Transcript: US Defense Officials Give a COVID-19 Briefing

Secretary Ellen Lord: (00:00)
The largest amount is almost $700 million in medical construction for the mobile military medical hospitals. Medical equipment, lab equipment, and testing are all high priorities. The $ 1.5 billion number includes the 415 million DOD contract in support of health and human services for 60 Battelle Memorial Institute Critical Care Decontamination Systems, which will allow medical professionals to reuse masks up to 20 times reducing the nation’s need for new inventory. Six units were delivered last week, including two to New York and one each to Columbus, Ohio, Boston, Massachusetts, Chicago, Illinois, and Tacoma, Washington providing the ability to sterilize 3.4 million masks a week, reducing the need for new masks by the same number. All 60 systems will be available by early May for prioritization and distribution by Health and Human Services and the Federal Emergency Management Agency. Once all are delivered, these 60 units will allow 4.8 million masks to be sterilized per day, almost 34 million per week.

We have delivered 10 million N95 masks to HHS and FEMA and are prepared to provide 10 million more from DOD stocks. Last week we announced our first Defense Production Act, DPA Title III project, which will invest $133 million to increase domestic production of N95 masks to over 39 million in the next 90 days or 13 million per month. This will help ensure our government has the industrial capacity to meet the nation’s needs. While we had signed letters of intent early last week, we only just finalize the contracts late last week. Mike will send out the details today, but the three companies awarded contracts are 3M for 76 million, O&M Halyard for 29 million and Honeywell for 27.4 million. The increased production will ensure the US government gets dedicated longterm industrial capacity to meet the needs of the nation. DLA has delivered 5,000 face shields to the Javits center. 6,000 more have gone to FEMA to be distributed to New York City first responders this week.

I want to talk briefly about the scope of our DPA Title III efforts. The department’s DPA Title III investment in response to COVID-19 is increasing manufacturing capacity and throughput for critical materials through a variety of means. One is facility conversion, another is equipment purchase. Also enabling sub-tier suppliers and helping with long lead material purchases. The objective is to eliminate reliance on the foreign supply chain. DOD uses Title III traditionally for the defense industrial base resiliency and security, and now we are helping with medical and healthcare resources with HHS and FEMA coordination. Understanding that our efforts will continue to evolve, the current DPA Title III medical and health resources priorities can be categorized in the following areas, not in any particular order, N95 masks, ventilators, active pharmaceutical ingredients, testing kits, suppliers and reagents, vaccines and delivery systems, and other emerging areas of personal protective equipment or PPE.

For the defense industrial base, critical DPA title III defense sector areas include, machine tools and industrial controls, aircraft, supply chain illumination, chem-bio, directed energy radar, munitions and missiles, space, shipbuilding, soldier systems and ground systems. From the CARES Act, we received $1 billion for DPA Title III. We anticipate receiving blanket title DPA Title III approval for health care and medical resources to shorten the inner-agency process and we are working with our inner-agency partners to plan and obligate. We are prioritizing approximately $750 million for medical resources and $250 million for the defense industrial base.

In closing, I want to thank Congress, both the authorizers and appropriators who have been responsive and supportive of our efforts. Last week I briefed both the SASC and HASC and I am speaking with SAC-D and HAC-D to ensure we stay updated. We are working as smartly and quickly as we can in close coordination with the hill, state governors and the defense industrial base to do everything we can to support our military members, their families, defense contractors and our fellow citizens. Thank you. With that, I’ll take questions.

Speaker 2: (05:31)
Go ahead.

Tara Copp: (05:32)
Hi, thanks. I’m Tara Copp with McClatchy. In the last couple of weeks hospitals have reported having their orders seized or rerouted and the FEMA administrator put out a letter last week saying that maybe it put DOD’s or under the Defense Production Act, it put those orders from DOD or other agencies at the front of the line. Can you speak to those hospitals and their concerns that maybe their orders were not filled? And then I have two other questions but maybe do this one first.

