
00:17:49,422 --> 00:17:51,710
the acquisition process . The increase 

408
00:17:51,710 --> 00:17:53,630
in the threshold resulted in 

409
00:17:53,630 --> 00:17:55,463
contracting officers having less 

410
00:17:55,463 --> 00:17:57,540
information to use during their 

411
00:17:57,540 --> 00:18:00,390
negotiations with contractors . This 

412
00:18:00,390 --> 00:18:02,620
had a particularly large impact on 

413
00:18:02,620 --> 00:18:05,020
negotiations for sole source items . 

414
00:18:05,840 --> 00:18:08,000
Trans dime identified that it was the 

415
00:18:08,000 --> 00:18:11,980
sole manufacturer for 94 of 107 spare 

416
00:18:11,980 --> 00:18:14,990
parts . We reviewed contractors are 

417
00:18:14,990 --> 00:18:17,330
required to provide certified cost or 

418
00:18:17,330 --> 00:18:19,910
pricing data only for contracts valued 

419
00:18:19,920 --> 00:18:22,860
at or above the tina threshold from 

420
00:18:22,860 --> 00:18:26,680
january of 2017 to june of 2019 . More 

421
00:18:26,680 --> 00:18:29,130
than 95% of the contracts that the D . 

422
00:18:29,130 --> 00:18:31,140
O . D . Awarded to trans dime were 

423
00:18:31,140 --> 00:18:33,840
below the tina threshold . Trans I'm 

424
00:18:33,840 --> 00:18:35,890
also practices what it calls market 

425
00:18:35,890 --> 00:18:38,360
based pricing according to trans dime . 

426
00:18:38,540 --> 00:18:40,790
Market based pricing is a strategy in 

427
00:18:40,790 --> 00:18:42,960
which a company sets prices of items 

428
00:18:43,170 --> 00:18:45,340
that it sells based on what customers 

429
00:18:45,340 --> 00:18:47,360
are willing to pay for the item as 

430
00:18:47,360 --> 00:18:50,220
opposed to basing prices on the cost to 

431
00:18:50,220 --> 00:18:53,150
make the spare parts often with sole 

432
00:18:53,150 --> 00:18:55,250
source parts . The price charged by 

433
00:18:55,250 --> 00:18:57,780
contractors becomes what the contractor 

434
00:18:57,780 --> 00:19:00,058
is willing to negotiate and what the D . 

435
00:19:00,058 --> 00:19:02,280
O . D . Is willing to pay for a part to 

436
00:19:02,280 --> 00:19:04,058
keep an essential weapon system 

437
00:19:04,058 --> 00:19:06,820
operational . For our audit . We 

438
00:19:06,820 --> 00:19:09,770
reviewed 107 spare parts . The trans 

439
00:19:09,770 --> 00:19:12,048
dime operating units sold to the D . O . 

440
00:19:12,048 --> 00:19:14,560
D . On 100 and 53 contracts with a 

441
00:19:14,560 --> 00:19:18,410
total value of 38.3 million of those 

442
00:19:18,410 --> 00:19:21,480
107 spare parts . We found only two 

443
00:19:21,480 --> 00:19:23,980
instances in which trans dime received 

444
00:19:23,980 --> 00:19:27,070
a profit of 15% or less using 

445
00:19:27,070 --> 00:19:29,950
15% . We determine that trans dime 

446
00:19:29,950 --> 00:19:33,110
earned 20.8 million in excess profit on 

447
00:19:33,110 --> 00:19:36,850
105 spare parts . Our work and spare 

448
00:19:36,850 --> 00:19:39,020
parts pricing demonstrates that change 

449
00:19:39,030 --> 00:19:41,670
is necessary to address the high prices 

450
00:19:41,670 --> 00:19:44,420
charged by and the excessive profits 

451
00:19:44,420 --> 00:19:47,390
obtained by contractors like trans dime 

452
00:19:47,610 --> 00:19:49,780
that sell sole source parts to the D . 

453
00:19:49,780 --> 00:19:52,750
O . D . Because policies do not compel 

454
00:19:52,750 --> 00:19:55,550
contractors to provide uncertified cost 

455
00:19:55,550 --> 00:19:57,690
data for contracts below the tina 

456
00:19:57,690 --> 00:19:59,940
threshold when requested , contracting 

457
00:19:59,940 --> 00:20:02,370
officers are not always able to use 

458
00:20:02,370 --> 00:20:04,850
cost analysis to determine fair and 

459
00:20:04,850 --> 00:20:07,072
reasonable prices for sole source spare 

460
00:20:07,072 --> 00:20:09,610
parts . To correct the deficiencies 

461
00:20:09,610 --> 00:20:11,820
detailed in our Trans . I'm report we 

462
00:20:11,820 --> 00:20:13,987
recommended several actions to D . O . 

463
00:20:13,987 --> 00:20:16,209
D . However , these efforts will likely 

464
00:20:16,209 --> 00:20:18,431
have minimal impact without fundamental 

465
00:20:18,431 --> 00:20:20,560
regulatory and statutory changes . 

466
00:20:21,040 --> 00:20:23,373
Without legislative changes , the D . O . 

467
00:20:23,373 --> 00:20:25,262
D . Will continue to be unable to 

468
00:20:25,262 --> 00:20:27,373
perform adequate price reasonableness 

469
00:20:27,373 --> 00:20:29,440
determinations and the other price 

470
00:20:29,440 --> 00:20:31,218
analysis methods are not always 

471
00:20:31,218 --> 00:20:33,170
effective in identifying excessive 

472
00:20:33,170 --> 00:20:35,530
prices . Therefore we support the 

473
00:20:35,530 --> 00:20:37,752
legislative reforms proposed by the D . 

474
00:20:37,752 --> 00:20:39,919
O . D . Without these steps we believe 

475
00:20:39,919 --> 00:20:42,030
that the D . O . D . Will continue to 

476
00:20:42,030 --> 00:20:44,086
pay excessive prices for spare parts 

477
00:20:44,086 --> 00:20:45,974
that it needs . Thank you for the 

478
00:20:45,974 --> 00:20:48,197
opportunity to testify this morning and 

479
00:20:48,197 --> 00:20:50,030
I look forward to answering your 

480
00:20:50,030 --> 00:20:53,250
questions . Thank you . Thank you . Uh 

481
00:20:53,260 --> 00:20:55,780
Mr Tanaka leah you are now recognized 

482
00:20:55,780 --> 00:20:59,050
for your testimony . Thank you . 

483
00:20:59,060 --> 00:21:01,282
Chairwoman maloney ranking member comer 

484
00:21:01,282 --> 00:21:03,116
and distinguished members of the 

485
00:21:03,116 --> 00:21:05,116
committee on oversight and reform . 

486
00:21:05,116 --> 00:21:07,171
Thank you for inviting me to testify 

487
00:21:07,171 --> 00:21:09,171
today to address Doody's ability to 

488
00:21:09,171 --> 00:21:11,116
award contracts for military spare 

489
00:21:11,116 --> 00:21:13,590
parts at reasonable prices . I very 

490
00:21:13,590 --> 00:21:15,701
much appreciate the work of Miss Hull 

491
00:21:15,701 --> 00:21:17,368
and the inspector general and 

492
00:21:17,368 --> 00:21:19,590
identifying policy gaps that hinder dut 

493
00:21:19,590 --> 00:21:21,812
contracting officers from obtaining the 

494
00:21:21,812 --> 00:21:24,034
information they need to establish fair 

495
00:21:24,034 --> 00:21:26,090
and reasonable prices for items they 

496
00:21:26,090 --> 00:21:28,146
procure for the warfighter . I thank 

497
00:21:28,146 --> 00:21:30,340
this committee for continuing its 

498
00:21:30,340 --> 00:21:32,062
inquiry into this matter . And 

499
00:21:32,062 --> 00:21:34,173
following up on your 2019 hearing , I 

500
00:21:34,173 --> 00:21:35,951
am john Tartaglia the principal 

501
00:21:35,951 --> 00:21:37,729
director of defense pricing and 

502
00:21:37,729 --> 00:21:39,951
contracting and the office of the Under 

503
00:21:39,951 --> 00:21:42,007
Secretary of Defense for acquisition 

504
00:21:42,007 --> 00:21:43,951
and sustainment . I began my civil 

505
00:21:43,951 --> 00:21:46,062
service career with the department in 

506
00:21:46,062 --> 00:21:48,229
2000 and eight after retiring from the 

507
00:21:48,229 --> 00:21:49,951
United States Air Force as the 

508
00:21:49,951 --> 00:21:52,007
principal director . Defense pricing 

509
00:21:52,007 --> 00:21:54,062
and contracting . I am privileged to 

510
00:21:54,062 --> 00:21:53,900
serve as the functional leader of 

511
00:21:53,900 --> 00:21:55,733
duties , contracting and pricing 

512
00:21:55,733 --> 00:21:57,956
community and I proudly represent those 

513
00:21:57,956 --> 00:22:01,110
outstanding professionals today DvDS 

514
00:22:01,110 --> 00:22:03,054
contracting officers seek to award 

515
00:22:03,054 --> 00:22:05,166
contracts at prices that are fair and 

516
00:22:05,166 --> 00:22:06,840
reasonable . That is fair and 

517
00:22:06,840 --> 00:22:08,896
reasonable to the U . S . Taxpayer , 

518
00:22:08,896 --> 00:22:11,007
fair and reasonable to the Department 

519
00:22:11,007 --> 00:22:13,173
of Defense and yes fair and reasonable 

520
00:22:13,173 --> 00:22:15,118
to the companies that we deal with 

521
00:22:15,118 --> 00:22:17,173
ideally contract pricing is based on 

522
00:22:17,173 --> 00:22:19,062
competitive market pressures that 

523
00:22:19,062 --> 00:22:21,229
dictate the boundaries of what is fair 

524
00:22:21,229 --> 00:22:23,220
and reasonable in procurement of 

525
00:22:23,220 --> 00:22:25,276
military spare parts though we don't 

526
00:22:25,276 --> 00:22:27,498
always enjoy the benefit of competitive 

527
00:22:27,498 --> 00:22:30,030
market forces . On a positive note the 

528
00:22:30,030 --> 00:22:32,590
Defense Logistics agency was successful 

529
00:22:32,750 --> 00:22:35,940
in awarding 93% of its contract actions 

530
00:22:36,010 --> 00:22:38,670
and 77% of its obligated contract 

531
00:22:38,670 --> 00:22:41,040
dollars through competitive procedures 

532
00:22:41,070 --> 00:22:44,100
last year . This includes but is not 

533
00:22:44,100 --> 00:22:45,767
limited to the procurement of 

534
00:22:45,767 --> 00:22:47,544
consumable spare parts that the 

535
00:22:47,544 --> 00:22:49,670
military departments need to sustain 

536
00:22:49,670 --> 00:22:52,340
their fielded weapons systems . However , 

537
00:22:52,340 --> 00:22:54,562
the department has significant concerns 

538
00:22:54,562 --> 00:22:56,784
about our contracting officer's ability 

539
00:22:56,800 --> 00:22:59,320
to obtain data that is necessary to 

540
00:22:59,320 --> 00:23:01,376
negotiate fair and reasonable prices 

541
00:23:01,540 --> 00:23:04,530
particularly for sole source items that 

542
00:23:04,530 --> 00:23:06,252
are asserted by companies . As 

543
00:23:06,252 --> 00:23:08,990
commercial as noted in their report , 

544
00:23:09,000 --> 00:23:11,300
the I . G . Was able to obtain 

545
00:23:11,300 --> 00:23:13,860
uncertified cost data from trans time 

546
00:23:13,860 --> 00:23:16,060
for nearly all the contracts they 

547
00:23:16,060 --> 00:23:18,360
examined in their sample transaction 

548
00:23:18,360 --> 00:23:20,527
declined however , to provide the same 

549
00:23:20,527 --> 00:23:22,660
cost data to our contracting officers 

550
00:23:22,660 --> 00:23:25,820
to support negotiations . The D . O . D . 

551
00:23:25,820 --> 00:23:27,987
I . G . S . Audit report concluded and 

552
00:23:27,987 --> 00:23:29,653
I quote without the necessary 

553
00:23:29,653 --> 00:23:31,764
legislative changes , the D . O . D . 

554
00:23:31,764 --> 00:23:33,876
Will continue to be unable to perform 

555
00:23:33,876 --> 00:23:35,542
adequate price reasonableness 

556
00:23:35,542 --> 00:23:37,709
determinations because contractors are 

557
00:23:37,709 --> 00:23:39,764
not compelled to provide uncertified 

558
00:23:39,764 --> 00:23:41,431
cost data . I agree with that 

559
00:23:41,431 --> 00:23:43,653
conclusion . That is why the department 

560
00:23:43,653 --> 00:23:45,653
submitted the legislative proposals 

561
00:23:45,653 --> 00:23:47,653
that missile just mentioned . Armed 

562
00:23:47,653 --> 00:23:49,876
with relevant supporting factual data , 

563
00:23:49,876 --> 00:23:52,098
are contracting officers will negotiate 

564
00:23:52,098 --> 00:23:53,931
better prices . However , I must 

565
00:23:53,931 --> 00:23:55,940
clarify even where we have obtained 

566
00:23:56,140 --> 00:23:57,930
data . Such as uncertified cost 

567
00:23:57,930 --> 00:24:00,180
information . Are contracting officers 

568
00:24:00,180 --> 00:24:02,630
will continue to face challenges where 

569
00:24:02,630 --> 00:24:04,630
they lack negotiation leverage with 

570
00:24:04,630 --> 00:24:06,797
sole source contractors who refused to 

571
00:24:06,797 --> 00:24:09,290
yield . In my view there are two 

572
00:24:09,290 --> 00:24:11,290
overarching issues here . The first 

573
00:24:11,540 --> 00:24:13,373
change is needed for contracting 

574
00:24:13,373 --> 00:24:15,540
officers to obtain the data to analyze 

575
00:24:15,540 --> 00:24:17,429
and negotiate fair and reasonable 

576
00:24:17,429 --> 00:24:19,610
prices . The second relates to the 

577
00:24:19,610 --> 00:24:21,554
business model that the IGs report 

578
00:24:21,554 --> 00:24:23,820
describes and whether the law should 

579
00:24:23,820 --> 00:24:26,098
provide a check against the government , 

580
00:24:26,098 --> 00:24:28,320
paying higher prices for contractors to 

581
00:24:28,320 --> 00:24:30,160
cover their expenses to acquire 

582
00:24:30,160 --> 00:24:31,938
companies in the supply chain , 

583
00:24:31,940 --> 00:24:34,051
particularly where the business model 

584
00:24:34,051 --> 00:24:36,820
precludes effective competition . If 

585
00:24:36,830 --> 00:24:38,608
unchecked , these expenses will 

586
00:24:38,608 --> 00:24:40,608
continue to be embedded in contract 

587
00:24:40,608 --> 00:24:42,730
prices . The taxpayers pay for the 

588
00:24:42,730 --> 00:24:44,897
products that the warfighter must have 

589
00:24:44,897 --> 00:24:47,008
to perform the mission . The price we 

590
00:24:47,008 --> 00:24:49,580
pay matters because the more we pay , 

591
00:24:49,650 --> 00:24:51,539
the less combat capability we can 

592
00:24:51,539 --> 00:24:54,080
acquire for a ready force . Since 

593
00:24:54,080 --> 00:24:56,191
you're 2019 hearing on this subject , 

594
00:24:56,191 --> 00:24:58,191
the dod has taken action to address 

595
00:24:58,191 --> 00:25:00,136
these issues and more generally to 

596
00:25:00,136 --> 00:25:02,136
address commercial item pricing . I 

597
00:25:02,136 --> 00:25:04,024
have detailed those actions in my 

598
00:25:04,024 --> 00:25:06,191
formal written statement . The Defense 

599
00:25:06,191 --> 00:25:08,080
logistics agency has continued to 

600
00:25:08,080 --> 00:25:10,136
pursue reverse engineering to create 

601
00:25:10,136 --> 00:25:12,600
government owned drawings and technical 

602
00:25:12,600 --> 00:25:14,830
data package . They technical data 

603
00:25:14,830 --> 00:25:17,490
packages they are using to establish 

604
00:25:17,490 --> 00:25:19,890
new sources and to competitively 

605
00:25:19,890 --> 00:25:22,080
procure parts that were formerly sole 

606
00:25:22,080 --> 00:25:24,370
sourced . While this is an important 

607
00:25:24,370 --> 00:25:26,580
tool , reverse engineering cannot be 

608
00:25:26,580 --> 00:25:29,820
used for every problem part . We in the 

609
00:25:29,820 --> 00:25:31,653
office of the Under Secretary of 

610
00:25:31,653 --> 00:25:33,876
Defense for acquisition and sustainment 

611
00:25:33,876 --> 00:25:36,042
are absolutely committed to delivering 

612
00:25:36,042 --> 00:25:38,209
and sustaining Preeminent capabilities 

613
00:25:38,209 --> 00:25:40,153
for the warfighter are contracting 

614
00:25:40,153 --> 00:25:42,376
officer's ability to negotiate fair and 

615
00:25:42,376 --> 00:25:44,487
reasonable prices translates directly 

616
00:25:44,487 --> 00:25:46,431
to maximizing those capabilities . 

