We are going to have to develop a broad range of new aproaches to dealing with industry in an effective way. I think that this is a major cultural change, one of working together versus an adversarial relationship; and one in which we examine our needs in a broader basis than we have in the past.

Senator QUAYLE. Thank you, Mr. Chairman.

Senator BINGAMAN. Senator Shelby is next under the early bird rule the committee has adopted.

Senator SHELBY. Thank you, Mr. Chairman.

Dr. Costello, in your future capacity as Assistant Secretary of Defense for Acquisition and Logistics, I believe you will need to plan for the maintenance of supply lines in the event of war.

I would like to ask you this. What is your opinion of offshore sourcing?

Dr. COSTELLO. I have faced that issue before, obviously. What are the resources? I had a philosophy that we should maximize the value added in the markets in which we sold our product. In the company I worked for that was in North America, the United States and Canada. I may modify that concept a little, but basically I believe that we have to look at the resources that we need here in the United States.

We enjoyed a position over a period of years in which we were preeminent in technology. We now find ourselves in a world in which there are technology capabilities that we need to address and have available to us here in the United States.

I think that we have to work out a long range program with some overseas suppliers to ensure we have complimentary manufacturing capabilities here in the United States. We need to establish some surge capacity or ongoing capacity here.

I think we have to take a perspective that if an organization wants to sell defense products, we are the only game in town; therefore, we have the leverage to focus the suppliers' attention on our needs.

Senator SHELBY. Doctor, competition regulations have opened up contract bidding to include foreign suppliers. This would mean that in the event of war, you have the offshore sourcing. Would that not compound our ability to maintain the supply lines. How are we going to have to maintain those lines if we do not have these complementary plants and sources of supply on shore?

Dr. COSTELLO. I think whether it is new technology or competitive bidding, we have to find ways of insuring that that capacity is available to us.

Senator SHELBY. In your future capacity, which I presume you will be there, will you make a study of the offshore sourcing and the problems of supply in the event of war?

Dr. COSTELLO. I think it is extremely important to study it in detail and to establish a viable concept to deal with the Europeans as well as the Japanese. I do not think that we look at the Japanese in the same light today as we do the Europeans.

Senator SHELBY. But you still have the long supply line?

Dr. COSTELLO. We still have a long supply line that must be addressed as far as mobilization potential. I think that mobilization and sustainability are two major issues, Senator, and I appreciate your comments.

Senator SHELBY. Thank you.

Thank you, Mr. Chairman.

Senator BINGAMAN. Thank you very much. I believe that Senator Exon is next.

Senator EXON. Thank you very much, Mr. Chairman, and welcome, Dr. Costello. We are delighted to have you here. I appreciated very much the courtesy call that you made to my office before you came here. I am enthusiastic about your nomination by the President, and I am sure this committee as a whole and this Senator certainly will enthusiastically support the difficult role that you have taken on. I think it is a very wise choice.

Let me get into some of the things that, I think, are going to be facing you. First, you are familiar I am sure, at least to some extent, with the continued erosion of the industrial base of the United States in a whole series of areas. I am talking particularly, though, this morning about the ongoing controversy with regard to the merger between Fujitsu and Fairchild in the area of high tech computer chips. This industry is a very key element in our future defense strategy planning, R&D and probably weapon performance. You are aware, I am sure, that the Defense Department, which you are shortly going to be a very important part of officially, has taken a stand against this and has recommended that the Justice Department move in under the antitrust laws at least to further allow the advanced computer chips industry to slip away from us. I have information that I believe is essentially correct, that as recently as 10 years ago all of the high tech computer chips were made in the United States by United States companies, and during the last 10 years we have now slipped down to where we are making less than 25 percent, more likely around 15 percent, of the high tech computer chips. That has a direct bearing on our future, security especially with regard to SDI.

I am wondering if you could elaborate on that any more this morning than what we already know and give us your viewpoint on that danger of that important part of our technology base continuing to slip away from us.

