Index Blacklisting Rule Heads for Trash Bin Washington Watch: House Acts on Munitions Process Measures That Would Benefit Export Licensing Senator Stevens Heads Paris Delegation The President's WASHINGTON PIPELINE: Challenges Facing Aerospace Industry Outlined to House Science Subcommittee Association Questions Progress Pay Rule AIA Briefs FCC on Small Satellites Association Urges Expanded DoD Study On Cost Principles Largest U.S. Trading Partners Noted

Blacklisting Rule Heads for Trash Bin

In a reversal of the Clinton Administration’s political perk to organized labor, President Bush has suspended indefinitely the so-called "Blacklisting" rule and is moving to revoke it permanently.

Pushed through the bureaucracy at the 11th hour by the outgoing administration, the rule was said to have been a promise to the unions by Vice President Gore during the campaign and was designed to weaken the hand of government contractors when negotiating with labor.

At the time the rule was issued, Sen. Tim Hutchinson (R-Ark.) stated, "This is an egregious example of midnight rule making, in clear violation of the will of Congress."

AIA opposed the proposed rule when it was published for public comment, in transition papers provided to the new administration, and in a personal letter to President Bush.

The association said the rule would unfairly penalize government contractors based on unproven allegations of wrongdoing, such as pending federal or state felony indictments not yet adjudicated, and the unqualified judgment of contracting officers to evaluate the seriousness and validity of alleged offenses.

In addition to suspending the rule, the FAR Council has called for public comment on the proposal to revoke it and has scheduled a hearing to discuss it June 18. Terry Marlow, AIA’s Government Division vice president, is scheduled to testify at the hearing in support of the association’s position that the rule should be eliminated.

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House passage last month of the State Department authorization bill for FY 2002 and 2003 provides several beneficial changes to the munitions export licensing process.

One provision increases funds for personnel in the State Department’s Office of Defense Trade Controls and for information processing technology.

Another raises the threshold for congressional notification on munitions exported to NATO countries, Japan, Australia, and New Zealand.

The provisions were written by House International Relations Committee Chairman Henry Hyde (R-Ill.).

Rep. Jeff Flake (R-Ariz.) was expected to introduce a related bill that would raise thresholds for congressional notification on munitions exports to all countries; eliminate the 15-day formal notification period for NATO countries, Japan, Australia, and New Zealand; and allow congressional notifications to occur before a signed contract is obtained in a commercial sale.

Representatives Howard Berman (D-Calif.) and Dana Rohrabacher (R-Calif.) have already introduced the Satellite Trade and Security Act of 2001 that would revert jurisdiction over export controls for satellites and related items back to the Commerce Department.

The bipartisan bill would also set license procedure requirements and impose national security controls and requirements for the export of satellites and related items destined for launch by nationals of countries that aren’t members of NATO or by non-NATO allies.

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Senate Appropriations Committee Chairman Ted Stevens (R-Alaska) has been appointed President Bush’s official representative at the upcoming Paris Air Show.

As the official representative, Stevens will lead a delegation of U.S. government officials who will help promote U.S. leadership in aerospace development and sales.

The Paris Air Show takes place at historic Le Bourget airfield June 17-24.

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I testified recently before the House Science Subcommittee on Space and Aeronautics about trends in global aerospace trade and funding for aerospace research and development. As an indication of its level of support, the committee has already written recommendations for aerospace education and training in the education bill going into markup soon.

In my testimony, I described some of the challenges confronting the aerospace industry. We face unprecedented international competition as foreign companies enjoy extraordinary support from their governments. We’ve seen our trading partners reduce or eliminate U.S. content from their products because our export control system crimps the sale of dual-use products, which are readily available from our competitors.

In addition, federal investment in aerospace research and development has sunk to an all-time low in spite of a need for a more modern air traffic control system and cleaner, more efficient aircraft engines.

Also, we have heard calls to reduce funding for the Export-Import Bank — a move that could further erode U.S. aerospace exports.

The 780,000 employees of the aerospace industry feel that we can meet these challenges if the nation recognizes that our economic welfare and national security depend on our ability to compete in the global marketplace.

The trade surplus generated by aerospace manufacturing is the largest of any sector in the U.S. economy — $26.7 billion in 2000. However, that number is down more than 34 percent from the 1998 high of $41 billion as a result of declining exports and increased imports.

We face a significant challenge from our European competitors who have already laid out an impressive plan for taking more than half the global market share in aircraft, engine, and equipment sales. A key component for achieving their goal is a very close partnership between government and industry.

To reverse these trends and maintain leadership into the 21st Century, we must begin working together to create policies, laws, and regulations that will enhance industry’s ability to compete in the global marketplace without negatively affecting national security.

Reform of export controls has been a primary concern to industry. We are asking that the system be administered effectively to control truly military items to countries of concern. But we also want to be certain we are controlling the right things, keeping U.S. suppliers attractive to allied defense industries and military establishments.

When we point out that it takes three months to obtain a license for 200 radiator hoses for Swiss M-113s, we are hardly seeking to undermine national security.

Another issue I brought before the House subcommittee is the low rate of investment in aerospace research and development.

In 1987, federal and non-federal funding for aerospace R&D peaked at a level of about $35 billion (in year 2000 dollars) and then plunged in 1998 to less than half that number — $15 billion. That’s been followed by a drop off in the numbers of R&D scientists and engineers — 77,000 in 1999, down from 144,800 in 1987.

