President Trump’s nominee for deputy secretary of Defense got off to a rocky start at his confirmation hearing Tuesday, with Senate Armed Services Committee chairman John McCain threatening to block his nomination if he did not provide more detailed answers to Defense policy questions.
McCain accused Patrick Shanahan, a former Boeing executive, of repeatedly dodging the Senate’s questions – both in his prepared responses for the record and in his oral testimony Tuesday. The chairman took special exception to one of Shanahan’s written answers in which he said he would have to study classified information before he could offer an opinion on whether the U.S. should provide lethal defensive weapons to Ukraine, a response McCain said was “unacceptable.”
Shanahan then said he’d like to revise his answer, and that he did in fact support such a step, which McCain has long advocated.
“I’m glad to hear you changed your opinion from what was submitted, but it’s still disturbing to me,” McCain said. “Have you not been aware of the issue? Have you not been aware of the actions of the Senate Armed Services Committee? Have you not been aware of the thousands of people that have been killed by Vladimir Putin? Have you missed all that in your duties at one of the major defense corporations this country?”
Insight by Citrix: During this webinar executives from the Department of the Navy, U.S. Army Corps of Engineers, Census Bureau and Citrix Systems will discuss how federal leaders can use their experience over the last 20 months to continue to reduce costs and complexities and move further into the cloud and other modern approaches to technology.
“No, chairman, I’m aware of that,” Shanahan replied.
“Well, I got to tell you it’s very disturbing,” McCain said. One, I’m disturbed that we are now have an executive from one of the five major corporations that has corralled 90 percent of our defense budgets. And on one of the major issues that this committee has had hearings about, has had markups about, has reported out our bill, you want to find out more information. Not a good beginning. Do not do that again, Mr. Shanahan, or I will not take your name up for a vote before this committee. Am I perfectly clear?”
“Very clear,” he said.
By the end of the hearing, McCain had taken the highly-unusual step of asking Shanahan to revisit the answers he gave in the 46-page written questionnaire, and consider rewriting them.
“The answers that you gave to the questions, whether intentionally or unintentionally, were almost condescending, and I’m not overjoyed that you came from one of the five corporations that receive 90 percent of the taxpayers’ dollars. I have to have confidence that the fox is not going to be put back into the henhouse,” he said. “They were standard questions that we ask of every nominee. It was nothing unusual. So, see if you want to abridge some of them.”
McCain’s assertion that the “Big 5” Defense contractors account for 90 percent of DoD spending appears to be inaccurate. Contracts with Boeing and the four other firms, collectively, have consistently made up less than one third of total Defense obligations in recent years, according to statistics compiled by the Center for Strategic and International Studies.
But several other senators had questions about Shanahan’s experience at Boeing, where he most recently served as the company’s vice president for supply chain and as its chief operating officer.
His agreement with the Office of Government Ethics calls for him to divest of all holdings in the aerospace firm – with the exception of his executive retirement account – and to recuse himself from all decisions that directly involve Boeing.
He told the Senate he did not believe the recusal would have a major impact on his ability to oversee DoD operations, despite the fact that the firm he left earlier this month is the department’s second-largest vendor, with $14.4 billion worth of contracts as of 2015.
“I believe I can provide general guidance in terms of program execution and techniques to drive better performance, without getting into the specifics of a particular program,” he said.
Other members expressed hesitation about the fact that Shanahan has no experience in either the military or the government, potentially making it difficult for him to take on the role of the chief operating officer for the Department of Defense.
“What would be one of the first things that you would do to get yourself to a position where you can hit the ground running, should you be confirmed?” asked Sen. Mazie Hirono (D-Hawaii).
Shanahan acknowledged a significant learning curve, but he said he would immerse himself in the nuances of Pentagon operations by taking charge of two Congressionally-mandated reorganizations of the Defense Department that are already underway: the split of the current acquisition organization into two separate bureaucracies, and the creation of a new chief management officer.
“I think that’ll be a good way to begin to understand the inner workings of DoD,” he said. “And then in the second phase of that, participating in the Nuclear Posture Review and the National Ballistic Missile Defense Review will also to allow me to interface with some of these other organizations and structures. I believe that my technical and management background will prepare me to be able to quickly assimilate the knowledge and expertise to properly interface.”
Beyond managing the acquisition reorganization that’s set to take effect next year, Shanahan sought to assure senators that he was committed to the rest of the reform agenda the Armed Services Committee has attempted to tackle in the last two years’ Defense authorization bills, including reforming acquisition policies to achieve faster outcomes at lower costs.
He said he would push for more firm-fixed price contracts with Defense suppliers, including for projects in the development stage.
“It’s a very effective tool to drive supplier or contractor performance. Having the right incentive clauses is very important,” he said. “But I also believe that when we work the audit, we’ll come up with a new cost accounting scheme, so we can better understand how much we’re overpaying. To me, really understanding the cost baseline that we have with the contractors is so important. And once we understand that, we need to renegotiate.”
Shanahan also committed to meeting the current legal deadline to place the Defense Department’s financial statements under a full-scope financial audit for the first time next year. Although he declined to predict when DoD will actually earn its first clean opinion, he said audits are a vital management tool.
“We need to have an understanding of our cost baseline, because whether you’re in automotive or aerospace or shipbuilding, the question is, what should this ship cost? We can run the math to say, ‘this is what it should cost in terms of commercial practices,’” he said. “Should cost tells you whether you’re in the ballpark or not. If you’re two, three, five times that, we need to stop the meeting and start over, because that’s just an unacceptable answer. As I spent time on the audits, the question’s going to be where we want to spend the money to make sure that that the data is accurate and then how do we use that data to inform us on our cost performance? There’s things we have to do to pass an audit that maybe don’t add value, but there are other areas where it really gives us understanding of where we’re inefficient.”
If confirmed, Shanahan would replace Robert Work, one of the few Obama administration holdovers still serving in DoD. One of Work’s signature initiatives has been to develop and advocate for DoD’s “third offset” strategy – the department’s broad framework for maintaining technological superiority, including by incorporating new, non-traditional firms into the supplier base of Defense contractors.
Shanahan said he was committed to sustaining that effort.
“I think it’s one of the more exciting aspects of the job,” he said. “We’re seeing a transformation of technology and this is the industrial base we need to grow. My experience at Boeing is on developing supply chains, so we really need to have a conscious focus on how to grow these new capabilities. I think we’re onerous in terms of the requirements we put on these small organizations. Whether it’s demanding their intellectual property or to go through these complicated contractual mechanisms. So if confirmed, that’s it on area of importance to me.”