Dr. COSTELLO. I think Senator Bingaman mentioned the semiconductor industry initiative and the Defense Science Board initiative. The Defense Science Board's semiconductor industry study reflected their concern that some of the advanced technological lead we have had seemed to be slipping away from us.

The statistics that you quoted demonstrate the specific focus that the Japanese in particular, have taken with regard to memory technology. The semiconductor industry looks at memory as being the driving force for advanced technology; advances in the broad subject of high quality, high technology, low cost semiconductors. The specific instance of the Fujitsu/Fairchild buyout has been well described in the press.

I think that part of our initiative has to be one in which we say the role of the Defense Department; and what it must support through direct purchases or direct funding of R&D. Or perhaps even more importantly today, not product R&D, but R&D in process and manufacturing technology; which has been overlooked, to some degree, in favor of the product orientation that most U.S. research and development has supported.

I think we have to take a look at what kinds of programs we need to fund to ensure that we have the resources here, as Senator Shelby mentioned. The ownership is important because that can influence the direction and flow of the technological resources.

We need to make sure that we have the proper long range support for our technology here. We would have to look, then, at the arrangements between Fujitsu and Fairchild, if that were to go through, to ensure the appropriate flow of technology to the United States.

Senator EXON. What I am searching from you is a firm position on whether or not we should continue to go all out to block, as is the general opinion in the Department of Defense at the present time, this sale to Fujitsu from Fairchild, if that should go through. Where do you stand?

Dr. COSTELLO. Fairchild has already been owned by a foreign country. It has been owned by the French. Schlumberger had ownership, and therefore it is not a case of foreign ownership at this point.

I will leave it to wiser people to say whether we should block it or not, but if it is blocked then we have to decide what we do with the Fairchild company to make it less attractive for other people to buy it and to make the owners of Fairchild to be less inclined to have it bought by somebody else. We have a job to do.

I think we have to look at the Japanese in a different perspective. Mr. Marvin Gottlieb happens to be in the audience, and he and I, for over 15 years have worked diligently with the Japanese, to create an environment of mutual trust and help. I think we need to establish a policy that looks to the Japanese and the technologies that they have as a resource, rather than as a threat.

If they did buy the Schlumberger portion of Fairchild, I think we can live with that. I think we would have to live with that. But if we do, I think we need to take a very aggressive role and to ensure the Japanese have a program to bring technology here to the United States.

Senator ExON. My time is up, Mr. Chairman, but I will pursue this a little further in the second round because I am getting less than a positive response from this witness that I have already said I intend to support. I will follow this further.

I think this is a fundamental issue. I am aware of that. This is owned by the French now so it is not a foreign. I am also aware, as I pointed out in my figures, that the Japanese are out to get this kind of a control of the super tech computer chip industry. I think that is not in the national security interest of the United States, regardless of what you think of the Japanese and regardless of the role that the Japanese are going to play in the immediate future as an ally of ours.

I am not Japanese bashing but I am not sure that this deal is in our interest. It seems ludicrous to me for the Department of Defense to be proposing a $2 billion program over the next 5 years to enhance the computer chip high tech industry in the United States of America at the same time another part of our government, and maybe you as a new procurement officer in the Department of Defense do not seem to be nearly as concerned about this matter as this Senator is.

I will pursue this further in the second round.
Senator BINGAMAN. Senator Dixon.

Senator DIXON. Thank you, Mr. Chairman.

Dr. Costello, may I first say that I do not recall ever encountering a person as well qualified in the private sector for the kind of job that is being undertaken here in the Government as you are, and I am very pleased about that because I have had a very strong interest in the question of acquisition and procurement since I have been a member of the Armed Services Committee.

Generally, I have been very pleased with your answers to the questions. I just wanted to make kind of a record about my perception about how many of us on the Armed Services Committee feel about this whole question.