617
00:25:46,431 --> 00:25:48,264
Thank you for the opportunity to 

618
00:25:48,264 --> 00:25:50,264
testify today and I look forward to 

619
00:25:50,264 --> 00:25:53,200
your questions . Thank you . Mr Howley . 

620
00:25:53,200 --> 00:25:54,990
You are now recognized for your 

621
00:25:54,990 --> 00:25:56,560
testimony . Mr Howley , 

622
00:26:00,140 --> 00:26:03,000
Chairman , Maloney ranking member comer 

623
00:26:03,010 --> 00:26:04,843
and distinguished members of the 

624
00:26:04,843 --> 00:26:07,010
committee . Good morning and thank you 

625
00:26:07,010 --> 00:26:09,232
for the invitation to appear at today's 

626
00:26:09,232 --> 00:26:11,850
hearing . I'm Nick Halley , I'm 

627
00:26:11,850 --> 00:26:14,017
chairman and founder of the Trans Time 

628
00:26:14,017 --> 00:26:17,360
Group and I served as Ceo until 2018 . 

629
00:26:18,390 --> 00:26:21,190
Since retiring , I focused much of my 

630
00:26:21,190 --> 00:26:23,850
time working with the Halle Foundation , 

631
00:26:24,150 --> 00:26:26,261
a charitable foundation that began in 

632
00:26:26,261 --> 00:26:29,540
2000 and three and focuses exclusively 

633
00:26:29,540 --> 00:26:31,700
on providing improved educational 

634
00:26:31,700 --> 00:26:33,820
opportunities for economically 

635
00:26:33,820 --> 00:26:37,240
disadvantaged inner city students . As 

636
00:26:37,240 --> 00:26:40,990
an example in 2022 alone , we 

637
00:26:40,990 --> 00:26:44,570
provide 750 students with scholarships 

638
00:26:44,570 --> 00:26:46,880
and related support to attend grade 

639
00:26:46,880 --> 00:26:49,450
schools , high schools and colleges . 

640
00:26:49,460 --> 00:26:52,480
In addition to funding and managing 

641
00:26:52,480 --> 00:26:54,790
various other inner city education 

642
00:26:54,790 --> 00:26:58,200
programs . I'm here today to 

643
00:26:58,200 --> 00:27:01,670
speak about the aerospace industry and 

644
00:27:01,670 --> 00:27:04,450
trans dimes and the work trans dime 

645
00:27:04,580 --> 00:27:07,270
businesses do every day to provide 

646
00:27:07,640 --> 00:27:09,751
highly engineered aircraft components 

647
00:27:09,751 --> 00:27:11,640
for our commercial and government 

648
00:27:11,640 --> 00:27:14,480
customers . Transit time is an american 

649
00:27:14,480 --> 00:27:17,380
manufacturing company with over 100 

650
00:27:17,380 --> 00:27:20,630
manufacturing plants . We provide well 

651
00:27:20,630 --> 00:27:23,530
paying jobs to roughly 13,000 

652
00:27:23,530 --> 00:27:25,800
individuals , most of whom are in the 

653
00:27:25,800 --> 00:27:28,010
United States and many of whom are 

654
00:27:28,010 --> 00:27:31,470
union members in an era when the 

655
00:27:31,470 --> 00:27:34,240
domestic supply chain is vulnerable and 

656
00:27:34,240 --> 00:27:36,407
the government is spending billions to 

657
00:27:36,407 --> 00:27:38,129
incentivize companies to bring 

658
00:27:38,129 --> 00:27:40,462
manufacturing back to the United States . 

659
00:27:40,640 --> 00:27:42,370
Our businesses continued to 

660
00:27:42,370 --> 00:27:44,780
domestically produce quality products 

661
00:27:44,990 --> 00:27:47,212
that are essential to keeping americans 

662
00:27:47,212 --> 00:27:51,160
strong , we are primarily a commercial 

663
00:27:51,160 --> 00:27:54,300
company with well over 90% of our 

664
00:27:54,300 --> 00:27:56,970
revenues going to customers other than 

665
00:27:56,970 --> 00:27:59,800
the U . S . Government . Our largest 

666
00:27:59,800 --> 00:28:02,030
customer group is the worldwide 

667
00:28:02,030 --> 00:28:04,440
commercial airline industry , such as 

668
00:28:04,440 --> 00:28:07,260
United Airlines or Delta Airlines . Our 

669
00:28:07,260 --> 00:28:09,910
next largest customers are typically 

670
00:28:09,910 --> 00:28:12,500
Boeing and Airbus , the leading 

671
00:28:12,500 --> 00:28:14,740
manufacturers of commercial passenger 

672
00:28:14,740 --> 00:28:17,560
airplanes . Our companies produce a 

673
00:28:17,560 --> 00:28:20,640
broad range of engineered aerospace 

674
00:28:20,640 --> 00:28:23,070
components found in major commercial 

675
00:28:23,070 --> 00:28:25,850
airlines , including advanced cockpit 

676
00:28:25,860 --> 00:28:28,990
avionics , cargo handling systems , 

677
00:28:29,200 --> 00:28:31,910
engine ignition systems , communication 

678
00:28:31,910 --> 00:28:35,870
software and antenna systems . Each 

679
00:28:35,870 --> 00:28:39,060
year we introduced a range of new and 

680
00:28:39,060 --> 00:28:41,390
improved products , primarily for 

681
00:28:41,390 --> 00:28:43,430
commercial airplanes , but also for 

682
00:28:43,430 --> 00:28:46,960
defense programs . We typically fund 

683
00:28:46,960 --> 00:28:49,930
the engineering testing , tooling and 

684
00:28:49,930 --> 00:28:52,020
startup of these products at our own 

685
00:28:52,020 --> 00:28:55,160
expense . After the september 11th 

686
00:28:55,160 --> 00:28:57,820
attack , we quickly developed and 

687
00:28:57,820 --> 00:29:00,730
quickly produced critical cockpit 

688
00:29:00,730 --> 00:29:02,850
security door systems to protect the 

689
00:29:02,850 --> 00:29:06,120
aircraft and keep passengers safe . We 

690
00:29:06,120 --> 00:29:08,780
also manufactured the state of the art , 

691
00:29:08,780 --> 00:29:11,770
parachute and actuators that safely 

692
00:29:11,770 --> 00:29:14,440
landed and then helped operate the mars 

693
00:29:14,440 --> 00:29:17,620
perseverance rover . In response to 

694
00:29:17,620 --> 00:29:21,070
Covid , we are developing antimicrobial 

695
00:29:21,070 --> 00:29:23,292
and touchless technology for commercial 

696
00:29:23,292 --> 00:29:25,870
air travel . The structure of the 

697
00:29:25,870 --> 00:29:27,703
commercial and defense aerospace 

698
00:29:27,703 --> 00:29:30,400
industry for our type of components is 

699
00:29:30,400 --> 00:29:32,450
pretty similar Across the world , 

700
00:29:33,840 --> 00:29:36,360
airplane manufacturers known as O . E . 

701
00:29:36,360 --> 00:29:39,090
M . S . Like Boeing and Airbus have 

702
00:29:39,090 --> 00:29:42,160
suppliers like us compete for the 

703
00:29:42,160 --> 00:29:44,510
original design and selection of the 

704
00:29:44,510 --> 00:29:47,860
park . The engineering tooling and 

705
00:29:47,860 --> 00:29:50,900
startup costs are borne by us and we 

706
00:29:50,900 --> 00:29:54,360
don't always win once the supplier is 

707
00:29:54,360 --> 00:29:57,060
selected after this robust competition . 

708
00:29:57,540 --> 00:30:00,560
So long as the supplier continues to 

709
00:30:00,560 --> 00:30:03,530
produce quality products on time , the 

710
00:30:03,530 --> 00:30:05,860
supplier typically keeps the business . 

711
00:30:06,340 --> 00:30:09,100
But if the supplier does not provide 

712
00:30:09,100 --> 00:30:11,044
the customer with adequate value , 

713
00:30:11,340 --> 00:30:13,340
there is a commercial industry that 

714
00:30:13,340 --> 00:30:16,010
actively tries to reverse engineer the 

715
00:30:16,010 --> 00:30:18,930
parts . This generally does not happen 

716
00:30:18,930 --> 00:30:21,740
to us because we are a good high value 

717
00:30:21,740 --> 00:30:25,600
supplier . Trans Time is not 

718
00:30:25,610 --> 00:30:27,940
primarily a defense contract . Our 

719
00:30:27,940 --> 00:30:30,110
direct contracts with the D . O . D 

720
00:30:30,110 --> 00:30:32,070
represent a small fraction of our 

721
00:30:32,070 --> 00:30:35,010
revenue . The defense contracts for our 

722
00:30:35,010 --> 00:30:37,450
businesses are almost exclusively 

723
00:30:37,460 --> 00:30:40,340
through firm fixed price contracts . We 

724
00:30:40,340 --> 00:30:43,390
rarely have cost plus contracts where 

725
00:30:43,390 --> 00:30:45,620
the contractor receives a markup on 

726
00:30:45,620 --> 00:30:48,050
costs and the government bears all the 

727
00:30:48,050 --> 00:30:51,360
risk of increased cost . Unlike many 

728
00:30:51,360 --> 00:30:53,630
traditional defense contractors , we 

729
00:30:53,630 --> 00:30:56,380
shoulder the risk of delays , cost 

730
00:30:56,380 --> 00:30:58,860
fluctuations and other potential losses . 

731
00:30:59,640 --> 00:31:02,220
We also take the risk that the D . O . 

732
00:31:02,220 --> 00:31:04,960
D . Will elect not to buy from us or 

733
00:31:04,960 --> 00:31:07,016
will buy in such low quantities that 

734
00:31:07,016 --> 00:31:09,360
the program is not economically viable . 

735
00:31:09,840 --> 00:31:13,620
In fact , the report noted that 61 of 

736
00:31:13,620 --> 00:31:16,350
the 107 parts in the audit lacked 

737
00:31:16,350 --> 00:31:18,940
procurement history data sufficient to 

738
00:31:18,940 --> 00:31:22,160
perform an analysis in many cases . 

739
00:31:22,160 --> 00:31:24,570
Diode went more than five years between 

740
00:31:24,570 --> 00:31:27,840
procurement . We also work to be good 

741
00:31:27,840 --> 00:31:29,562
corporate citizens , including 

742
00:31:29,562 --> 00:31:31,673
supporting the provision of quality , 

743
00:31:31,673 --> 00:31:34,100
affordable broadband for underserved 

744
00:31:34,100 --> 00:31:36,780
neighborhoods and establishing college 

745
00:31:36,790 --> 00:31:38,950
college scholarships for minority 

746
00:31:38,950 --> 00:31:41,610
students interested in engineering and 

747
00:31:41,610 --> 00:31:44,990
business . I am proud of our all that 

748
00:31:44,990 --> 00:31:47,070
our team has done over the past 30 

749
00:31:47,070 --> 00:31:49,770
years and continues to do to make 

750
00:31:49,770 --> 00:31:52,720
transform a premier american developer 

751
00:31:52,720 --> 00:31:55,390
and manufacturer . My colleague Kevin 

752
00:31:55,390 --> 00:31:58,110
Stein , we'll provide an overview of 

753
00:31:58,110 --> 00:32:00,390
our company's deep concerns regarding 

754
00:32:00,390 --> 00:32:02,950
the Inspector general audit report and 

755
00:32:02,950 --> 00:32:05,117
this is the subject of today's hearing 

756
00:32:05,117 --> 00:32:07,283
so I will not reiterate those points . 

757
00:32:07,740 --> 00:32:09,870
I do want to reiterate transforms 

758
00:32:09,870 --> 00:32:12,037
dedication to being a partner with the 

759
00:32:12,037 --> 00:32:14,700
D . O . D . In creating long term 

760
00:32:14,700 --> 00:32:17,160
solutions to acquisition industries . 

761
00:32:17,540 --> 00:32:20,730
As the I . G . Report indicates , Trans 

762
00:32:20,730 --> 00:32:23,150
Time Group follows all laws and 

763
00:32:23,150 --> 00:32:25,620
regulations and we will of course 

764
00:32:25,620 --> 00:32:28,610
continue to do so . We value our work 

765
00:32:28,620 --> 00:32:30,940
with the D . O . D . And we're proud to 

766
00:32:30,940 --> 00:32:33,540
provide our support . Thanks for the 

767
00:32:33,540 --> 00:32:35,762
invitation to appear and I look forward 

768
00:32:35,762 --> 00:32:39,580
to questions . Thank you . Mr Stein , 

769
00:32:39,580 --> 00:32:41,358
you are now recognized for your 

770
00:32:41,358 --> 00:32:44,130
testimony , chairwoman maloney , 

771
00:32:44,130 --> 00:32:46,360
ranking member comer and distinguished 

772
00:32:46,360 --> 00:32:48,416
members of the committee . Thank you 

773
00:32:48,416 --> 00:32:50,638
for the opportunity to appear today . I 

774
00:32:50,638 --> 00:32:52,804
am joined by our founder Nikolay , the 

775
00:32:52,804 --> 00:32:54,840
Drds Inspector general completed an 

776
00:32:54,840 --> 00:32:57,180
audit last month in which they reviewed 

777
00:32:57,190 --> 00:32:59,880
firm fixed price contracts awarded to 

778
00:32:59,880 --> 00:33:02,580
trans nine businesses . The contracts 

779
00:33:02,580 --> 00:33:05,310
were from the same general time period 

780
00:33:05,310 --> 00:33:08,600
as the last audit and predated the 2019 

781
00:33:08,600 --> 00:33:11,040
hearing before this committee . During 

782
00:33:11,040 --> 00:33:12,929
the audit . We engaged in an open 

783
00:33:12,929 --> 00:33:14,930
exchange with the I . G . Providing 

784
00:33:14,930 --> 00:33:17,040
access to thousands of pages of 

785
00:33:17,040 --> 00:33:19,200
documents , regular meetings , and 

786
00:33:19,200 --> 00:33:21,690
tours of many of our factories . The I . 

