Finally we have our Financial Management directorate, who are tracking all of our business. They’re like our supply department. We are responsible for about a thousand people’s salaries here at Navy IPO. That’s money that goes out to all the system commands and the warfare centers, the people that are funded through working capital funds. It’s our job to manage that flow of money and that salary base. That includes some of the people here at Navy IPO which are funded under foreign military money. A sizeable amount of money – upwards 190 million dollars— funds the enterprise with foreign money.

 

So if I’m a foreign government and I’ve got a big program with the United States Navy, part of that funding might go for the personnel here involved in managing that effort?

What foreign money will NOT fund is anything that’s uniquely American policy. So our export policy team, our foreign disclosure team, they cannot be funded by that money. They must be mission-funded. We have to be very careful how we manage our foreign partners’ money and we’re accountable to that, and that’s really one of the chief roles that DSCA plays – Defense Security Cooperation Agency. The money flows from a country and then into our U.S. system through DSCA, and DSCA sends that money to the appropriate military department. So we’re always on the hook to DSCA to show them how that money is being spent. There’s always oversight. And DSCA then has to talk to all the different finance ministries around the world to explain how that money is being spent. So there’s a checks and balance everywhere you go.

 

What would be an example of where foreign money would cover the salary for a U.S. person?

If a country wants to buy a P-8 aircraft, and the program office is managing a program for the U.S. customer base, more staff will be required so that they can support their foreign customer base. You can’t do it with the same amount of people. So when international partners want to buy into our program, they have to pay for the people that do that. The program office, then, will reach out to the warfare centers for working capital support—some of it’s full-time; some of it’s part-time—for program management, integration, or logistics support. Many times a country will want to not buy the complete U.S. package. They may want some other systems that we don’t procure, but integrate it into our platforms. When we make a platform offer, we need to know what they’re putting on there. Our laws require that – the Arms Export Control Act, the ITAR, the International Trades and Arms Regulations – require that we have complete knowledge of how the platforms we sell them are being used. So sometimes there’s an integration problem because you just can’t slap a system on without figuring out how to properly integrate it. So engineers at NAVSEA, NAVAIR or SPAWAR come up with a solution to be able to make that interface happen, and the foreign government pays for all that. That effort requires foreign funds.

But there is a reason they want to buy our equipment. We in the United States buy more than anybody, for ourselves. So there’s economy of scales on getting into our contracts to be able to get an efficient buy. And because we buy so much for ourselves, we have a large force that does this kind of acquisition, and we’re pretty good at it.

 

If I’m buying a P-8, obviously I need a training program, I might need to buy a simulator, I might need to convert that to my language, so may have to find some people with unique skills.

Any of the requirements that are unique they pay for. But there is a reason they want to buy our equipment. We in the United States buy more than anybody, for ourselves. So there’s economy of scales on getting into our contracts to be able to get an efficient buy. And because we buy so much for ourselves, we have a large force that does this kind of acquisition, and we’re pretty good at it. And so a country will buy into our system because we know how to acquire and manage major weapons systems. We know how to properly test it, interface it, whatever it takes. We add value to those countries by bringing that level of expertise. And never forget, these are our partners – we want to help them. It’s all in accordance with overall national security strategy, and in our best interest to be able to provide that kind of support. These cooperative efforts give us access to those parts of the world. And that’s very important to our national security.

 

If a country doesn’t have a tremendous amount of treasury resources, but it’s in the interest of the United States to make this country more capable, what can we do to help them? Is there some kind of assistance that we can provide?

Foreign military sales (FMS) is a sale where a country uses their own money, to invest and buy one of our systems. When we use our money – because it’s in our interest to build a partner’s capacity – that’s called BPC – Building Partnership Capacity. That uses Foreign Military Financing (FMF), funded with US dollars under laws. All of that is legislated by our Congress and controlled by the Department of State. And then the Department of State flows that money over to the Department of Defense through DSCA down to the military departments. It’s a fascinating process because it’s not just state department people saying what they need, or what they want to do from a political or State Department view, but the combatant commanders also weigh in heavily on the countries within their AOR. They have tremendous knowledge about their countries, capabilities and requirements.

 

Is there a way to be more responsive to an emerging, or more urgent requirement?

It’s just like everything in acquisition. People get frustrated when they know something is available, they think it’s on the shelf, they want to just be able to take it out. Managing expectations is a full-time job in the acquisition community. I know that as a former program manager myself. So we want to always find ways to become more efficient and more effective.

But, for example, for Perry class frigates, many international partners have made it known that they’re very interested in them if we don’t want them anymore. That’s all taken into consideration in the balance of that equation and what the future of that ship will be. We have ships in the inactive fleet available if we need to recommission them; or use them to harvest them for big parts that need repair.

 

There are things “on the shelf.” We have ships that are decommissioned and are excess defense articles. Do we take it out and sink it? Or do we let someone fix it up and put it into service?

There’s a process for that, too. When we decommission platforms such as airplanes or ships, the Pentagon controls exactly what the future disposition of that equipment will be. Some ships may get sent to the inactive fleet. Some of them will be designated as an excess defense article and made available for sale to another country. And then some of them are used for target practice. And there’s a balance in that equation. But, for example, for Perry class frigates, many international partners have made it known that they’re very interested in them if we don’t want them anymore. That’s all taken into consideration in the balance of that equation and what the future of that ship will be. We have ships in the inactive fleet available if we need to recommission them; or use them to harvest them for big parts that need repair. For example, when I was a deputy commander for Surface Warfare at NAVSEA, we had a collision of a U.S. ship with a U.S. submarine, and the SQS-53 Charlie sonar dome got damaged. We ended up taking a sonar dome off an inactive ship, putting it on a barge and floating it down the coast to make the repair. If we had tried to build a new sonar dome it would have cost much more, and we saved money by harvesting a part from the decommissioned ship. For the life of all ships, such as the Perry class, that still have life in them, our fundamental question is to modernize or acquire something new.   And at the same time, it makes sense for some foreign partners to have these ships. There’s a law on the books that the gross tonnage of the ship determines how a ship is made available. So a Perry class frigate exceeds that threshold tonnage, and the law requires Congress to create a specific mandate by country name to make the ship available. For example, Taiwan is getting two Perry class frigates right now, and legislation had to be passed to make those ships available for offer. However, the retired Coast Guard Hamilton class cutter are beneath that threshold, so we don’t have to have a law passed to be able to make offers of those ships, although we’re still required by law to inform Congress and notify them when we do that. That’s an ongoing process – we just do that all the time. DSCA is the activity that works with State Department to notify Congress. And depending on what we’re selling, and who the country is, some notifications are 30 days, some notifications might be 90 days. It’s all laid out in different regulations.

 

In the case of the Coast Guard cutters, or the frigates, if they do buy those from us, whatever modernization they’re going to do has to be done in the U.S.

That’s right.