Okay. So, you are referring firstly to Defense Production Act Title I which can put DO ratings or DX ratings on orders. These are called DPAS ratings. DO ratings put a brings orders to the head of the line over all other commercial orders. DX ratings put orders above all other defense orders as well. Right now, in terms of using DO ratings, FEMA and HHS are prioritizing the supply chains in which they’re ordering. The way that those goods are being distributed is being determined at HHS and FEMA. So what they are doing is working with medical distributors to make sure all the PPE and medical equipment goes to the right places. They in turn are asking hospitals and state governors to work with their local FEMA distributors. So we are working on both the demand side as well as the supply side. And the way DOD enters into that is through Admiral Polowczyk who is over spearheading the supply chain effort. So everything that we do at DOD is in coordination with FEMA and HHS.

Tara Copp: (07:20)
So the hospitals who had an order and then all of a sudden it’s been moved or it has a higher priority with some other agency. What do they do?

What they do is they talk to their local FEMA administrator and work through that system that way.

Tara Copp: (07:36)
Okay and then secondly, a bit ago you talked about the three major N95 contracts that are underway. Earlier this month, DLA issued an $86 million contract to a Puerto Rico company for N95 masks with a delivery of December. Just wondering about the size of that contract. How many masks can $86 million actually produce and with a December delivery, is this Mike in preparation for a future, you know, cycle of need?

I will say that we continue to work with mask, N95 mask suppliers above and beyond the three that I mentioned. And we anticipate a phase two DPA Title III award for N95 masks. We are working very hard with FEMA and HHS to determine overall demand as well as demand within DOD. So, what I can do is look into how much the average cost or price is, and we can get back to you, but these things are moving around a bit. So I don’t know off the top of my head.

Tara Copp: (08:46)
Okay. And just one quick clarifier. At the top of your remarks, you said 1.8 million N95 masks given distributed and then later on to HHS you said 10 million. I’m just wondering

Okay. This is a difference. Initially I was talking about DOD and then later I was talking about the fact that out of DOD-

… stocks, we have provided HHS and FEMA with 10 million N95 masks and we are going to give another 10 million out of our stocks.

Speaker 4: (09:16)
Okay, we’re going to go to the phones. Mike Stone, are you there?

Mike Stone: (09:21)
Yes, sir. Right here. Thank you very much for doing this. Can I ask specifically what has the White House directed the Pentagon to do in terms of anti-COVID measures? Has it been masks, ventilators? What’s the [inaudible 00:09:38] the White House has requested you guys assist on?

I’m not clear on your question. You’re asking what has the White House requested DOD to do in terms of supplying equipment to the nation?

Mike Stone: (09:54)
Both supplying but also ordering. You bring a huge amount of power in terms of how you can maneuver the great ship of the Pentagon around and so I’m asking where have they asked you that to lend your efforts?

Well, we work through the Vice President’s task force. Initially, we stood up our Joint Acquisition Task Force that Stacy Cummings leads out of ANS and we have individuals from all the different services and agencies involved. And what we have been doing is to work along with HHS and FEMA contracting individuals to help program manage, if you will, many of the areas that they are buying. For instance, we have a ventilator team, we have a PPE team, we have a pharmaceutical team and so forth that work with those. We also are beginning to take on more contracting ourselves, particularly for the more complex and large orders. And then if you recall, we have had a longstanding agreement between FEMA and the Defense Logistics Agency, which was typically utilized during national emergencies such as tornadoes, hurricanes and so forth where there’s an memorandum of agreement where FEMA can very quickly order supplies through DLA. We have continued to do that. We are embedded at the NRCC with HHS and FEMA. We take part in the daily VP task force meetings and we are there to support the entire inner agency with any contracting that they need done as well as carrying out the DPA title three contracting.

Speaker 4: (11:47)
Did you get that Mike?

Mike Stone: (11:54)
Yeah, [inaudible 00:11:54]. Thank you.

Speaker 4: (11:54)
Okay.

All set? Okay, thanks.

Speaker 4: (11:58)
All right, we’re going to go to Tony Capacio.

Tony Capacio: (12:01)
Hi, Ms. Lord. Hi. Can you hear me?