787
00:33:21,690 --> 00:33:23,634
G . Team even commended us for our 

788
00:33:23,634 --> 00:33:26,930
cooperation and transparency . Since 

789
00:33:26,930 --> 00:33:29,410
the 2019 hearing , we have instituted 

790
00:33:29,410 --> 00:33:31,466
initiatives to improve communication 

791
00:33:31,466 --> 00:33:33,800
with D . O . D . First we worked with D . 

792
00:33:33,800 --> 00:33:36,022
O . D . To establish a working group to 

793
00:33:36,022 --> 00:33:38,078
identify and address acquisition and 

794
00:33:38,078 --> 00:33:40,450
pricing issues . This has been helpful 

795
00:33:40,450 --> 00:33:42,617
in addressing various matters over the 

796
00:33:42,617 --> 00:33:44,540
last two years . Second we have 

797
00:33:44,540 --> 00:33:46,318
proactively been providing more 

798
00:33:46,318 --> 00:33:48,140
information to D . O . D . To 

799
00:33:48,140 --> 00:33:50,251
facilitate the determination of price 

800
00:33:50,251 --> 00:33:52,680
reasonableness . We have also 

801
00:33:52,680 --> 00:33:54,850
proactively been offering volume 

802
00:33:54,850 --> 00:33:57,850
discounts . Finally , we hired 

803
00:33:57,860 --> 00:34:00,250
independent experts to train employees 

804
00:34:00,260 --> 00:34:02,530
on requirements related to D . O . D . 

805
00:34:02,530 --> 00:34:04,960
Contract . We believe these efforts 

806
00:34:04,960 --> 00:34:07,690
have improved procurement . I would now 

807
00:34:07,690 --> 00:34:09,710
like to turn to the report . We are 

808
00:34:09,710 --> 00:34:12,100
deeply concerned with the fundamental 

809
00:34:12,110 --> 00:34:13,980
errors in this report which we 

810
00:34:13,980 --> 00:34:16,450
communicated to the I . G . And their 

811
00:34:16,450 --> 00:34:19,350
counsel . First we provided complete 

812
00:34:19,350 --> 00:34:21,572
cost information for the parts reviewed 

813
00:34:21,572 --> 00:34:24,100
in this audit . However , the I . G . 

814
00:34:24,110 --> 00:34:27,440
Arbitrarily excluded nearly 10 million 

815
00:34:27,450 --> 00:34:30,570
in federal taxes that we paid and 

816
00:34:30,570 --> 00:34:33,170
interest paid by us remarkably , the 

817
00:34:33,170 --> 00:34:34,892
report says that the I . G . S 

818
00:34:34,892 --> 00:34:37,059
exclusion should not be interpreted to 

819
00:34:37,059 --> 00:34:38,892
mean that the D . O . D . Should 

820
00:34:38,892 --> 00:34:40,503
exclude interest in taxes in 

821
00:34:40,503 --> 00:34:43,100
negotiating fixed price contracts . 

822
00:34:43,280 --> 00:34:45,900
This is not the only occasion that I . 

823
00:34:45,900 --> 00:34:48,310
G . Creates arbitrary standards and 

824
00:34:48,310 --> 00:34:50,600
applies them only to trans dime and 

825
00:34:50,600 --> 00:34:52,767
blatantly states that it is doing so . 

826
00:34:53,340 --> 00:34:55,790
Second . The report creates a 15% 

827
00:34:55,790 --> 00:34:58,310
profit limit for fixed price contracts . 

828
00:34:58,540 --> 00:35:01,690
This limit does not exist in law or 

829
00:35:01,690 --> 00:35:04,150
policy . The report acknowledges that 

830
00:35:04,150 --> 00:35:06,261
there are no profit thresholds in the 

831
00:35:06,261 --> 00:35:08,780
far for these kinds of contracts and 

832
00:35:08,780 --> 00:35:11,150
that they used an inapplicable standard 

833
00:35:11,160 --> 00:35:12,993
meant for contracts in which the 

834
00:35:12,993 --> 00:35:15,560
government , not the contractor takes 

835
00:35:15,560 --> 00:35:17,870
the risk of overruns . The report 

836
00:35:17,870 --> 00:35:20,550
itself specifically states and I quote 

837
00:35:21,040 --> 00:35:23,300
we are not stating that 15% should be 

838
00:35:23,300 --> 00:35:25,356
used as a benchmark when negotiating 

839
00:35:25,356 --> 00:35:27,420
firm fixed price contract . We 

840
00:35:27,420 --> 00:35:29,580
reiterate that nothing in this report 

841
00:35:29,580 --> 00:35:33,090
states or should be interpreted to mean 

842
00:35:33,130 --> 00:35:36,020
that the I . G . Advocates a 15% profit 

843
00:35:36,020 --> 00:35:38,880
ceiling or any other specified profit 

844
00:35:38,880 --> 00:35:40,824
ceiling on fixed price contracts . 

845
00:35:40,824 --> 00:35:43,340
Close quote . So again the I . G . 

846
00:35:43,340 --> 00:35:45,118
Expressly acknowledges that the 

847
00:35:45,118 --> 00:35:47,284
standard they used for this report was 

848
00:35:47,284 --> 00:35:49,350
unique and should not apply to other 

849
00:35:49,350 --> 00:35:53,030
dod contracts . Third most of our sales 

850
00:35:53,030 --> 00:35:55,340
to Dada for products derived from parts 

851
00:35:55,340 --> 00:35:58,020
used on commercial aircraft . But the I . 

852
00:35:58,020 --> 00:35:59,964
G . Failed to acknowledge that the 

853
00:35:59,964 --> 00:36:02,040
majority of the audited parts have 

854
00:36:02,040 --> 00:36:05,030
commercial equivalents and that on 

855
00:36:05,030 --> 00:36:08,260
average D . O . D . Received the 25% 

856
00:36:08,260 --> 00:36:10,540
discount to the commercial price of 

857
00:36:10,540 --> 00:36:14,340
those parts . I repeat on average D . O . 

858
00:36:14,340 --> 00:36:18,300
D . Received a 25% discount and 

859
00:36:18,300 --> 00:36:20,990
the I . G . Knew that the far requires 

860
00:36:20,990 --> 00:36:23,046
D . O . D . To evaluate commercially 

861
00:36:23,046 --> 00:36:26,040
comparable pricing first and only then 

862
00:36:26,040 --> 00:36:28,890
consider costs . The report incorrectly 

863
00:36:28,890 --> 00:36:31,112
claims that there is no way to evaluate 

864
00:36:31,112 --> 00:36:33,940
price on sole source parts . However 

865
00:36:33,950 --> 00:36:35,894
most airline parts can be found on 

866
00:36:35,894 --> 00:36:38,110
multiple platforms and are made by 

867
00:36:38,110 --> 00:36:40,490
multiple companies and even when apart 

868
00:36:40,490 --> 00:36:42,268
is sole sourced on a particular 

869
00:36:42,268 --> 00:36:44,770
platform . So D . O . D . Can compare 

870
00:36:44,770 --> 00:36:47,280
our products with others in the market 

871
00:36:47,280 --> 00:36:49,280
to see that the prices are fair and 

872
00:36:49,280 --> 00:36:51,169
reasonable . That is exactly what 

873
00:36:51,169 --> 00:36:53,113
congress intended with the federal 

874
00:36:53,113 --> 00:36:54,947
acquisition streamlining act and 

875
00:36:54,947 --> 00:36:56,836
subsequent laws . The question is 

876
00:36:56,836 --> 00:36:59,058
supposed to be not how much it costs to 

877
00:36:59,058 --> 00:37:00,836
produce apart , but whether the 

878
00:37:00,836 --> 00:37:02,669
government is getting a fair and 

879
00:37:02,669 --> 00:37:04,800
reasonable price the audit does the 

880
00:37:04,810 --> 00:37:07,570
opposite in direct conflict with 

881
00:37:07,570 --> 00:37:10,420
congressional intent . By using these 

882
00:37:10,430 --> 00:37:12,870
arbitrary standards and ignoring 

883
00:37:12,870 --> 00:37:15,280
legitimate costs and reams of 

884
00:37:15,280 --> 00:37:17,391
information we provided in support of 

885
00:37:17,391 --> 00:37:19,630
price reasonableness . The I . G . Was 

886
00:37:19,630 --> 00:37:21,530
able to come up with inflammatory 

887
00:37:21,530 --> 00:37:23,660
profit percentages that make a good 

888
00:37:23,660 --> 00:37:26,160
headline but ignore basic facts . 

889
00:37:26,530 --> 00:37:28,474
Further , the report creates these 

890
00:37:28,474 --> 00:37:30,930
arbitrary standards not only not for 

891
00:37:30,940 --> 00:37:33,850
all companies but only for transient . 

892
00:37:34,430 --> 00:37:36,097
The report itself contains an 

893
00:37:36,097 --> 00:37:38,770
extraordinary admission that even the I . 

894
00:37:38,770 --> 00:37:40,548
G . Doesn't support using these 

895
00:37:40,548 --> 00:37:42,659
standards for fixed price contracts . 

896
00:37:43,330 --> 00:37:46,040
As a final matter . In our invitation 

897
00:37:46,040 --> 00:37:48,170
to testify we were asked whether we 

898
00:37:48,170 --> 00:37:50,337
will voluntarily pay the amount deemed 

899
00:37:50,337 --> 00:37:52,790
excessive in the report . Once we 

900
00:37:52,790 --> 00:37:55,068
receive all of the requests from the D . 

901
00:37:55,068 --> 00:37:57,300
O . D . We will evaluate them . We look 

902
00:37:57,300 --> 00:37:59,467
forward to working with D . O . D . To 

903
00:37:59,467 --> 00:38:01,467
come to a resolution on this and to 

904
00:38:01,467 --> 00:38:03,530
establish a plan for going forward . 

905
00:38:03,920 --> 00:38:06,500
However , we remain deeply concerned 

906
00:38:06,500 --> 00:38:08,556
with the arbitrary standards used in 

907
00:38:08,556 --> 00:38:10,611
this report . The policy the I . G . 

908
00:38:10,611 --> 00:38:12,340
Invented in this report will 

909
00:38:12,340 --> 00:38:14,280
disincentivize businesses from 

910
00:38:14,280 --> 00:38:16,350
accepting firm fixed price contracts 

911
00:38:16,350 --> 00:38:18,480
with the government . Thank you and I 

912
00:38:18,480 --> 00:38:21,490
look forward to your questions . Thank 

913
00:38:21,490 --> 00:38:23,920
you . I I now recognize myself for five 

914
00:38:23,920 --> 00:38:27,190
minutes for questions . Mr Hull . The 

915
00:38:27,200 --> 00:38:30,610
independent audit report from your 

916
00:38:30,610 --> 00:38:33,770
office shows that Trans time is 

917
00:38:33,770 --> 00:38:35,714
routinely overcharging the Defense 

918
00:38:35,714 --> 00:38:38,760
department . Your team analyzed Trans 

919
00:38:38,760 --> 00:38:41,960
times costs to manufacture 100 and six 

920
00:38:41,960 --> 00:38:45,130
spare parts and compared that the place 

921
00:38:45,130 --> 00:38:48,570
is charged D . O . D . Those same 

922
00:38:48,580 --> 00:38:51,120
items . You found that Einstein 

923
00:38:51,120 --> 00:38:54,930
received excess profits on all but 

924
00:38:54,930 --> 00:38:58,900
one of those parts 105 out 

925
00:38:58,900 --> 00:39:02,150
of 106 parts . Is that right ? Miss 

926
00:39:02,150 --> 00:39:06,010
hall ? Thank you Chairwoman . 

927
00:39:06,010 --> 00:39:08,066
Yes that is what we found . We found 

928
00:39:08,066 --> 00:39:10,250
that trans am earned excess profit of 

929
00:39:10,260 --> 00:39:13,990
20.8 million on 105 of 107 parts that 

930
00:39:13,990 --> 00:39:17,290
we looked at . Okay before us now is a 

931
00:39:17,290 --> 00:39:19,770
chart with some of the worst examples 

932
00:39:19,780 --> 00:39:22,950
of excess profit you found in your your 

933
00:39:22,950 --> 00:39:26,700
your review . All four of these 

934
00:39:26,700 --> 00:39:29,790
examples have excess profits above 

935
00:39:29,890 --> 00:39:33,650
500% . Two of the parks 

936
00:39:34,120 --> 00:39:38,040
profit margins above 2000% . 

937
00:39:38,920 --> 00:39:41,890
One part has a private profit margin of 

938
00:39:41,890 --> 00:39:44,450
nearly four 1000% . 

939
00:39:45,920 --> 00:39:48,650
Mr stein . According to the report , 

940
00:39:49,120 --> 00:39:51,410
contracting officers requested 

941
00:39:52,020 --> 00:39:56,020
uncertified cost data . 26 of 

942
00:39:56,020 --> 00:39:59,040
the spare parts the I . G . Reviewed in 

943
00:39:59,040 --> 00:40:01,140
order to help them determine whether 

944
00:40:01,140 --> 00:40:02,862
Trans Times price was fair and 

945
00:40:02,862 --> 00:40:06,570
reasonable . Trans time refused to 

946
00:40:06,570 --> 00:40:09,820
provide the cost data for 24 of those 

947
00:40:10,040 --> 00:40:12,830
parts . All but two is that right ? 

948
00:40:13,410 --> 00:40:17,050
That is correct and I could have 

949
00:40:17,050 --> 00:40:19,490
provided data on its cost but the 

950
00:40:19,490 --> 00:40:22,080
company refused so it could charge 

951
00:40:22,120 --> 00:40:26,070
outrageous prices . It's simply wrong 

952
00:40:26,080 --> 00:40:29,520
to do that to have a 4000% profit for 

953
00:40:29,520 --> 00:40:32,730
spare parts that our military needs . 

954
00:40:33,110 --> 00:40:35,330
The I . G . Recommended D . O . D . 

955
00:40:35,330 --> 00:40:38,800
Seek repayment of the 20.8 million in 

956
00:40:38,800 --> 00:40:42,100
excess profits and I understand nobody 

957
00:40:42,110 --> 00:40:44,910
agreed with that recommendation has and 

958
00:40:44,910 --> 00:40:47,340
has notified trans dime it is seeking 

959
00:40:47,340 --> 00:40:50,890
repayment . Mr Chinaglia has D . O . D . 

