GI Joe, Funding Man from Head to Toe: the DoD and drop-in biofuels at scale

Para-Investor GI JOE prepares for a courageous drop into the Valley of Death

As the Defense Department looks at its options to directly jump-start drop-in biofuels production at scale, we look at the Defense Production Act – the rationale, the process, the funding, and energy’s role

In Washington, a report from WSJ states that the DOD is investigating the use of the 1950 Defense Production Act to fund between $300 and $500 million in funding via a joint venture to directly invest in advanced biofuel production here in the U.S.  The DOD is reportedly negotiating with the USDA and DOE to develop the funding.  A spokesman for the DOD, Lt. Col. Melinda F. Morgan is quoted as stating in an email, “The Departments are exploring a variety of options to work with the private sector to provide alternate fuels to meet military and commercial needs.”

What is the Defense Production Act?

Let’s look at the popular Defense Production Act, and specifically Title III of the Act, which was recently re-authorized through 2014 by unanimous consent in the Senate and voice vote in the House.

Mark Buffer, Director of Defense Research and Engineering in the DoD Office of Technology Transition, writes:

“Enacted  in  1950, it provides  broad  authorities  to  the  President  to  assure  the  ability  of  the  domestic  industrial  base  to  supply  materials  and  services  for  the  national  defense…the Title III Program executes projects ranging from process improvement to production plant construction.

Title III projects must meet four criteria:
—The technology item is essential to national security.
—Without presidential action, industry cannot be expected to produce the item in the timeline required to meet national security objectives.
Title III action is the most practical means of bridging the Valley of Death
Defense and non-defense demand is greater than current industrial production.

Buffer adds: “Title III investments are injected directly into industrial base – no intermediaries.

•    Provides a bridge from R&D arena to affordable, volume production.
•    DPA Fund enables great flexibility – non-expiring, re-use are unique capabilities
•    Enables trusted sources for uncompromised components for critical defense applications.
•    Accelerates availability of emerging technologies years ahead of “normal” availability
•    Maintains secure domestic sources vice potentially unreliable foreign sources
•    Strengthens the economic & technological competitiveness of the U.S. industrial base
•    Creates U.S. based jobs

The routes

There are three routes under Tile III.  Installation of Production Equipment in Government or Privately Owned Facilities, Development of Substitutes, or the (now rarely-used) loan or loan guarantees authorities.

The process

1. Obtain “Presidential Determination” that the industrial resource or technology is essential for national defense, and that industry cannot provide the needed capability in a reasonable time without Title III assistance, and that domestic capacity is insufficient to meet Defense and non-defense demand

2. Provide written notification to Congress

3. Wait 30 days to allow for Congressional comment

The funding

Funding for Title III initiatives is provided by the Joint or Service Program Offices of Record, Defense Agencies or other Federal Agencies as funding offsets for specific Title III efforts. Title III appropriations are “no-year” funds and are valid until expended. Funds are usually made in DoD appropriations but can be included in other appropriations bills. Funding is placed into Title III budget by senior-level management in the Office of the Secretary of Defense.

The Act and other strategic materials

Rich Mursky writes in Innovation America: “Title III ensures the availability of required production capabilities by providing incentives in the form of loans, loan guarantees, purchases or purchase commitments; however, DOD has not used loan or loan guarantees since the early 1980s.

Title III authority is especially appropriate for small companies lacking the capital needed to bring a good idea to market, a situation some have termed the Valley of Death. A promising new technology is developed and demonstrated for a customer…but neither customer nor supplier can accept the risk they’ve been asked to take.

“The Title III process can be an effective way to address this problem. While there are many government organizations that fund research and development and many others that buy high-tech items, only the Title III Program has the authorities sometimes needed to help suppliers bridge the gap from prototype to full-scale production.

“Section 303 of Title III provides for the purchase of capital equipment for installation in a private facility, a provision recently used to establish two foundries for next generation radiation hardened microelectronics (RHM). RHM is essential for ensuring the survivability of space and missile systems in various radiation environments. Using Title III authority, DOD provided over $160 million to purchase semiconductor manufacturing equipment needed to establish the two foundries.”