Speaker 4: (12:03)
Yes I can, Tony.

Hey, good. Hope you’re doing well. I got a couple of questions. One, when Kim Harrington announced the $3 billion in progress payment increases a couple of weeks ago, he said that the department has high expectations that primes are ensuring cash flow is moving to small companies in the respective supply chains as is needed, has ANS set up any system to actually track how the money is spent so you’re not just taking this on faith that the companies are doing that and using for share buybacks in the next few months? You’ve heard that complaint.

Okay, so let’s stop right there. What we have done is we have asked each of the companies to ensure that they are flowing down funds. Lockheed, I think has been the most forthcoming about that publishing some of it. Boeing has said they will as well. We have asked the industry associations to track that for us, but we did not, as we don’t typically do, put a specific auditing function in review. However, as you well know, there are multiple levels of audit that go on on all of our major contracts, so that will be traced as we move forward.

Can I say, is DCA going to be used to trace that going forward when the companies come in with their cost reports?

DCA is always auditing and we have not had specific conversations with them relative to that as we are moving fairly quickly, but I think as you know, there’s an incredible amount of oversight that goes into the defense contracting arena.

That’s for sure. Okay, thank you ma’am.

Thank you.

Speaker 4: (13:46)
Tom Bowman.

Tom Bowman: (13:47)
Hey, thanks for doing this. As you know, President Trump said the DPA would be used for testing swabs. If you’d give us a timetable on the number that are needed and when there’ll be delivered. And the same with testing kits, you mentioned both civilian and military officials say there’s a great need for a testing kits as well as machines. Numbers, timetable. And then finally General Milley said his goal is to do 60,000 tests by the end of May, early June. What does he need to make that happen?

I think as you know, for most of the systems there is a swab and then there are a set of reagents to prepare the cassette, if you will, to go into the analyzer and then there’s an analyzer. What we are doing, we actually worked over the weekend with one key company on a specific type of swab where we are working on a DPA title three project right now that I anticipate being out in the next few days. We have a demand signal from DOD that the joint staff continues to work. And then HHS and FEMA continue to look at the demand signal for the rest of the nation.

Because there are a variety of different tests systems with different throughput and different levels of accuracy, the protocol, if you will, for testing continues to evolve. I’m not going to talk about actual numbers right now. We here in the Pentagon have put Major General Payne in charge of all test kits so we have one individual within DHA who is pulling all of that together. He is working very, very carefully with the Joint Staff as well as the services who continue to evolve their testing methodology. In terms of what is the demand signal for the rest of the nation, I would ask that you talk to HHS and FEMA about that. Thank you.

Tom Bowman: (15:52)
And again, what does General Milley need to make sure he can do 60,000 tests by the end of May, early June?

He needs the entire testing chain in the right place at the right time and that’s what General Payne is working with each of the services on. It’s a focus of our daily task force meetings here in the Pentagon. A lot of people are working on that, so exactly what the Delta is between what we have on hand right now and what is needed to complete those. I do not have that data right here, but that is being worked on and we are aggressively following up.

Speaker 4: (16:31)
We’re going to go back in the room to Lucas.

Lucas: (16:36)
I’ll let Tom Bowman finish that question.

Speaker 4: (16:39)
Well, that’s his third.

Tom Bowman: (16:40)
Can you mention a key company for the swabs?

I’m not going to release any names until we have the contract in place as that’s pre-decisional.

Speaker 4: (16:49)
So guys, I’ve got 15 reporters here. We can’t each ask three questions. Lucas, do you have a question you’d like to ask?

Lucas: (16:55)
Secretary Lord, are you seeing price gouging when it comes to buying these N95 masks?

I particularly am not following that, so I have not seen that and I have not heard reports from DLA on that.

Lucas: (17:08)
There’s a lot of reports that these masks, the price has spiked tremendously. You’re saying you’re not seeing any of that? You’re getting a good price for this?

I do not follow the actual prices. What I will say is I am particularly focused on creating capacity and throughput so that we do not have that situation. And that’s what we’ve been aggressively doing the last week and we’ll continue to do this week.