960
00:40:50,890 --> 00:40:53,130
Received a check from Trans Time yet 

961
00:40:54,410 --> 00:40:56,860
Chairman Melanie the defense logistics 

962
00:40:56,860 --> 00:40:59,800
agency has correspondent with Trans 

963
00:40:59,800 --> 00:41:03,010
dime indicated their intent to pursue 

964
00:41:03,010 --> 00:41:05,121
that that refund . The refund has not 

965
00:41:05,121 --> 00:41:07,121
been received as of yet but they're 

966
00:41:07,121 --> 00:41:09,454
working with the company on that matter . 

967
00:41:09,710 --> 00:41:13,390
So Mr Ty Mr Stein is trance time 

968
00:41:13,400 --> 00:41:16,190
planning to pay back the full 20.8 

969
00:41:16,190 --> 00:41:19,970
million yes or no . Um as I said in 

970
00:41:19,970 --> 00:41:22,290
my opening statements we think there 

971
00:41:22,290 --> 00:41:25,280
are significant legal and accounting 

972
00:41:25,290 --> 00:41:28,600
issues with this report . Um I I can 

973
00:41:28,600 --> 00:41:31,040
talk about some of those parts that you 

974
00:41:31,040 --> 00:41:33,030
just had up on the screen . One of 

975
00:41:33,030 --> 00:41:36,060
those a quick disconnect coupling . Um 

976
00:41:36,070 --> 00:41:39,580
you only bought 13 of those over five 

977
00:41:39,580 --> 00:41:42,570
years . 13 pieces . Imagine 

978
00:41:42,580 --> 00:41:44,880
interrupting a manufacturing company to 

979
00:41:44,880 --> 00:41:47,640
make apart once in a great while and 

980
00:41:47,640 --> 00:41:49,970
then expect them to understand their 

981
00:41:49,970 --> 00:41:53,700
costs or to understand what it 

982
00:41:53,700 --> 00:41:56,640
is . We're a commercial company even on 

983
00:41:56,640 --> 00:41:58,807
that part that you were referring to , 

984
00:41:58,860 --> 00:42:01,250
you received a 2% discount from 

985
00:42:01,250 --> 00:42:03,250
commercial , you're still getting a 

986
00:42:03,250 --> 00:42:05,820
commercial a discount . It costs us 

987
00:42:05,820 --> 00:42:07,709
much more to do business with the 

988
00:42:07,709 --> 00:42:09,931
federal government than the D . O . D . 

989
00:42:09,931 --> 00:42:11,987
Claiming it does to do business with 

990
00:42:11,987 --> 00:42:14,320
commercial companies reclaiming my time . 

991
00:42:14,320 --> 00:42:15,931
If they could have bought it 

992
00:42:15,931 --> 00:42:17,931
commercially , they would have I am 

993
00:42:17,931 --> 00:42:19,987
calling on you right now to pay back 

994
00:42:19,987 --> 00:42:21,987
the more than 20 million trans time 

995
00:42:21,987 --> 00:42:24,209
owes taxpayers . In addition to clawing 

996
00:42:24,209 --> 00:42:26,540
back this taxpayer money , we need to 

997
00:42:26,540 --> 00:42:29,070
empower contracting officials to 

998
00:42:29,070 --> 00:42:31,530
prevent companies from manipulating the 

999
00:42:31,530 --> 00:42:34,630
contract process to obtain excessive 

1000
00:42:34,630 --> 00:42:37,410
profits in the first place . Today , 

1001
00:42:37,420 --> 00:42:41,080
I'm introducing a draft bill which I'd 

1002
00:42:41,080 --> 00:42:44,130
like everyone to comment on to require 

1003
00:42:44,130 --> 00:42:47,030
contractors to provide cost data that a 

1004
00:42:47,030 --> 00:42:49,590
contracting officer needs to determine 

1005
00:42:49,590 --> 00:42:52,510
whether prices are fair and reasonable 

1006
00:42:52,520 --> 00:42:55,330
data that transit time refused . Who 

1007
00:42:55,330 --> 00:42:59,000
provide mr battaglia . We're 

1008
00:42:59,000 --> 00:43:01,120
having access to cost data , 

1009
00:43:01,600 --> 00:43:05,150
contracting officers ensure that 

1010
00:43:05,150 --> 00:43:07,360
contractors like Einstein are not 

1011
00:43:07,370 --> 00:43:11,370
overcharging our military . Yes , 

1012
00:43:11,370 --> 00:43:13,820
I believe access to cost data would 

1013
00:43:14,200 --> 00:43:16,367
give our contracting officers a better 

1014
00:43:16,367 --> 00:43:18,589
chance to negotiate fair and reasonable 

1015
00:43:18,589 --> 00:43:20,540
prices . I do want to comment . In 

1016
00:43:20,540 --> 00:43:23,880
addition as Mr sign mentioned the 

1017
00:43:23,890 --> 00:43:25,770
hierarchy that we use to request 

1018
00:43:25,770 --> 00:43:27,410
information from companies , 

1019
00:43:27,570 --> 00:43:29,737
particularly in sole source situations 

1020
00:43:29,737 --> 00:43:31,530
for commercial products could 

1021
00:43:31,530 --> 00:43:33,870
eventually result in our requesting 

1022
00:43:34,060 --> 00:43:37,090
cost information . We do uh seek to 

1023
00:43:37,090 --> 00:43:38,979
obtain other relevant information 

1024
00:43:38,979 --> 00:43:42,270
whether it's historical prices paid for 

1025
00:43:42,280 --> 00:43:44,520
commercial parts in the in the industry 

1026
00:43:45,300 --> 00:43:47,730
but lacking that relevant information , 

1027
00:43:47,730 --> 00:43:51,690
we will uh seek contract cost data as 

1028
00:43:51,700 --> 00:43:55,640
as a last resort . Yes . And I 

1029
00:43:55,650 --> 00:43:57,872
urge all of my colleagues to co sponsor 

1030
00:43:57,872 --> 00:44:00,250
this bill and work with us to empower 

1031
00:44:00,250 --> 00:44:02,280
contracting officers to protect 

1032
00:44:02,290 --> 00:44:06,190
taxpayer dollars . I now recognize 

1033
00:44:06,200 --> 00:44:08,311
the gentle lady from north Carolina , 

1034
00:44:08,311 --> 00:44:10,280
Miss Fox , you are now recognized 

1035
00:44:10,280 --> 00:44:14,080
Virginia Foxx , thank you madam Chair . 

1036
00:44:14,080 --> 00:44:16,150
I appreciate it and I appreciate our 

1037
00:44:16,150 --> 00:44:19,300
witnesses for being here today . Um , 

1038
00:44:19,690 --> 00:44:23,360
Mr Chinaglia , the recent dod Inspector 

1039
00:44:23,360 --> 00:44:25,350
General report states that current 

1040
00:44:25,350 --> 00:44:27,610
statutory and regulatory requirements 

1041
00:44:27,990 --> 00:44:30,200
discourage contracting officers from 

1042
00:44:30,200 --> 00:44:32,960
asking for uncertified costs and 

1043
00:44:32,960 --> 00:44:35,390
pricing data . Why would contracting 

1044
00:44:35,390 --> 00:44:38,120
officers be discouraged from seeking 

1045
00:44:38,120 --> 00:44:42,020
that data ? Thank you congresswoman for 

1046
00:44:42,020 --> 00:44:44,076
that question . They are discouraged 

1047
00:44:44,076 --> 00:44:46,900
because other means of establishing 

1048
00:44:46,900 --> 00:44:49,067
fair and reasonable prices , including 

1049
00:44:49,090 --> 00:44:51,830
looking at analogous parts . Uh some of 

1050
00:44:51,830 --> 00:44:53,886
these parts that we're talking about 

1051
00:44:53,886 --> 00:44:55,886
are sold in the commercial aviation 

1052
00:44:55,886 --> 00:44:57,941
industry and where we can make those 

1053
00:44:57,941 --> 00:44:59,997
analogies on pricing and look at the 

1054
00:44:59,997 --> 00:45:02,490
sales data associated with that part to 

1055
00:45:02,490 --> 00:45:04,650
the , let's say the airlines , then 

1056
00:45:04,650 --> 00:45:06,761
that would be the most relevant point 

1057
00:45:06,761 --> 00:45:09,530
of comparison . That indicates what 

1058
00:45:09,540 --> 00:45:13,310
commercial competitive market forces uh 

1059
00:45:13,320 --> 00:45:15,431
established that price to be . And so 

1060
00:45:15,431 --> 00:45:18,090
that would be our first priority for 

1061
00:45:18,090 --> 00:45:20,312
looking at that . However , if there is 

1062
00:45:20,312 --> 00:45:23,200
not relevant , comparable parts that 

1063
00:45:23,200 --> 00:45:25,033
are being sold in the commercial 

1064
00:45:25,033 --> 00:45:27,280
marketplace , then we might revert to 

1065
00:45:27,290 --> 00:45:29,640
requesting cost information as a means 

1066
00:45:29,640 --> 00:45:31,880
to understand the true price of that 

1067
00:45:31,890 --> 00:45:34,490
product . I have another question for 

1068
00:45:34,490 --> 00:45:38,180
you when negotiating a contract for a 

1069
00:45:38,180 --> 00:45:40,950
sole source part , do contracting 

1070
00:45:40,950 --> 00:45:43,460
officers explore the ability to obtain 

1071
00:45:43,460 --> 00:45:47,010
intellectual property rights while this 

1072
00:45:47,010 --> 00:45:49,720
may make the initial buy more expensive ? 

1073
00:45:50,190 --> 00:45:52,357
Do you think it would drive down costs 

1074
00:45:52,357 --> 00:45:54,810
by creating competition in the long run 

1075
00:45:57,390 --> 00:45:59,620
for the most part for the parts we're 

1076
00:45:59,620 --> 00:46:02,250
talking about in the sustainment 

1077
00:46:02,260 --> 00:46:05,370
environment of spare parts that is not 

1078
00:46:05,370 --> 00:46:08,690
typically part of the calculus in terms 

1079
00:46:08,690 --> 00:46:12,050
of Defense Logistics agency looking to 

1080
00:46:12,060 --> 00:46:13,990
actually acquire the intellectual 

1081
00:46:13,990 --> 00:46:15,980
property for those parts , those 

1082
00:46:15,980 --> 00:46:18,830
decisions really are made uh much 

1083
00:46:18,840 --> 00:46:20,673
earlier in the life cycle of our 

1084
00:46:20,673 --> 00:46:22,784
products , we are examining that . We 

1085
00:46:22,784 --> 00:46:25,220
have a focus right now on uh 

1086
00:46:25,230 --> 00:46:27,590
competition as I illustrated in my 

1087
00:46:27,680 --> 00:46:30,670
statement and part of that involves the 

1088
00:46:30,670 --> 00:46:32,880
effective management of intellectual 

1089
00:46:32,880 --> 00:46:34,713
property at the beginning at the 

1090
00:46:34,713 --> 00:46:36,880
beginning of a product's lifecycle . I 

1091
00:46:36,880 --> 00:46:39,180
think this is a big loophole that we 

1092
00:46:39,180 --> 00:46:42,220
have here that could save the american 

1093
00:46:42,220 --> 00:46:44,960
taxpayers billions and billions of 

1094
00:46:44,960 --> 00:46:48,650
dollars and I know how long it 

1095
00:46:48,650 --> 00:46:50,470
takes to look into something , 

1096
00:46:50,470 --> 00:46:52,640
particularly at the D . O . D . And I 

1097
00:46:52,640 --> 00:46:55,060
want to urge you to move this along 

1098
00:46:55,070 --> 00:46:58,640
because we are spending way too much 

1099
00:46:58,640 --> 00:47:00,696
money because you've signed the sole 

1100
00:47:00,696 --> 00:47:04,510
source contracts and other uh other 

1101
00:47:04,510 --> 00:47:08,040
companies could be providing the the 

1102
00:47:08,050 --> 00:47:11,410
parts a lot less expensively if you 

1103
00:47:11,410 --> 00:47:14,370
were to get that intellectual property . 

1104
00:47:14,380 --> 00:47:16,790
Um there's an issue I'm I'm very very 

1105
00:47:16,790 --> 00:47:19,990
familiar with . I have another question 

1106
00:47:19,990 --> 00:47:22,050
for you , the D . O . D . Inspector 

1107
00:47:22,050 --> 00:47:24,510
General report states that the Defense 

1108
00:47:24,510 --> 00:47:26,990
Logistics Agency is working on 

1109
00:47:26,990 --> 00:47:29,212
initiatives to help ensure that D . O . 

1110
00:47:29,212 --> 00:47:31,830
D . Receives fair and reasonable prices 

1111
00:47:31,830 --> 00:47:34,560
on spare parts including an initiative 

1112
00:47:34,560 --> 00:47:37,190
to reverse engineer part . What 

1113
00:47:37,190 --> 00:47:39,250
advantages does the D . O . D . Gain 

1114
00:47:39,250 --> 00:47:41,720
when it reverse engineers apart and 

1115
00:47:41,720 --> 00:47:43,609
does this increased competition ? 

1116
00:47:45,480 --> 00:47:47,702
Yes , congresswoman . Absolutely . That 

1117
00:47:47,702 --> 00:47:49,313
is the objective to increase 

1118
00:47:49,313 --> 00:47:52,730
competition . Bye having the government 

1119
00:47:52,840 --> 00:47:54,673
owned the technical data package 

1120
00:47:54,673 --> 00:47:56,784
associated with that so we can put it 

1121
00:47:56,784 --> 00:47:58,784
out for competitive bid . There's a 

1122
00:47:58,784 --> 00:48:01,007
limited opportunity for us to do that . 

1123
00:48:01,007 --> 00:48:03,490
Our engineers will assess products that 

1124
00:48:03,490 --> 00:48:05,657
are candidates for reverse engineering 

1125
00:48:06,070 --> 00:48:07,903
and take a look and see what the 

1126
00:48:07,903 --> 00:48:10,237
potential return on investment might be . 

1127
00:48:10,870 --> 00:48:13,510
But each one of those engineering 

1128
00:48:13,510 --> 00:48:16,080
analysis are backed up with an 

1129
00:48:16,080 --> 00:48:18,302
understanding of how much risk it might 

1130
00:48:18,302 --> 00:48:20,640
be to source that to an alternative 

1131
00:48:20,640 --> 00:48:23,320
supplier . There's a limited capacity 

1132
00:48:23,320 --> 00:48:25,376
for us to do that . We certainly are 

1133
00:48:25,376 --> 00:48:27,487
taking opportunities to do that . And 

1134
00:48:27,487 --> 00:48:29,542
de ella has , I can give you all the 

1135
00:48:29,542 --> 00:48:32,630
details about about the uh transition 

1136
00:48:32,630 --> 00:48:34,852
products but it's a it's a larger issue 

1137
00:48:34,852 --> 00:48:37,120
for the D . L . A . Uh the initiative 

1138
00:48:37,120 --> 00:48:40,040
to use companies to help us create 

1139
00:48:40,040 --> 00:48:42,151
those technical data packages so that 

1140
00:48:42,151 --> 00:48:44,500
we can compete the manufactured product . 