Appropriate federal investment in aerospace is crucial to the nation’s economic well-being. America needs renewed focus on aerospace, and the place to begin will be the Commission on the Future of the U.S. Aerospace Industry.

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AIA is preparing proposed revisions to the methodology in the Federal Acquisition Regulation (FAR) for liquidating progress payments.

The action is being taken in response to a Defense Science Board study last year that concluded that the defense industry must improve its cash flow in order to meet its capital requirements and maintain its sources of capital.

The current progress payment rate in the FAR is 80 percent of costs, and the Defense FAR Supplement limits progress payments to 75 percent of costs. Progress payments are generally made monthly during contract performance.

Government recoups progress payments on completed contract items using a system identified as an "ordinary" liquidation method in paying for the delivery of the completed work. The "ordinary" liquidation rate is the same as the progress payment rate, except it is applied to the contract price while the progress payment rate is applied to costs.

The "ordinary" liquidation rate must be used by government contracting officers for the life of a contract unless the officer adjusts the rate after contract award. Use of the "ordinary" method results in a portion of a contractor’s profit for delivered items being withheld.

The use of an "alternate" liquidation rate methodology in the FAR would allow the contractor to retain the earned profit element of the contract price for the completed item in the liquidation process.

However, the FAR requirements for use of the "alternate" method are so numerous and complex that many government and industry accounting experts are reluctant to pursue it.

Use of the "alternate" method would minimize the inequity that results from the taxation of profit even though the contractor has not actually received payment for the profit.

In most cases, contractors will not receive the profit until near completion of the contract, which can be several years after the taxes on that profit are paid.

AIA believes that simplification of the "alternate" liquidation rate method and its prerequisites for use are needed to ensure that contractors are paid fairly and in a timely manner for profit on delivered items.

The association plans to recommend to DoD that the FAR be modified to establish a single liquidation rate at time of contract award based on negotiated or estimated profit rates.

This way earned profit would be paid on the first delivery and subsequent deliveries throughout the remainder of the contract, and complex retroactive billing adjustments would be avoided.

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AIA’s Space Council recently briefed the Federal Communications Commission (FCC) on trends in the small satellite industry.

Small satellites and systems have significant roles in the world’s space marketplace. Traditionally utilized for Low-Earth Orbit missions, small satellites are now involved in geostationary and planetary mission applications.

The briefing, third in a series of AIA briefings to the FCC, focused on various types of small satellites and their applications and markets, along with a thorough breakdown of the technical characteristics of the satellites.

Each briefing has focused on an emerging, advanced technology being developed by the aerospace industry.

Past topics have included space adaptable antennas and software-defined radio. FCC International Bureau Chief Don Abelson has called the briefing series "a great asset" for the FCC.

AIA members have supported the initiative as part of an ongoing project to provide timely information for FCC staff concerning emerging technologies, enabling FCC to continue effective regulation of the commercial satellite industry.

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AIA has asked the Defense Department to enlarge an ongoing study of Federal Acquisition Regulation (FAR) cost principles.

The purpose of the study is to streamline cost principles in areas of measurement, assignment, and allocation of contract costs.

Noting that it supports the initiative, AIA recommended to the director of defense procurement, the study’s lead official, that several issues important to defense industry cost allowability and allocability be added.

The association presented its recommendations at a public hearing in Washington and in a follow-up letter to study officials.

AIA suggested that the study be expanded to eliminate conflicts between the Cost Accounting Principles Standards and the FAR cost principles.

Also, the association urged the adoption of commercial accounting practices and procedures and recommended that DoD encourage commercial companies to become defense suppliers.

A thorough analysis of the value of each cost principle should be conducted, AIA said, recommending recognizing and applying existing governing rules and regulation, such as Internal Revenue Service deductibility provisions, and eliminating the overlapping cost principles.

Purging cost principles in this way would generate significant process improvements by adopting commercial practices and would provide access to the commercial market and the latest technologies, the association pointed out.

The study is expected to conclude in July.

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Just over half of the $55 billion in U.S. aerospace exports in 2000 were destined to the United Kingdom, France, Germany, Japan, Canada, South Korea, and Saudi Arabia.

The United States exported $6.5 billion to the United Kingdom — the largest importer of U.S. aerospace products for a fourth year in a row.

France was second with $4.7 billion, followed by Germany, Japan, Canada, South Korea, and Saudi Arabia.

Five of the seven largest consumers of U.S. aerospace exports were the leading aerospace exporters to the United States.

The U.S. imported a record $8.1 billion from France — the largest exporter of aerospace products to the United States for a fourth year in a row. Canada was second with $6.3 billion, followed by the United Kingdom, Germany, and Japan. These five countries combined for 84 percent of U.S. aerospace imports.

Despite an overall U.S. aerospace industry trade surplus in 2000, France and Canada generated aerospace surpluses with the United States of $3.4 billion and $2.5 billion, respectively.

At $2.6 billion, Japan was the largest contributor to U.S. industry’s trade surplus. The United Kingdom was second with $2.3 billion, followed by South Korea and Saudi Arabia with $2 billion each.

The combined aerospace surplus generated from trade with these four countries constituted one-third of the aerospace industry’s trade surplus.

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