Speaker 4: (17:29)
Aaron Mate. Aaron.

Aaron Mate: (17:34)
Yeah. Thanks for doing this, man. I want to just kind of be specific here. So you mentioned there were a couple of issues you’re tracking throughout the supply chain, but are there any programs that you are now seeing or predicting delays for delivery or for specific milestones that you’re concerned about? And if so, which ones?

All right, so we are following all the MDAPS. Particularly we see a slow down in the shipyards to an extent.

… Aviation is actually the most highly impacted sector we have right now, so the 20 different memos that Kim Harrington put out are really to make sure our cash flows and we quickly get on contracts so we can keep going. Right now, there isn’t any specific COVID penalty that we see for a specific program, however, we do anticipate about a three-month slow down at slower rates in terms of execution than we saw before, and we are just now looking at key milestones that might be impacted. In short, I don’t have anything right now, but we’re watching closely. Thank you.

Marcus: (18:53)
Thanks. When you say three-month slow down, is that a rule across all the MDAPs, or are we talking specific programs and other programs are going to be okay?

We believe there will be a three-month impact that we can see right now, so we’re looking at schedule delays and inefficiencies and so forth. That isn’t a particular program. That’s M depths in general.

Speaker 5: (19:19)
Marcus?

Marcus: (19:25)
Yes, sorry. Just fumbled on the mute button. Ms. Lord, last week Hondo Gertz and I believe Will Roper, they both talked about the need for the upcoming stimulus packages to help the industrial base in specific sectors. I guess are you looking for stimulus millennials across the industrial [inaudible 00:19:45]. As a quick follow, what have you learned about your visibility and the Pentagon’s visibility-

Marcus, hold on. Let me answer the one. Hold on. For the first question, yes we are. We are talking about inefficiencies relative to contracting because of COVID, so we are looking for something in the next CARES Act package, which is headed towards OMB shortly from the Pentagon here, and we are in active conversations with members and staffers.

Marcus: (20:21)
And just as a quick follow, what have you learned about your visibility or lack thereof into the supply chain, and how would you like to change that, if at all?

Well, what we are always concerned about is seeing down through all the different levels, so our team is focusing on supply chain illumination tools in the last couple of weeks. I think one of the key things we have found out are some international dependencies. Mexico right now is somewhat problematical for us, but we’re working through our embassy, and then there are pockets in India as well.

Speaker 5: (21:01)
Tony Bertuca?

Tony Bertuca: (21:06)
Hi, ma’am. Thank you. In terms of the Section 3610 authorities that were put out, that would reimburse contractors for COVID-related delays or facility closures. Do you need new money from Congress to pay for that, and how much do you think something like that’s going to cost the department ultimately, if you’re looking at three months delays on this?

We believe it will cost us something, and that’s what’s part of our ask for this new package that we’re talking about, the CARES Act II, so we’re talking billions and billions on that one.

Marcus: (21:47)
Yeah. How many billion would you say? I guess that’s all. Thank you.

I can’t say. We’re not through OMB yet.

Marcus: (21:55)
All right. Thank you. Billions and billions though. Thank you.

Speaker 5: (21:58)
Okay, we’re going to go to Jeff Schogol.

Jeff Schogol: (21:59)
All right, thank you. Ms. Lord, you had mentioned you expect a slow down at shipyards. What about the M1 Abrams tank factory at Lima, Ohio? Do you expect COVID will affect that, will slow down production at that plant?

I have not followed that specific plant, although I know the Army is following it closely. What I will say is when we look at specific sectors, we see aviation, we see shipbuilding and we see small space launch as the three areas of greatest concern. But again, we follow very carefully where the highest number of cases are throughout the country, and we look at the defense industrial base where they are located, so we try to anticipate the problems and work with the companies to keep going to the greatest degree possible.

Jeff Schogol: (23:04)
Thank you. Congress allocated the Defense Department $1.45 billion for the supply chain. Can you talk, how exactly is DOD going to allocate that money?