1141
00:48:45,370 --> 00:48:48,100
Have a question for MS Hall . The D . O . 

1142
00:48:48,100 --> 00:48:50,322
D . Inspector General report notes that 

1143
00:48:50,322 --> 00:48:52,510
D . O . D . Policy do not compel 

1144
00:48:52,510 --> 00:48:55,000
contractors to provide uncertified cost 

1145
00:48:55,000 --> 00:48:57,570
data for contracts below the tina 

1146
00:48:57,570 --> 00:49:00,210
threshold when requested and encourages 

1147
00:49:00,210 --> 00:49:02,154
the department explore alternative 

1148
00:49:02,154 --> 00:49:04,377
contracting strategies when negotiating 

1149
00:49:04,377 --> 00:49:06,488
with companies that sells sole source 

1150
00:49:06,488 --> 00:49:08,377
parts and small quantities of low 

1151
00:49:08,377 --> 00:49:10,488
dollar value . Could you explain what 

1152
00:49:10,488 --> 00:49:12,510
alternative contracting strategies 

1153
00:49:12,660 --> 00:49:15,000
diode could utilize to better determine 

1154
00:49:15,000 --> 00:49:18,700
fair and reasonable prices ? Yes . One 

1155
00:49:18,700 --> 00:49:20,422
of the alternative contracting 

1156
00:49:20,422 --> 00:49:22,533
strategies that we highlighted in the 

1157
00:49:22,533 --> 00:49:25,590
report was the use of uh the 

1158
00:49:26,370 --> 00:49:28,750
DPC in coordination with the L . A . To 

1159
00:49:28,750 --> 00:49:30,639
look at the buys that D . O . D . 

1160
00:49:30,639 --> 00:49:32,930
Purchases on the trans . I'm contracts . 

1161
00:49:33,130 --> 00:49:35,019
In fact , according to transition 

1162
00:49:35,019 --> 00:49:37,241
officials , D . O . D . Buys fewer than 

1163
00:49:37,241 --> 00:49:40,930
25 spare parts per contract on 60% of 

1164
00:49:40,930 --> 00:49:43,097
the trans dime spare parts sold to the 

1165
00:49:43,097 --> 00:49:45,041
D . O . D . So there's opportunity 

1166
00:49:45,041 --> 00:49:47,152
there to combine the purchases of the 

1167
00:49:47,152 --> 00:49:49,208
parts to potentially get savings for 

1168
00:49:49,208 --> 00:49:51,930
the D . O . D . Yes . And I want to 

1169
00:49:51,930 --> 00:49:54,640
agree with what the ranking member said 

1170
00:49:54,640 --> 00:49:57,130
at the beginning . I don't think we 

1171
00:49:57,130 --> 00:49:59,370
should be picking on any one company , 

1172
00:49:59,370 --> 00:50:01,650
particularly an american owned company 

1173
00:50:01,650 --> 00:50:04,130
here . I think what we need to do is 

1174
00:50:04,130 --> 00:50:06,830
have the D . O . D . B . Uh much more 

1175
00:50:06,840 --> 00:50:09,820
open and transparent on the way it does 

1176
00:50:09,820 --> 00:50:12,340
business . And again save the american 

1177
00:50:12,340 --> 00:50:14,840
people a lot of money . I have one more 

1178
00:50:14,840 --> 00:50:16,910
question for mr me the gentle lady's 

1179
00:50:16,910 --> 00:50:19,077
time has X . Thank you madam Chair . I 

1180
00:50:19,077 --> 00:50:21,077
did not have . I can't find a clock 

1181
00:50:21,077 --> 00:50:22,966
here . So thank you very much . I 

1182
00:50:22,966 --> 00:50:25,480
apologize . Okay thank you . Thank you 

1183
00:50:25,480 --> 00:50:29,200
for your questions and uh but it's hard 

1184
00:50:29,200 --> 00:50:31,311
for the D . O . D . To be transparent 

1185
00:50:31,311 --> 00:50:33,533
if they cannot get the information from 

1186
00:50:33,533 --> 00:50:35,311
the contractor which is what my 

1187
00:50:35,311 --> 00:50:37,422
legislation will do . So I ask you to 

1188
00:50:37,422 --> 00:50:39,730
take a serious look at it . It will 

1189
00:50:39,740 --> 00:50:42,130
have more transparency and therefore 

1190
00:50:42,130 --> 00:50:44,297
result in lower prices going forward . 

1191
00:50:44,297 --> 00:50:46,408
So please take a serious look at it . 

1192
00:50:46,560 --> 00:50:49,230
And I now call on the gentle lady from 

1193
00:50:49,230 --> 00:50:51,410
the district of Columbia MS Norton , 

1194
00:50:51,410 --> 00:50:54,760
you are now recognized . Eleanor Holmes 

1195
00:50:54,760 --> 00:50:58,270
Norton . Thank you madam chair and I 

1196
00:50:58,270 --> 00:51:02,000
appreciate this important hearing . Mr 

1197
00:51:02,000 --> 00:51:05,190
Hall when the former chairman 

1198
00:51:05,760 --> 00:51:09,650
Eliza cummings requested that the dod 

1199
00:51:09,650 --> 00:51:12,620
inspector general conduct an audit of 

1200
00:51:12,620 --> 00:51:16,590
trans gems contracts . Senator chuck 

1201
00:51:16,590 --> 00:51:19,000
Grassley and has been referred to by 

1202
00:51:19,000 --> 00:51:22,920
the chair joined the request and 

1203
00:51:22,920 --> 00:51:26,260
asked that your audit include a review 

1204
00:51:26,260 --> 00:51:29,480
of trans gems business model , the 

1205
00:51:29,480 --> 00:51:32,670
resulting I . G . Order described 

1206
00:51:32,670 --> 00:51:36,450
transit systems acquisition strategy as . 

1207
00:51:36,450 --> 00:51:39,100
And here I'm quoting focused on 

1208
00:51:39,100 --> 00:51:42,490
obtaining businesses like that 

1209
00:51:43,520 --> 00:51:47,090
that design and manufacture sole 

1210
00:51:47,100 --> 00:51:50,190
source aerospace components . 

1211
00:51:51,060 --> 00:51:54,330
Your report also noted that these 

1212
00:51:54,330 --> 00:51:58,020
businesses often sell spare parts to 

1213
00:51:58,020 --> 00:52:01,270
the government for older aircrafts . 

1214
00:52:01,850 --> 00:52:05,700
Now that means that the company's Trans 

1215
00:52:05,710 --> 00:52:09,590
DmS trans them acquire are 

1216
00:52:09,600 --> 00:52:13,440
often the only place for 

1217
00:52:13,450 --> 00:52:17,220
D . O . D . To go to buy a spare 

1218
00:52:17,220 --> 00:52:21,140
part needed for an aircraft . Is 

1219
00:52:21,140 --> 00:52:25,040
that correct ? Yeah . Yes . 

1220
00:52:25,050 --> 00:52:28,800
Trans Times business model um focuses 

1221
00:52:28,800 --> 00:52:32,460
on acquiring business units that are 

1222
00:52:32,460 --> 00:52:35,040
high that that specialize in highly 

1223
00:52:35,040 --> 00:52:37,560
engineered sole source spare parts . So 

1224
00:52:37,570 --> 00:52:39,903
that creates a situation in which D . O . 

1225
00:52:39,903 --> 00:52:43,280
D . Has 111 person they can go to for 

1226
00:52:43,280 --> 00:52:46,140
that part uh in in this case the trans 

1227
00:52:46,140 --> 00:52:49,870
dime operating unit . Ah 

1228
00:52:50,650 --> 00:52:54,240
thank you . Thank you very much . Mr MS 

1229
00:52:54,240 --> 00:52:57,180
MS Hole . Now this question 

1230
00:52:58,050 --> 00:53:01,260
is for Mr 

1231
00:53:01,750 --> 00:53:05,710
Tana Glia . Uh you mentioned 

1232
00:53:05,720 --> 00:53:09,160
in your written testimony that one 

1233
00:53:09,160 --> 00:53:12,860
method the D . O . D . Is 

1234
00:53:12,860 --> 00:53:16,500
using to address concerns related to 

1235
00:53:16,500 --> 00:53:19,070
sole source items is to encourage 

1236
00:53:19,750 --> 00:53:22,780
contracting officers to escalate to 

1237
00:53:22,790 --> 00:53:26,300
leadership instances whereby they are 

1238
00:53:26,300 --> 00:53:29,710
unable to obtain cost data . How 

1239
00:53:29,720 --> 00:53:33,480
often do contract attracting 

1240
00:53:33,480 --> 00:53:37,310
officers escalate problems with 

1241
00:53:37,320 --> 00:53:41,020
obtaining cost data from sole source 

1242
00:53:41,020 --> 00:53:44,980
contracts ? And are these escalations 

1243
00:53:45,450 --> 00:53:47,180
ultimately successful ? 

1244
00:53:49,350 --> 00:53:51,183
Thank you for the question . The 

1245
00:53:51,183 --> 00:53:52,961
escalation process that we have 

1246
00:53:52,961 --> 00:53:55,260
established is designed really to put 

1247
00:53:55,260 --> 00:53:57,580
senior leadership attention on the 

1248
00:53:57,580 --> 00:53:59,802
matter , whether it's on the government 

1249
00:53:59,802 --> 00:54:01,969
side here in the Department of Defense 

1250
00:54:01,969 --> 00:54:04,260
and also on the corporate side . So the 

1251
00:54:04,260 --> 00:54:06,427
open channels of communication we have 

1252
00:54:06,427 --> 00:54:08,371
established with the transnational 

1253
00:54:08,371 --> 00:54:10,204
corporate leadership through the 

1254
00:54:10,204 --> 00:54:12,204
working group that I described . Uh 

1255
00:54:12,204 --> 00:54:14,316
we'd like it to not get to that point 

1256
00:54:14,316 --> 00:54:16,690
ideally at the working level are 

1257
00:54:16,690 --> 00:54:18,750
contracting officers can deal with 

1258
00:54:18,760 --> 00:54:20,816
officials in trans dime or any other 

1259
00:54:20,816 --> 00:54:23,280
company without needing to elevate the 

1260
00:54:23,280 --> 00:54:25,280
matter to a higher level . And what 

1261
00:54:25,280 --> 00:54:27,280
we're talking about is requests for 

1262
00:54:27,280 --> 00:54:29,336
information . The information is not 

1263
00:54:29,336 --> 00:54:31,447
always request for cost information . 

1264
00:54:31,447 --> 00:54:33,169
It could be requests for other 

1265
00:54:33,169 --> 00:54:35,058
supporting documentation . So the 

1266
00:54:35,058 --> 00:54:37,280
contracting officer sir can establish a 

1267
00:54:37,280 --> 00:54:39,391
fair and reasonable price . How often 

1268
00:54:39,391 --> 00:54:41,613
how often this escalation to leadership 

1269
00:54:41,613 --> 00:54:43,502
occurs and whether , whether it's 

1270
00:54:43,502 --> 00:54:46,800
successful , it is successful in some 

1271
00:54:46,800 --> 00:54:49,700
cases . How often and so we've had two 

1272
00:54:49,700 --> 00:54:52,010
reports to the Congress in the first 

1273
00:54:52,010 --> 00:54:53,677
report to the Congress , uh , 

1274
00:54:53,677 --> 00:54:56,200
summarizing the number of instances of 

1275
00:54:56,200 --> 00:54:59,600
elevation last year was 83 . This year 

1276
00:54:59,600 --> 00:55:01,490
went significantly up . We just 

1277
00:55:01,490 --> 00:55:03,601
submitted that report to the Congress 

1278
00:55:03,601 --> 00:55:06,080
last week . I'll be happy to provide 

1279
00:55:06,080 --> 00:55:08,080
that to the committee through the , 

1280
00:55:08,080 --> 00:55:10,550
through the appropriate channels . The 

1281
00:55:10,560 --> 00:55:13,090
success of actually resolving the 

1282
00:55:13,090 --> 00:55:14,970
matter is really dependent on 

1283
00:55:14,980 --> 00:55:17,560
individual leaders , both on both sides , 

1284
00:55:17,940 --> 00:55:20,107
primarily with the company . If we can 

1285
00:55:20,107 --> 00:55:21,829
convince them that we need the 

1286
00:55:21,829 --> 00:55:23,930
information , but we'd rather rather 

1287
00:55:23,940 --> 00:55:25,760
not let it get to the point of 

1288
00:55:25,770 --> 00:55:27,714
elevating to senior levels because 

1289
00:55:27,714 --> 00:55:29,548
we're talking about the heads of 

1290
00:55:29,548 --> 00:55:31,603
contracting activities for the major 

1291
00:55:32,040 --> 00:55:34,207
components of the department , Defense 

1292
00:55:34,207 --> 00:55:36,096
Logistics agency and the military 

1293
00:55:36,096 --> 00:55:37,929
departments , we really need the 

1294
00:55:37,929 --> 00:55:40,096
contracting officers who are empowered 

1295
00:55:40,096 --> 00:55:42,151
and warranted to do their job to get 

1296
00:55:42,151 --> 00:55:43,873
the information they need from 

1297
00:55:43,873 --> 00:55:46,207
companies , not just this company , but , 

1298
00:55:46,207 --> 00:55:46,100
but any company that where we're 

1299
00:55:46,110 --> 00:55:50,110
negotiating . Mr Howley . Uh , just in 

1300
00:55:50,110 --> 00:55:53,170
a , a sample of 107 

1301
00:55:53,740 --> 00:55:55,960
spare parts included in your audit 

1302
00:55:56,440 --> 00:55:59,190
trans am was the sole source 

1303
00:55:59,190 --> 00:56:02,780
manufacturer for 90 four out of 

1304
00:56:02,860 --> 00:56:06,660
107 of those parts . Isn't that correct ? 

1305
00:56:10,230 --> 00:56:12,119
I'm sorry . I think you , uh , if 

1306
00:56:12,119 --> 00:56:14,174
you're asking me , I'm not sure what 

1307
00:56:14,174 --> 00:56:16,580
you're asking . Yes , that is true . Um , 

1308
00:56:16,590 --> 00:56:19,340
we believe , however , that 100% of the 

1309
00:56:19,340 --> 00:56:22,990
parts are actually commercial um , and 

1310
00:56:22,990 --> 00:56:25,670
that we offered a discount to the 

1311
00:56:25,670 --> 00:56:29,540
commercial price of 25% on this 

1312
00:56:29,540 --> 00:56:32,850
entire audited basket of contracts , 

1313
00:56:33,230 --> 00:56:36,480
25% discount to the available 

1314
00:56:36,480 --> 00:56:39,050
commercial price . This is not gouging , 

1315
00:56:39,170 --> 00:56:41,980
it simply is not the gentleman's time 

1316
00:56:41,980 --> 00:56:44,258
and the gentle lady's time has expired . 