I was the principal sponsor of the Competition in Contracting Act, and while that has had somewhat of a spotty record since its passage, here in the last session in this very committee we had a pretty active debate about whether we ought to continue that policy. I led the fight to retain the aspects of the Competition in Contracting Act in the DOD authorization bill last year and ultimately prevailed in the committee.

At the same time, I was active in fencing the money for the Sergeant York air defense gun, which simply did not work. It was no good. Fortunately, it was manufactured by Ford and not General Motors, Dr. Costello.

I was also a sponsor last year, the principal sponsor then to Secretary of Defense for Acquisition provisions of the DOD reorganization bill.

I think there is a very strong feeling in this committee that people like you with the appropriate professional background and the strength of character and the executive ability to do it can make a tremendous difference and save an awful lot of money while getting us the best bang for the buck in the position you are going to undertake.

I really believe that it is the sense of the committee, and I have no doubt about that, and the sense of the Congress that we want centralization of the acquisition and procurement policies by the Department of Defense, and we want to avoid a duplication in the various services of a variety of hardware and equipment and airplanes and a variety of other things that we think could be avoided by_more careful acquisition and procurement policies.

I hope that message is at least received by people like you and Mr. Godwin and others in the Department of Defense. We sometimes wonder whether others know about it.

Do you feel that that is the sense of the Congress, that we want that sort of thing done?

Dr. COSTELLO. I think it was well described in the legislation that was passed last year, and I think that certainly, Mr. Godwin has been taking a very, very aggressive role to look at fielding common systems.

As I have had a chance to go to the field, I have noticed that there were different systems being studied or designed, even in the business end of various organizations. I have asked questions. If the Navy has a system here in Norfolk, why doesn't DLA use that system in Richmond?

Senator DIXON. Good for you.

Dr. COSTELLO. I think that some of that approach is bearing fruit. Senator DIXON. May I interrupt by saying this? I thank you for saying that.

Senator Bingaman, Senator Levin and myself, and I cannot remember if there were others, had breakfast recently with Mr. Godwin. I want to say that I was well pleased with that breakfast and the things that he said, and I had the sense that he was going forward with the real purpose to do the kinds of things we are discussing here, you and I, Dr. Costello.

I also had the sense that there is some natural opposition to that within the Department of Defense. It is like changing the system. Anytime you try to change the system, you are going to have some opposition.

just recently on our last break was visiting a variety of different installations and manufacturers, and I was struck by the fact that, for instance, we have the AT4 for the Army. They have something similar for the Marines. It is a little more complicated but different. As you go through the whole list of all of the inventory that we have, I am persuaded that in every separate branch of the service they have similar things doing similar jobs that are unnecessary duplications, and obviously one of them is probably the best for the purpose intended.

Are you going to be looking at that sort of thing up and down the line?

Dr. COSTELLO. I think that is a major part of the responsibility. I likened the competition between the Army, Navy, and Air Force for getting their thing done their way, to the competition between Buick, Olds, Chevrolet, and Pontiac. I have had the experience and was personally involved in that type of competition: "I would like my particular stamp on this product".

There are ways to approach it for consensus, and yes, consensus such as that takes terribly strong leadership. You have structured an organization in which the Under Secretary for Acquisition is in a position of that leadership along with his staff, I will look forward to being a member of that. It has to be a major goal. We cannot afford the duplication.

Senator DIXON. I want to say in the presence of my colleagues I wish some more from the other side were here, because Senator Quayle in particular, as Senator Levin and Senator Bingaman will agree, has been very much involved in all of this over a long period of time.

I want to say that I hope you and Mr. Godwin have the message that we back you 100 percent, and when you have any problems in your department about questions of your authority, I hope you will come back to us on an individual basis to test whether we really mean what we say, because we really do want to back you 100 percent with what you are doing.

My time is up, but I finally want to say that while I think competition is important, I like the fact that we are looking at dual sourcing, a quality product and a lot of other things. I am still convinced that sometimes you have to remember the fact that everybody can make something a little bit cheaper, and it is not necessarily the best. We want the best.