I’m not sure which particular amount you are referring to there, so let me look into a $1.5 billion. That’s … we’ve gotten $10.5 billion, but let me follow up on that. I’m not sure exactly what you’re referring to there.

Speaker 5: (23:34)
Yeah. Jeff, shoot me a note and we’ll connect. Okay, we’re going to go to Lee Hudson.

Lee Hudson: (23:43)
Great, thank you. Could you [inaudible 00:23:47] on if there are any additional supplier relief investors coming and how you’re working with Congress for the aerospace industry during this uncertain time. Thank you.

Okay. Lee, you were breaking up drawing the first part of that. The second part that I got was how are we working with AIA, I think, and before that you were saying something about the supply chain?

Lee Hudson: (24:12)
Can you hear me right now? Is that okay?

That’s better, yes. Thank you.

Lee Hudson: (24:15)
Okay. Could you talk about any additional supplier relief measures that are coming and elaborate how you are working to support the aerospace industry during this uncertain time?

Well, I’m on the second part of the question, we are working with multiple industry associations, not just AIA. Typically AIA, NDIA, PSC we work very closely with, but during the last four weeks or so where we have held multiple telephone calls, webinars, different types of interactions during the week, we’ve been including the small business administration, we’ve been including manufacturers associations, so we really use them to echo and amplify all the information that we are sending out and we help them connect industry with us, so that we can have listening sessions so we understand what impacts are.

Again, we have had a great partnership with Congress asking us what we need. At this point, we have most of the authorities we need. We are just working hard within our own authorities to implement those and come up with policies that, again, keep cash flowing and keep the speed of acquisition up. We’re also working hard with the services to make sure we put as much on contract as quickly as possible. We are hoping to see some incremental funds in CARE Act II, both for Defense Production Act Title III for both the defense industrial base as well as medical resources as well as some funding to make up for inefficiencies in some of our programs.

Speaker 5: (26:01)
Doug, are you there?

Doug: (26:07)
Hi, I’m there, or I’m here rather. Hi, Ellen. Thanks again for doing this, and everyone stay safe. Just on the stimulus-related funding, Congress earmarked $17 billion in payment protection plan money linked to the two companies tied to national security. Now while it’s up to the companies to apply, what is the Pentagon’s role, in your view, in directing where these funds are actually allocated to industry?

Doug, are you referring to the $17 billion that treasury has for national security?

Doug: (26:43)
Yeah, treasury has. Yeah, sorry.

Okay. So it’s great. Treasury actually reached out to us. We’ve worked back and forth at the undersecretary level putting together a guidance for how we think they should sort through the funds. We actually have ranked different sectors …

… as well, so we sent the criteria up, we’re just now beginning to work with them on the choices, but that has been a very, very good inter-agency process, because obviously we have a certain number of things we can do for the defense industrial base within the Department of Defense. However, we want to make sure we vector companies if they’re small, to the Small Business Administration, or whatever size company, to Treasury, so that they can take advantage of all the different relief efforts that the government has.

Speaker 6: (27:41)
And can you give us a guidance on the ranking process, either the number of sectors, or indeed the number of companies?

Ellen M. Lord: (27:46)
Well, I think there are two ways to look at it. Obviously, our first priority in DOD, relative to acquisition, is the nuclear modernization process of the nuclear triad. We look at missile defense agency, we look at those critical capabilities we have. Then, as I said, we’re looking where the greatest pain points are, and again, it’s really aviation, ship-building and small space launch.

Speaker 6: (28:16)
That’s really useful, thank you.

Speaker 7: (28:18)
Okay, unfortunately, we have run out of time. But ma’am, do you have any closing remarks?

Speaker 6: (28:24)
Just want to thank you all for coming out to try to get some of the facts. I will tell you that we are just beginning to really pick up momentum within the inter-agency, and are excited about what we can bring to bear from DOD to help the nation in terms of fighting COVID and all getting well again. So thank you very much.

Speaker 7: (28:46)
Stay safe.

Transcript: US Defense Officials Give a COVID-19 Briefing

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