1317
00:56:45,030 --> 00:56:47,390
Gentleman from Georgia Mr Heiss is now 

1318
00:56:47,390 --> 00:56:49,668
recognized for five minutes . Mr Heiss . 

1319
00:56:50,530 --> 00:56:53,100
Thank you madam chair . I recall during 

1320
00:56:53,100 --> 00:56:55,790
the hearing on this same topic in 

1321
00:56:55,790 --> 00:56:59,660
2019 that then I expressed 

1322
00:56:59,660 --> 00:57:03,190
my concern regarding trans trans dimes 

1323
00:57:03,190 --> 00:57:06,940
business practices . Uh , it appeared 

1324
00:57:06,940 --> 00:57:09,530
clear that the american taxpayers were 

1325
00:57:09,530 --> 00:57:11,697
getting ripped off and that trans dime 

1326
00:57:11,697 --> 00:57:14,530
should pay back the money . But here we 

1327
00:57:14,530 --> 00:57:17,850
are again going over the exact 

1328
00:57:17,860 --> 00:57:21,810
same situation . Uh , committee 

1329
00:57:21,820 --> 00:57:24,890
democrats here today are holding this 

1330
00:57:24,900 --> 00:57:28,310
hearing presumably to present 

1331
00:57:28,310 --> 00:57:31,340
themselves as being tough on things 

1332
00:57:31,340 --> 00:57:34,100
like waste fraud and abuse . But I find 

1333
00:57:34,100 --> 00:57:37,850
that extremely difficult for anyone 

1334
00:57:38,330 --> 00:57:41,330
with a reasonable mindset to , to buy 

1335
00:57:41,330 --> 00:57:44,450
into and to believe , I mean here today 

1336
00:57:44,830 --> 00:57:47,150
democrats are gonna hold up trans dime 

1337
00:57:47,160 --> 00:57:49,770
as though they were some sort of trophy 

1338
00:57:49,820 --> 00:57:53,010
to be exhibited on the wall when 

1339
00:57:53,010 --> 00:57:56,660
literally trillions trillions 

1340
00:57:57,230 --> 00:58:01,080
of dollars have gone out the door from 

1341
00:58:01,080 --> 00:58:03,780
the biden administration , much of it 

1342
00:58:03,780 --> 00:58:06,810
for dubious , so called covid relief 

1343
00:58:06,820 --> 00:58:09,900
measures just just by itself for 

1344
00:58:09,900 --> 00:58:13,030
example , unemployment insurance fraud 

1345
00:58:13,080 --> 00:58:16,560
by itself could run into hundreds of 

1346
00:58:16,560 --> 00:58:18,930
billions of dollars . What is this 

1347
00:58:18,930 --> 00:58:21,041
committee doing about it ? To address 

1348
00:58:21,041 --> 00:58:23,208
those kinds of concerns . And yet here 

1349
00:58:23,208 --> 00:58:25,208
we are , the democrats are bringing 

1350
00:58:25,208 --> 00:58:28,830
this company back as an encore if you 

1351
00:58:28,830 --> 00:58:31,760
will for practices that yes might be 

1352
00:58:31,760 --> 00:58:34,250
unsavory but certainly not illegal . 

1353
00:58:34,820 --> 00:58:38,650
And even if the the definition itself 

1354
00:58:38,660 --> 00:58:42,610
of uh excessive profits and it's pretty 

1355
00:58:42,610 --> 00:58:44,860
much has been made up by the inspector 

1356
00:58:44,860 --> 00:58:47,100
general . It's not a matter of 

1357
00:58:47,100 --> 00:58:49,840
regulation or is it a matter of statute ? 

1358
00:58:50,420 --> 00:58:53,830
This committee had jurisdiction over 

1359
00:58:53,830 --> 00:58:56,270
hundreds of billions of dollars in 

1360
00:58:56,270 --> 00:58:58,980
spending for state , local and tribal 

1361
00:58:58,980 --> 00:59:00,869
governments through the inflation 

1362
00:59:00,869 --> 00:59:03,950
creation act . That bill , which others 

1363
00:59:03,950 --> 00:59:06,050
may refer to as the american rescue 

1364
00:59:06,050 --> 00:59:09,860
plan . But what has this committee done 

1365
00:59:09,870 --> 00:59:12,092
to look at where that money was spent ? 

1366
00:59:12,320 --> 00:59:15,060
Does this committee have any idea what 

1367
00:59:15,060 --> 00:59:17,380
those monies were spent on and what 

1368
00:59:17,380 --> 00:59:20,590
impact it did or did not have ? So if 

1369
00:59:20,590 --> 00:59:23,090
there's a problem here today , quite 

1370
00:59:23,090 --> 00:59:24,923
frankly , my opinion is that the 

1371
00:59:24,923 --> 00:59:26,923
problem is with the D . O . D . S . 

1372
00:59:26,923 --> 00:59:29,090
Failure to do a better job forecasting 

1373
00:59:29,090 --> 00:59:31,280
its needs and administering its 

1374
00:59:31,280 --> 00:59:34,380
contracts . Uh These underlying 

1375
00:59:34,380 --> 00:59:37,620
acquisition regulations leave D . O . D . 

1376
00:59:37,620 --> 00:59:40,130
Exposed for the kinds of tactics that 

1377
00:59:40,130 --> 00:59:42,580
were here today . Yet again , talking 

1378
00:59:42,580 --> 00:59:45,190
about so with that Mr . Tana ugly , let 

1379
00:59:45,190 --> 00:59:48,790
me throw one out to you in the last 18 

1380
00:59:48,790 --> 00:59:50,901
months since the last hearing on this 

1381
00:59:50,901 --> 00:59:53,420
same subject . What has D . O . D . 

1382
00:59:53,420 --> 00:59:56,000
Done differently to protect the 

1383
00:59:56,000 --> 00:59:59,710
interests of the taxpayers ? Thank you 

1384
00:59:59,710 --> 01:00:02,320
congressman . So since the last hearing 

1385
01:00:03,010 --> 01:00:05,370
we've taken a number of steps to work 

1386
01:00:05,370 --> 01:00:08,110
with this particular company uh to 

1387
01:00:08,110 --> 01:00:10,620
refine the project list we have with 

1388
01:00:10,620 --> 01:00:12,620
our contracting officers to empower 

1389
01:00:12,620 --> 01:00:14,720
them to request information to 

1390
01:00:14,720 --> 01:00:16,831
encourage them to request information 

1391
01:00:16,831 --> 01:00:18,720
not just cost information but the 

1392
01:00:18,720 --> 01:00:20,720
information that they need . And so 

1393
01:00:20,720 --> 01:00:22,776
there's there's a training aspect to 

1394
01:00:22,776 --> 01:00:25,330
that . We have cadre of pricing experts 

1395
01:00:25,330 --> 01:00:27,386
that we've formed across the various 

1396
01:00:27,386 --> 01:00:29,386
components of the department making 

1397
01:00:29,386 --> 01:00:31,552
sure that they understand this issue . 

1398
01:00:31,810 --> 01:00:33,680
And I would say that this issue 

1399
01:00:33,680 --> 01:00:35,680
presents itself again not just with 

1400
01:00:35,680 --> 01:00:38,170
this company but across the board where 

1401
01:00:38,170 --> 01:00:42,150
we're negotiating commercial items uh 

1402
01:00:42,150 --> 01:00:44,317
and a lot of the dollars we're talking 

1403
01:00:44,317 --> 01:00:46,317
about today , all the dollars we're 

1404
01:00:46,317 --> 01:00:48,483
talking about today flow through prime 

1405
01:00:48,483 --> 01:00:50,730
contracts . My office has purview over 

1406
01:00:50,730 --> 01:00:52,786
looking at the mate that the largest 

1407
01:00:52,786 --> 01:00:55,008
negotiations the department has and the 

1408
01:00:55,008 --> 01:00:57,280
sole source arena . And in doing so we 

1409
01:00:57,280 --> 01:01:00,090
focus very intently on the dollars that 

1410
01:01:00,090 --> 01:01:02,590
flow through the subcontracts and so 

1411
01:01:02,600 --> 01:01:04,740
that is an area of emphasis again 

1412
01:01:04,740 --> 01:01:06,907
empowering our contracting officers to 

1413
01:01:06,907 --> 01:01:08,970
know what information they should be 

1414
01:01:08,970 --> 01:01:10,970
requesting , what areas they should 

1415
01:01:10,970 --> 01:01:12,970
were really about trying to get the 

1416
01:01:12,970 --> 01:01:15,081
best deal for the taxpayer . Well let 

1417
01:01:15,081 --> 01:01:17,359
me so let me ask you this in . Alright . 

1418
01:01:17,359 --> 01:01:19,248
Have has the D . O . D . Actually 

1419
01:01:19,248 --> 01:01:22,650
improved its ability to forecast its 

1420
01:01:22,650 --> 01:01:25,620
own needs and to avoid this one off for 

1421
01:01:25,620 --> 01:01:27,842
small item purchases like we're talking 

1422
01:01:27,842 --> 01:01:31,120
about today . So I've had those 

1423
01:01:31,120 --> 01:01:33,287
discussions with the defense logistics 

1424
01:01:33,287 --> 01:01:34,898
agency and we accept the IGs 

1425
01:01:34,898 --> 01:01:37,064
recommendation for alternative pricing 

1426
01:01:37,064 --> 01:01:38,953
strategies do include some of the 

1427
01:01:38,953 --> 01:01:41,176
aggregation techniques that the ranking 

1428
01:01:41,176 --> 01:01:43,009
member mentioned . Uh We will be 

1429
01:01:43,009 --> 01:01:45,231
looking at that . It's balanced however 

1430
01:01:45,231 --> 01:01:47,342
with the carrying cost of inventory , 

1431
01:01:47,342 --> 01:01:50,180
inventory for the parts at D . L . A . 

1432
01:01:50,190 --> 01:01:52,412
As for many of these parts they respond 

1433
01:01:52,412 --> 01:01:54,634
to the demand signal of the war fighter 

1434
01:01:54,634 --> 01:01:56,970
who presents the requirements and the L . 

1435
01:01:56,970 --> 01:01:59,700
A . Is the supplier of those products 

1436
01:01:59,700 --> 01:02:01,756
for the rest of the department . But 

1437
01:02:01,756 --> 01:02:04,020
there there is potential for aggregated 

1438
01:02:04,090 --> 01:02:06,280
buys . And we'll look at that as a as 

1439
01:02:06,280 --> 01:02:08,770
an alternative to the journalist . Time 

1440
01:02:08,770 --> 01:02:11,800
has expired and I'd like to respond to 

1441
01:02:11,810 --> 01:02:14,330
Mr Heiss . Today . We are examining 

1442
01:02:14,340 --> 01:02:17,120
overcharging by a defense contractor . 

1443
01:02:17,300 --> 01:02:20,330
It's true . We looked at him in 2019 

1444
01:02:20,330 --> 01:02:22,990
but they have continued to overcharge 

1445
01:02:23,030 --> 01:02:25,270
millions of dollars and we are trying 

1446
01:02:25,270 --> 01:02:28,010
to stop it . And this overcharging has 

1447
01:02:28,010 --> 01:02:31,350
cost taxpayers millions . So if you 

1448
01:02:31,350 --> 01:02:33,470
care my republican colleagues care 

1449
01:02:33,470 --> 01:02:35,359
about waste , fraud and abuse you 

1450
01:02:35,359 --> 01:02:37,414
should care about this hearing and I 

1451
01:02:37,414 --> 01:02:39,414
hope you'll take a serious look and 

1452
01:02:39,414 --> 01:02:41,810
help us with the passage of legislation 

1453
01:02:41,810 --> 01:02:44,032
that will stop it . I now recognize the 

1454
01:02:44,032 --> 01:02:46,400
gentleman from Virginia Mr Connolly Mr 

1455
01:02:46,400 --> 01:02:48,550
Connelly , you're recognized millions 

1456
01:02:48,550 --> 01:02:50,883
of waste is being ignored madam . Chair . 

1457
01:02:52,300 --> 01:02:54,930
Thank you madam Chairwoman . And I do 

1458
01:02:54,930 --> 01:02:58,130
find it amazing that my friends and the 

1459
01:02:58,130 --> 01:03:00,186
other side of the al all of a sudden 

1460
01:03:00,186 --> 01:03:04,170
become apologists for price gouging 

1461
01:03:04,170 --> 01:03:08,110
and by anyone's standards , excessive 

1462
01:03:08,110 --> 01:03:11,760
profits um and and 

1463
01:03:11,770 --> 01:03:14,780
and want to resist the very oversight 

1464
01:03:14,780 --> 01:03:17,810
they claim they want with respect to 

1465
01:03:17,820 --> 01:03:21,090
this administration and uh and the 

1466
01:03:21,100 --> 01:03:24,810
ongoing covid crisis . So I 

1467
01:03:24,820 --> 01:03:26,987
commend the chairwoman for having this 

1468
01:03:26,987 --> 01:03:30,020
hearing and for updating us on what if 

1469
01:03:30,020 --> 01:03:32,410
any progress has been achieved in the 

1470
01:03:32,410 --> 01:03:34,577
interim two years since we last had an 

1471
01:03:34,577 --> 01:03:37,920
oversight hearing on this matter . Um 

1472
01:03:38,300 --> 01:03:42,080
MS hall ah at our last hearing . 

1473
01:03:42,090 --> 01:03:44,580
Uh and I believe that this one as well . 

1474
01:03:44,590 --> 01:03:47,010
We talked about cooperation on 

1475
01:03:47,010 --> 01:03:50,420
documentation and the fact that 

1476
01:03:51,100 --> 01:03:55,050
Dodd was somewhat um hampered 

1477
01:03:55,060 --> 01:03:58,410
by the fact that documentation was not 

1478
01:03:58,410 --> 01:04:01,360
provided by the vendor in this case 

1479
01:04:01,360 --> 01:04:04,830
transparent . Um Is that still the case 

1480
01:04:04,830 --> 01:04:07,210
that we're not getting documents that 

1481
01:04:07,210 --> 01:04:09,760
have been requested by the contract 

1482
01:04:09,760 --> 01:04:12,270
office in D . O . D . In order to 

1483
01:04:12,270 --> 01:04:14,980
provide some kind of analytical 

1484
01:04:14,990 --> 01:04:17,330
framework for determining a fair and 

1485
01:04:17,330 --> 01:04:21,240
reasonable price . Yes . In our 

1486
01:04:21,240 --> 01:04:23,570
current audit or this past audit the 

1487
01:04:23,570 --> 01:04:25,830
contracting officers asked for cost 

1488
01:04:25,830 --> 01:04:28,190
information 26 times and only received 

1489
01:04:28,190 --> 01:04:30,540
it twice from trans time . So they're 

1490
01:04:30,540 --> 01:04:32,873
still encountering the similar problems . 

1491
01:04:32,873 --> 01:04:35,810
Dr stein , at our last hearing I asked 

1492
01:04:35,810 --> 01:04:38,600
you about this issue and you kind of 

1493
01:04:38,600 --> 01:04:40,960
danced around it . Why isn't 

1494
01:04:40,960 --> 01:04:42,571
transparent in providing the 

1495
01:04:42,571 --> 01:04:45,610
documentation requested by D . O . D . 