The Strategic Manufacturing Rationale

In Defense Manufacturing in 2010 and Beyond: Meeting the Changing Needs of National Defense, the Board of Manufacturing and Engineering Design wrote:

“Cost-effectiveness must have the highest priority in future defense manufacturing requirements because of the expected continued decline in the defense budget. The committee believes that the principal criterion for prioritizing manufacturing capabilities for development and investment should be potential cost savings (e.g., return on investment). In this report, the committee has applied this criterion by emphasizing capabilities that:

(1) will he broadly applicable to many weapons systems or many elements of life-cycle costs;
(2) will benefit from substantial non-defense resources;
(3) will address large expenditure budget items for DOD;
(4) could lead to significant performance or productivity gains;
(5) will address problems likely to become more important in the future;
or (6) will not be developed as a result of commercial investment.

Throughout the nation’s history, the armed services have strongly supported new technologies and manufacturing methodologies. In the late 1950s, DOD established the ManTech Program under the provisions of the Defense Production Act of 1950 and its extensions. The objective of the ManTech program was to strengthen the U.S. defense industrial base by encouraging the development and use of innovative manufacturing methods and processes. The program was based on the premise that in manufacturing technology areas where the cost to develop and implement an innovative production methodology would not be a prudent business risk, DOD should invest in bringing these ideas to fruition.

Energy and the Act

Energy production is specifically authorized under Section 106 of the Act. As amended in 2009, Section 5 of the 2009 Re-authorization of the Act removed a limitation on the authority of the President to engage in the production of energy other than synthetic fuel. Section 5 is titled “Designation of Energy as a Strategic and Critical Material”

US policy, as enshrined in the Act

“It is the policy of the United States that–

‘(1) to ensure the adequacy of productive capacity and supply, Federal departments and agencies that are responsible for national defense acquisition should continuously assess the capability of the domestic industrial base to satisfy production requirements under both peacetime and emergency conditions, specifically evaluating the availability of adequate production sources, including subcontractors and suppliers, materials, skilled labor, and professional and technical personnel;

‘(2) every effort should be made to foster cooperation between the defense and commercial sectors for research and development and for acquisition of materials, components, and equipment;

‘(3) plans and programs to carry out the purposes of this Act should be undertaken with due consideration for promoting efficiency and competition;

‘(4) in providing United States Government financial assistance under this Act to correct a domestic industrial base shortfall, the President should give consideration to the creation or maintenance of production sources that will remain economically viable after such assistance has ended;

‘(5) authorities under this Act should be used to reduce the vulnerability of the United States to terrorist attacks, and to minimize the damage and assist in the recovery from terrorist attacks that occur in the United States;

‘(6) in order to ensure productive capacity in the event of an attack on the United States, the United States Government should encourage the geographic dispersal of industrial facilities in the United States to discourage the concentration of such productive facilities within limited geographic areas that are vulnerable to attack by an enemy of the United States;

‘(7) to ensure that essential national defense requirements are met, consideration should be given to stockpiling strategic materials, to the extent that such stockpiling is economical and feasible; and

‘(8) in the construction of any industrial facility owned by the United States Government, in the rendition of any financial assistance by the United States Government for the construction, expansion, or improvement of any industrial facility, and in the production of goods and services, under this Act or any other provision of law, each department and agency of the United States Government should apply, under the coordination of the Federal Emergency Management Agency, when practicable and consistent with existing law and the desirability for maintaining a sound economy, the principle of geographic dispersal of such facilities in the interest of national defense.”

Other projects

Other projects supported under the Act include:

Continuous Filament Boron Fiber
Methanol Fuel Cell Components for Soldier Power
Photovoltaic Solar Cell Encapsulant Project
Armor and Structural Transformation: Steel to Titanium
Beryllium Production
Lithium Ion Battery Production
Thermal Battery Production
Rigid Polymer Materials
Flexible, High Temperature Aerogel Blanket Materials
SiC Powder Production and Ceramic Armor Manufacturing