1496
01:04:45,610 --> 01:04:48,470
So that both parties can be happy with 

1497
01:04:48,480 --> 01:04:51,690
what it could be mutually arrived at at 

1498
01:04:51,690 --> 01:04:53,890
a fair and reasonable price and a fair 

1499
01:04:53,890 --> 01:04:55,557
and reasonable return on your 

1500
01:04:55,557 --> 01:04:57,840
investment congressman . Connolly . I I 

1501
01:04:57,840 --> 01:05:00,160
appreciate that question . I feel like 

1502
01:05:00,160 --> 01:05:03,200
I'm in a bit of double jeopardy as you 

1503
01:05:03,200 --> 01:05:05,240
audited . We audited the I . G . 

1504
01:05:05,240 --> 01:05:08,430
Audited the same time period as the 

1505
01:05:08,430 --> 01:05:11,150
last audit and we audited some of the 

1506
01:05:11,150 --> 01:05:14,690
exact same parts . Why would we expect 

1507
01:05:14,690 --> 01:05:16,920
there to be a different answer ? We 

1508
01:05:16,920 --> 01:05:19,087
went back in time and audited the same 

1509
01:05:19,087 --> 01:05:21,198
Dr stein , Dr stein ? The question is 

1510
01:05:21,198 --> 01:05:23,370
really simple . You just heard Teresa 

1511
01:05:23,370 --> 01:05:26,600
Hall say that out of 26 document 

1512
01:05:27,090 --> 01:05:29,210
documentation requests , you only 

1513
01:05:29,210 --> 01:05:32,080
complied with two of them . Why is that ? 

1514
01:05:32,080 --> 01:05:34,320
Why aren't you why why not why not have 

1515
01:05:34,320 --> 01:05:36,430
full transparency and provide the 

1516
01:05:36,430 --> 01:05:38,597
information and documentation that D . 

1517
01:05:38,597 --> 01:05:40,660
O . D . Says it needs to determine a 

1518
01:05:40,660 --> 01:05:43,830
fair and reasonable price . So of the 

1519
01:05:43,830 --> 01:05:47,000
150 for contracts that were audited , 

1520
01:05:47,390 --> 01:05:50,230
they only asked for that on 26 of them . 

1521
01:05:50,240 --> 01:05:52,690
And we thought at the time we didn't 

1522
01:05:52,690 --> 01:05:54,990
think that we thought the process since 

1523
01:05:54,990 --> 01:05:57,157
their commercial , they've always been 

1524
01:05:57,157 --> 01:05:59,268
commercial that you should be able to 

1525
01:05:59,268 --> 01:06:01,434
use commercial invoices . So we didn't 

1526
01:06:01,434 --> 01:06:03,490
see the point of giving our critical 

1527
01:06:03,490 --> 01:06:06,370
information out . Now . Wait , wait , 

1528
01:06:06,370 --> 01:06:09,940
Mr Dr stein , this is not unfortunately , 

1529
01:06:09,940 --> 01:06:12,218
this is a very time limited in my part . 

1530
01:06:12,218 --> 01:06:14,610
So you made you made a conscious 

1531
01:06:14,610 --> 01:06:18,550
decision as a corporation not to 

1532
01:06:18,550 --> 01:06:22,280
comply with a information documentation 

1533
01:06:22,290 --> 01:06:24,920
information request from D . O . D . 

1534
01:06:24,930 --> 01:06:27,208
With respect to these pending contract , 

1535
01:06:27,380 --> 01:06:31,280
we did provide commercial uh 

1536
01:06:31,290 --> 01:06:34,080
qualification packages on all of the 

1537
01:06:34,080 --> 01:06:36,870
parts . So everything is commercial , 

1538
01:06:36,880 --> 01:06:39,158
everything has now been given to the I . 

1539
01:06:39,158 --> 01:06:41,290
G . At the time of contracts . So let 

1540
01:06:41,290 --> 01:06:43,068
me , let me again , let me just 

1541
01:06:43,068 --> 01:06:45,290
interpret what I'm hearing you saying . 

1542
01:06:45,290 --> 01:06:47,234
So you're taking direct issue with 

1543
01:06:47,234 --> 01:06:49,620
Teresa Hall in her assertion that you 

1544
01:06:49,620 --> 01:06:52,140
only complied with two of the 26 

1545
01:06:52,140 --> 01:06:54,084
requests . You're arguing . Well , 

1546
01:06:54,084 --> 01:06:56,800
actually that's technically true , but 

1547
01:06:57,280 --> 01:07:00,000
brought me more broadly , we did comply 

1548
01:07:00,380 --> 01:07:02,760
by allowing that commercial information 

1549
01:07:02,770 --> 01:07:04,910
available together . That's correct . 

1550
01:07:04,920 --> 01:07:07,900
That is correct . All right . 

1551
01:07:08,280 --> 01:07:12,200
Uh , Theresa how 

1552
01:07:13,580 --> 01:07:17,300
this 15% threshold ? I think 

1553
01:07:17,680 --> 01:07:20,100
too many people seems very arbitrary . 

1554
01:07:20,480 --> 01:07:23,970
So you looked at profit margins in the 

1555
01:07:23,970 --> 01:07:27,200
in the range of 8 to 22% and you 

1556
01:07:27,210 --> 01:07:29,920
somewhat arbitrarily said 15 is the 

1557
01:07:29,920 --> 01:07:32,910
happy medium for the purpose of our 

1558
01:07:32,920 --> 01:07:36,210
examining not only cost structure , but 

1559
01:07:36,210 --> 01:07:39,400
profit that is extracted from that cost 

1560
01:07:39,400 --> 01:07:43,150
structure . Is that correct ? Yes . But 

1561
01:07:43,150 --> 01:07:46,670
the 15% . It , you know , we were asked 

1562
01:07:46,670 --> 01:07:48,448
by the committee to look at the 

1563
01:07:48,448 --> 01:07:50,530
specific date ranges , um , for 

1564
01:07:50,530 --> 01:07:53,300
specific thresholds and we included all 

1565
01:07:53,300 --> 01:07:55,300
of the spare parts included in that 

1566
01:07:55,300 --> 01:07:57,620
time period . All right . I get that . 

1567
01:07:57,620 --> 01:08:00,150
But I'm trying to just look at how we 

1568
01:08:00,150 --> 01:08:03,100
arrive at 15 because I think I do think 

1569
01:08:03,110 --> 01:08:07,090
it isn't . I'm sorry , 

1570
01:08:08,370 --> 01:08:11,090
the 15% . We looked at the cost 

1571
01:08:11,090 --> 01:08:13,146
information that transition provided 

1572
01:08:13,290 --> 01:08:15,346
and in order to determine a fair and 

1573
01:08:15,346 --> 01:08:17,568
reasonable price , we had to compare to 

1574
01:08:17,568 --> 01:08:20,640
a benchmark . The 15% is not arbitrary , 

1575
01:08:20,790 --> 01:08:23,670
it is within the range of the aerospace 

1576
01:08:23,680 --> 01:08:26,120
companies that practice market based 

1577
01:08:26,120 --> 01:08:28,398
pricing which is between eight and 22% . 

1578
01:08:28,398 --> 01:08:30,453
Also , I'd like to note that we have 

1579
01:08:30,453 --> 01:08:32,509
over 20 years of spare parts pricing 

1580
01:08:32,509 --> 01:08:34,480
reports that use benchmarks in the 

1581
01:08:34,480 --> 01:08:37,930
range of 13.3 to 18% so that 

1582
01:08:37,930 --> 01:08:40,500
15% falls within that range as well . 

1583
01:08:41,870 --> 01:08:45,240
And the gentleman's time has acquired 

1584
01:08:45,240 --> 01:08:47,129
the gentleman from Wisconsin . Mr 

1585
01:08:47,129 --> 01:08:50,870
Grossman is recognized . Here we 

1586
01:08:50,870 --> 01:08:54,190
are . Um , it was kind of exciting in 

1587
01:08:54,190 --> 01:08:57,600
the background there . Mr 

1588
01:08:57,600 --> 01:09:00,730
Chinaglia were gonna , I ask you a 

1589
01:09:00,730 --> 01:09:02,970
couple questions here , understanding 

1590
01:09:02,970 --> 01:09:05,192
that procure that procuring in the sole 

1591
01:09:05,192 --> 01:09:07,414
source environment is difficult and can 

1592
01:09:07,414 --> 01:09:09,500
lead to exploitation . Have you or 

1593
01:09:09,500 --> 01:09:11,780
anyone else made efforts to instruct 

1594
01:09:11,780 --> 01:09:14,450
contracting officers to actively look 

1595
01:09:14,450 --> 01:09:16,117
for parts that could meet the 

1596
01:09:16,117 --> 01:09:18,283
requirements that are similar to those 

1597
01:09:18,283 --> 01:09:21,670
produced by sole source providers ? Yes , 

1598
01:09:21,670 --> 01:09:23,892
congressman , that's part of the market 

1599
01:09:23,892 --> 01:09:25,781
research that , that's undertaken 

1600
01:09:25,781 --> 01:09:27,837
across the department for commercial 

1601
01:09:27,837 --> 01:09:29,948
items . In this particular instance , 

1602
01:09:29,948 --> 01:09:31,892
we're talking about national stock 

1603
01:09:31,892 --> 01:09:34,120
items that the Defense Logistics Agency 

1604
01:09:34,130 --> 01:09:35,797
is responding to the , to the 

1605
01:09:35,797 --> 01:09:37,408
requirements of the military 

1606
01:09:37,408 --> 01:09:39,519
departments . Most of those parts are 

1607
01:09:39,519 --> 01:09:41,790
specified whether there is an alternate 

1608
01:09:41,870 --> 01:09:44,420
source or alternate part , that's part 

1609
01:09:44,420 --> 01:09:46,531
of the calculus , but in most cases , 

1610
01:09:46,770 --> 01:09:48,770
there is one particular part and in 

1611
01:09:48,770 --> 01:09:50,826
many of these cases , one particular 

1612
01:09:50,826 --> 01:09:52,992
manufacturer for the part that they're 

1613
01:09:52,992 --> 01:09:54,826
available , that's just that's a 

1614
01:09:54,826 --> 01:09:56,881
function of , of the dynamics of the 

1615
01:09:56,881 --> 01:09:59,930
market where uh , only one provider is 

1616
01:09:59,930 --> 01:10:01,986
making that , that particular item . 

1617
01:10:01,986 --> 01:10:04,097
And if that's the case and then we're 

1618
01:10:04,097 --> 01:10:06,152
into the scenario that we're talking 

1619
01:10:06,152 --> 01:10:08,041
about today negotiating on a sole 

1620
01:10:08,041 --> 01:10:10,263
source basis ? Are there any efforts to 

1621
01:10:10,263 --> 01:10:12,486
increase competition in the spare parts 

1622
01:10:12,486 --> 01:10:15,670
space ? Reverse engineering is a good 

1623
01:10:15,670 --> 01:10:18,980
example . I want to downplay how the 

1624
01:10:18,980 --> 01:10:21,300
extent to which we can use that across 

1625
01:10:21,300 --> 01:10:23,356
the board for every part . We really 

1626
01:10:23,356 --> 01:10:25,578
can't uh each one of those requires the 

1627
01:10:25,578 --> 01:10:27,690
engineering analysis behind it . But 

1628
01:10:27,690 --> 01:10:30,820
ultimately what we do there is we have 

1629
01:10:30,820 --> 01:10:32,987
the technical data package that we can 

1630
01:10:32,987 --> 01:10:35,110
compete the spare parts once we go 

1631
01:10:35,110 --> 01:10:37,930
through that process when procuring an 

1632
01:10:37,930 --> 01:10:40,200
original system , do you consider if 

1633
01:10:40,200 --> 01:10:42,380
any of the parts are sole source ? Is 

1634
01:10:42,380 --> 01:10:45,840
that a factor ? We certainly do at the 

1635
01:10:45,840 --> 01:10:47,896
at the very beginning of any weapons 

1636
01:10:47,896 --> 01:10:49,840
system lifecycle . We generally do 

1637
01:10:49,840 --> 01:10:52,580
enjoy competition . It's once you get 

1638
01:10:52,580 --> 01:10:54,880
into the sustainment environment as was 

1639
01:10:54,880 --> 01:10:56,880
described earlier in this hearing , 

1640
01:10:56,880 --> 01:11:00,330
competition is more challenging because 

1641
01:11:00,330 --> 01:11:02,330
companies that have developed these 

1642
01:11:02,330 --> 01:11:04,740
products at the outset have that 

1643
01:11:04,750 --> 01:11:07,090
intellectual property uh and then it's 

1644
01:11:07,090 --> 01:11:08,979
on up to the department to either 

1645
01:11:08,979 --> 01:11:11,190
identify alternate sources or reverse 

1646
01:11:11,190 --> 01:11:13,540
engineering in the in the examples that 

1647
01:11:13,540 --> 01:11:15,810
we've talked about . Okay , Mr Holly . 

1648
01:11:15,810 --> 01:11:18,143
Mr Stein , I want to ask you a question , 

1649
01:11:18,143 --> 01:11:19,921
would you say that much of your 

1650
01:11:19,921 --> 01:11:22,088
business with the government is in the 

1651
01:11:22,088 --> 01:11:25,280
aftermarket sustainment space ? 6% of 

1652
01:11:25,280 --> 01:11:29,010
our business today is directly to the 

1653
01:11:29,010 --> 01:11:32,680
government . Okay . 

1654
01:11:33,760 --> 01:11:35,982
When bidding with an original equipment 

1655
01:11:35,982 --> 01:11:38,380
manufacturer for the original system 

1656
01:11:38,380 --> 01:11:40,213
procurement , do you analyze the 

1657
01:11:40,213 --> 01:11:43,810
potential for aftermarket ? Um We don't 

1658
01:11:43,820 --> 01:11:47,280
we look at , can we develop and design 

1659
01:11:47,280 --> 01:11:51,270
a part . That makes sense . Um , can we 

1660
01:11:51,270 --> 01:11:54,590
meet the design criteria that the O . E . 

1661
01:11:54,590 --> 01:11:56,840
M . Is requiring and then it's a 

1662
01:11:56,840 --> 01:11:59,340
competitive process . There are many 

1663
01:11:59,340 --> 01:12:02,060
companies involved in bidding . Only 

1664
01:12:02,060 --> 01:12:03,949
one is down selected and that's a 

1665
01:12:03,949 --> 01:12:06,171
decision made by the O . E . M . Not by 

1666
01:12:06,171 --> 01:12:09,120
us . Um , and that's the nature of 

1667
01:12:09,120 --> 01:12:11,790
these highly engineered , extremely low 

1668
01:12:11,790 --> 01:12:15,230
volume parts that you end up selling to 

1669
01:12:15,240 --> 01:12:19,020
the D . O . D . Is it encouraged that 

1670
01:12:19,020 --> 01:12:21,270
your subsidiaries find contracts that 

1671
01:12:21,950 --> 01:12:23,672
we'll have larger after market 

1672
01:12:23,672 --> 01:12:25,672
potential ? Well , you know , after 

1673
01:12:25,672 --> 01:12:27,617
market is an important part of our 

1674
01:12:27,617 --> 01:12:29,650
business . Uh , we want highly 

1675
01:12:29,650 --> 01:12:31,761
engineered products and many of those 

1676
01:12:31,761 --> 01:12:34,330
happen to have aftermarket content . So 

1677
01:12:34,330 --> 01:12:36,552
it's not that we're exclusively looking 

1678
01:12:36,552 --> 01:12:38,490
for those what we don't want our 

1679
01:12:38,490 --> 01:12:41,070
commodities , we want to invest in 

1680
01:12:41,070 --> 01:12:43,750
engineering new product development , 

1681
01:12:43,760 --> 01:12:46,060
that's what we get excited about and 

1682
01:12:46,060 --> 01:12:48,060
that's part of our business model . 

1683
01:12:48,550 --> 01:12:50,740
Okay , can you explain the difference 

1684
01:12:50,740 --> 01:12:53,290
between a proprietary part and one for 

1685
01:12:53,290 --> 01:12:55,710
which you are the sole source ? Well , 

1686
01:12:55,720 --> 01:12:58,280
a proprietary part simply means that 

1687
01:12:58,280 --> 01:13:01,350
you developed it . So , um here , let 

1688
01:13:01,350 --> 01:13:04,090
me hold you examples here I have in 

1689
01:13:04,090 --> 01:13:06,201
front of me and hopefully you can see 

1690
01:13:06,201 --> 01:13:10,090
them . I have a Boeing 7 37 actuator 

1691
01:13:10,100 --> 01:13:13,260
and a B one bomber actuator . They're 

1692
01:13:13,260 --> 01:13:15,204
the same . You can't tell them the 

1693
01:13:15,204 --> 01:13:17,204
difference in them the fact that we 

1694
01:13:17,204 --> 01:13:20,690
developed the 7 37 actuator on our own 

1695
01:13:20,690 --> 01:13:23,430
dime and can transfer that development 

1696
01:13:23,430 --> 01:13:25,890
and technology to the . B . One bomber 

1697
01:13:25,900 --> 01:13:28,380
means that the end we sell this at a 

1698
01:13:28,380 --> 01:13:31,650
lower price . We give the government a 

1699
01:13:31,650 --> 01:13:34,300
discount to what we charge every other 

1700
01:13:34,300 --> 01:13:36,467
airline in the world . And I have lots 

1701
01:13:36,467 --> 01:13:38,633
of examples that's an actuator . These 

1702
01:13:38,633 --> 01:13:40,970
are peta tube's pido tubes are what 

1703
01:13:40,970 --> 01:13:44,120
measure airspeed um These are this is a 

1704
01:13:44,120 --> 01:13:46,009
military , this is a commercial , 

1705
01:13:46,009 --> 01:13:47,731
they're identical . There's no 

1706
01:13:47,731 --> 01:13:49,842
difference in those . This is what we 

1707
01:13:49,842 --> 01:13:52,020
provide when we show that there's a 

1708
01:13:52,020 --> 01:13:54,400
commercial part and we're selling you 

1709
01:13:54,400 --> 01:13:57,770
this commercial part in whatever 

1710
01:13:58,250 --> 01:14:00,670
package you wanted and we're giving it 

1711
01:14:00,670 --> 01:14:02,820
to you at a discount . There is no 

1712
01:14:02,820 --> 01:14:05,340
gouging or overcharging . The 

1713
01:14:05,340 --> 01:14:07,284
gentleman's time has expired . The 

1714
01:14:07,284 --> 01:14:09,340
gentleman from Maryland mr Raskin is 

1715
01:14:09,340 --> 01:14:10,660
now recognized . 

1716
01:14:14,340 --> 01:14:16,507
You need to immune thank you very much 

1717
01:14:16,507 --> 01:14:19,270
Madam Chair for calling this important 

1718
01:14:19,270 --> 01:14:22,800
hearing . Um And I just 

1719
01:14:22,810 --> 01:14:26,160
would want to begin by framing this in 

1720
01:14:26,170 --> 01:14:28,410
the historical context . I mean defense 

1721
01:14:28,410 --> 01:14:30,920
contractor fraud . Military fraud goes 

1722
01:14:30,920 --> 01:14:32,970
back to the 19th century Abraham 

1723
01:14:32,970 --> 01:14:35,026
Lincoln complained about it which is 

1724
01:14:35,026 --> 01:14:38,170
why we have the key town process but 

1725
01:14:38,170 --> 01:14:40,281
billions and billions of dollars have 

1726
01:14:40,281 --> 01:14:43,160
been ripped off from american taxpayers 

1727
01:14:43,440 --> 01:14:47,280
as established in both . Um Thousands 

1728
01:14:47,290 --> 01:14:50,150
of criminal cases as well as civil 

1729
01:14:50,150 --> 01:14:52,310
cases reclaiming money for the 

1730
01:14:52,310 --> 01:14:54,950
taxpayers . MS hall I want to give you 

1731
01:14:54,950 --> 01:14:57,006
the chance to respond to some of the 

1732
01:14:57,006 --> 01:14:59,250
statements that trans dime made about 

1733
01:14:59,250 --> 01:15:03,200
the I . G . Report Mr stein said that 

1734
01:15:03,200 --> 01:15:06,010
the I . G . Audit has fundamental legal 

1735
01:15:06,010 --> 01:15:08,430
and accounting errors and even the D . 

1736
01:15:08,430 --> 01:15:10,430
O . D . I . G . Doesn't support the 

1737
01:15:10,430 --> 01:15:12,720
standard that was used for the trans 

1738
01:15:12,720 --> 01:15:14,887
dimes audit . How would you respond to 

1739
01:15:14,887 --> 01:15:17,800
those statements ? Thank you for for 

1740
01:15:17,800 --> 01:15:19,800
the question and the opportunity to 

1741
01:15:19,800 --> 01:15:22,022
respond to to the statements made about 

1742
01:15:22,022 --> 01:15:24,160
our report . Um Trans time took a lot 

1743
01:15:24,160 --> 01:15:26,382
of those statements out of context . In 

1744
01:15:26,382 --> 01:15:28,327
fact we performed this audit under 

1745
01:15:28,327 --> 01:15:30,493
generally accepted government auditing 

1746
01:15:30,493 --> 01:15:32,810
principles which um we followed um 

1747
01:15:32,820 --> 01:15:36,130
robustly and um you know in our in our 

1748
01:15:36,130 --> 01:15:38,297
report we distinguish in our scope and 

1749
01:15:38,297 --> 01:15:40,519
methodology section exactly what we did 

1750
01:15:40,700 --> 01:15:42,922
exactly what we looked at . So for this 

1751
01:15:42,922 --> 01:15:45,910
audit we applied a 15% profit rate 

1752
01:15:45,920 --> 01:15:47,920
based on what we looked at with the 

1753
01:15:47,920 --> 01:15:49,864
cost data I mentioned earlier , it 

1754
01:15:49,864 --> 01:15:51,864
falls within the range of 30 of the 

1755
01:15:51,864 --> 01:15:54,830
13.3 and 18% benchmark we've used on 

1756
01:15:54,840 --> 01:15:58,340
20/20 years of auditing uh the spare 

1757
01:15:58,340 --> 01:16:01,950
parts environment also as far as you 

1758
01:16:01,950 --> 01:16:04,006
stop you there for a second . I mean 

1759
01:16:04,006 --> 01:16:06,006
that's really nitpicking when we're 

1760
01:16:06,006 --> 01:16:08,380
talking about 1000% profit margin in 

1761
01:16:08,380 --> 01:16:10,740
some cases that was made by the 

1762
01:16:10,740 --> 01:16:12,851
contractor here . So whether you call 

1763
01:16:12,851 --> 01:16:16,370
it 15 20 or 25% . I mean we're looking 

1764
01:16:16,370 --> 01:16:20,050
at ludicrous hyper billing of the 

1765
01:16:20,050 --> 01:16:23,440
government . Right correct . The 

1766
01:16:23,450 --> 01:16:25,394
environment that the Department of 

1767
01:16:25,394 --> 01:16:27,506
Defense has to negotiate in right now 

1768
01:16:27,506 --> 01:16:29,450
with trans dime is very cumbersome 

1769
01:16:29,450 --> 01:16:31,283
because they are a sole source , 

1770
01:16:31,283 --> 01:16:33,061
they've created the sole source 

1771
01:16:33,061 --> 01:16:34,894
environment and in a sole source 

1772
01:16:34,894 --> 01:16:37,061
environment . There aren't competitive 

1773
01:16:37,061 --> 01:16:37,060
market forces , There aren't other 

1774
01:16:37,060 --> 01:16:40,220
alternatives . And Mr Stein mentioned 

1775
01:16:40,230 --> 01:16:42,450
commercial packages that that he his 

1776
01:16:42,450 --> 01:16:44,506
company provided to our audit team . 

1777
01:16:44,506 --> 01:16:47,190
I'd like to note that in those packages 

1778
01:16:47,200 --> 01:16:49,540
we did not see like quantities for 

1779
01:16:49,540 --> 01:16:51,540
comparison , which would would have 

1780
01:16:51,540 --> 01:16:53,373
been a fundamental um you know , 

1781
01:16:53,373 --> 01:16:55,640
consideration for our analysis and also 

1782
01:16:55,640 --> 01:16:57,640
fundamentally a contracting officer 

1783
01:16:57,640 --> 01:16:59,751
determines the commerciality , not an 

1784
01:16:59,751 --> 01:17:01,529
audit team and not a government 

1785
01:17:01,529 --> 01:17:03,720
contractor . So in this case . 

1786
01:17:08,330 --> 01:17:08,960
Oh 

1787
01:17:14,130 --> 01:17:16,950
um well , madam Chair , 

1788
01:17:17,730 --> 01:17:19,730
I'll complete my questioning of her 

1789
01:17:19,730 --> 01:17:23,170
afterwards . Let me um let me go to mr 

1790
01:17:23,170 --> 01:17:26,960
Howley do you agree with that ? I 

1791
01:17:26,960 --> 01:17:30,100
guess finding that trans dime uh did 

1792
01:17:30,100 --> 01:17:32,290
refuse to provide the cost data in 24 

1793
01:17:32,290 --> 01:17:34,640
cases when it was requested by the 

1794
01:17:34,640 --> 01:17:38,350
contracting officers . I 

1795
01:17:38,730 --> 01:17:40,790
I don't know the specific answer in 

1796
01:17:40,790 --> 01:17:44,090
those 24 parts . What I will say is 

1797
01:17:44,090 --> 01:17:47,330
that the all , almost every one of 

1798
01:17:47,330 --> 01:17:50,170
these parts is a commercial part . The 

1799
01:17:50,170 --> 01:17:52,990
preferred way of doing price analysis 

1800
01:17:52,990 --> 01:17:54,768
here in the forest . It gives a 

1801
01:17:54,768 --> 01:17:56,601
preferred way of doing it in the 

1802
01:17:56,601 --> 01:17:58,730
preferred ways to compare it to price 

1803
01:17:58,730 --> 01:18:01,850
data , comparable commercial price data . 

1804
01:18:02,220 --> 01:18:04,850
We submitted the commercial price data 

1805
01:18:04,850 --> 01:18:06,906
and the commercial justification for 

1806
01:18:06,906 --> 01:18:09,870
every product and in total , the 

1807
01:18:09,880 --> 01:18:13,440
government is buying it at 25% 25% 

1808
01:18:13,440 --> 01:18:15,740
discount to the commercial price , not 

1809
01:18:15,740 --> 01:18:18,073
the commercial price on some price list , 

1810
01:18:18,073 --> 01:18:19,740
but the commercial price that 

1811
01:18:19,740 --> 01:18:21,851
commercial customers are paying . And 

1812
01:18:21,851 --> 01:18:24,120
that is the preferred method of doing 

1813
01:18:24,120 --> 01:18:26,660
this is defined in the regulation , not 

1814
01:18:26,670 --> 01:18:29,110
cost analysis , but why would you not 

1815
01:18:29,110 --> 01:18:32,030
provide the cost data in those 24 cases 

1816
01:18:32,220 --> 01:18:34,950
which ended up being um exorbitantly 

1817
01:18:34,950 --> 01:18:38,060
overpriced . I'll repeat the same thing . 

1818
01:18:38,070 --> 01:18:40,750
The regulations that govern this have a 

1819
01:18:40,750 --> 01:18:43,020
specific methodology by which you 

1820
01:18:43,020 --> 01:18:45,580
determine reasonableness of price and 

1821
01:18:45,580 --> 01:18:48,180
commercial pricing . Okay , 

1822
01:18:49,470 --> 01:18:51,470
I got you . So , I mean essentially 

1823
01:18:53,840 --> 01:18:56,270
I'll give you a chance in a minute if 

1824
01:18:56,270 --> 01:18:58,381
I've got it . But the point I want to 

1825
01:18:58,381 --> 01:19:00,270
make here is the point some of my 

1826
01:19:00,270 --> 01:19:02,437
colleagues have made , which is , well 

1827
01:19:02,437 --> 01:19:04,659
this is perfectly legal when they asked 

1828
01:19:04,659 --> 01:19:06,714
you that question , you are under no 

1829
01:19:06,714 --> 01:19:08,881
obligation to answer . So the question 

1830
01:19:08,881 --> 01:19:10,937
is really the one being posed by the 

1831
01:19:10,937 --> 01:19:13,103
chair . Do we need to change that rule 

1832
01:19:13,103 --> 01:19:14,937
for contracts under $2 million ? 

1833
01:19:14,937 --> 01:19:17,159
Because it looks like a gaping loophole 

1834
01:19:17,159 --> 01:19:19,420
where the contracting officers can try 

1835
01:19:19,420 --> 01:19:21,430
to determine what the cost is . The 

1836
01:19:21,430 --> 01:19:23,770
contractors have no reason to comply 

1837
01:19:23,770 --> 01:19:25,937
with that . They don't . And of course 

1838
01:19:25,937 --> 01:19:28,380
the taxpayers get ripped off because of 

1839
01:19:28,380 --> 01:19:30,436
it . I mean , there's that one email 

1840
01:19:30,436 --> 01:19:32,047
saying that turning over the 

1841
01:19:32,047 --> 01:19:34,570
information would make a 40 to $50 

1842
01:19:34,570 --> 01:19:37,460
million ballpark difference in terms of 

1843
01:19:37,470 --> 01:19:39,840
the profitability of the contract . So 

1844
01:19:39,850 --> 01:19:43,500
um you know , you know , you guys 

1845
01:19:43,510 --> 01:19:47,150
are operating within uh the rules as 

1846
01:19:47,150 --> 01:19:49,150
their written and I think that that 

1847
01:19:49,150 --> 01:19:51,372
should be an incentive for us to change 

1848
01:19:51,372 --> 01:19:53,483
those rules because it's a rip off of 

1849
01:19:53,483 --> 01:19:55,539
the tax . Thank you . Thank you . Mr 

1850
01:19:55,539 --> 01:19:58,350
Raskin . Your time has expired . The 

1851
01:19:58,350 --> 01:20:00,517
gentleman from texas , Mr Cloud is now 

1852
01:20:00,517 --> 01:20:01,150
recognized .