CLAY JOHNSON: Welcome. The purpose of these lunches is to hear from people who have been effective at getting things done in the Federal Government. George Shultz spoke to you in January. We're talking to Jim Baker; I think he's going to be here in May. We hope to get Condi here, the Vice President, various people, who are going to come here and talk to us not about policy but about what it takes to be successful in the Federal Government.

According to Pat McGinnis, who works with us on these programs, the Council for Excellence in Government, actually we don't need to go to the past to find people who have been effective. Actually we have an incredible example of effectiveness right here, in the present tense. The Transportation Security Agency was created by Congress a year ago [last] fall. I remember when they were talking about the bill, and they had to do thus and such by a half dozen months or something, I was thinking, there's no way this group is going to achieve the results that are called for. But they did. Incredibly. They did.

And we've read [in] the newspaper about how they did this and how they did that, but I thought it would be great to get the people who actually did this (they will claim they didn't do it) the people that actually led the effort to create TSA, to come here and tell us, how do you accomplish that much, in that short a period of time, in the Federal Government? So it's my great pleasure to introduce Michael Jackson, who's the Deputy Secretary of Transportation, and Admiral Jim Loy, who's head of TSA, former Commandant of the Coast Guard. Gentlemen. [APPLAUSE]

MICHAEL JACKSON: Thank you very much for letting us come and talk about the TSA. And, Pat, thanks for the support of the many initiatives and focussing on management excellence in this administration.

This was not TSA's to build something with or two or ten, but tens of thousands of people to manage the story that we're going to talk to you about today. I wanted to start with reading something -- Secretary Minetta had a little going away party from some of -- Jim and his colleagues -- and he gave them a marble stone, a cornerstone for the department and it started out with these words:

"Forged on an anvil of cruel necessity and blood shed innocently, the Transportation Security Agency was built urgently in a time of war to preserve peace. This agency was made not of steel and stone, but of innovation, quiet patriotism, steady virtue in the firm resolve of a nation that would not yield to terror."

And, my friends, you have first hand knowledge of those type of virtues, that strong commitment and firm resolve that animates this administration, this President's work at responding to terrorism.

The people that came to work for TSA came for the same reasons you came to your jobs and showed the same type of phenomenal commitment to do the right thing. And it really is a great story about literally hundreds and hundreds of people who took on this task.

I'm going to talk a little bit what it was that we set out to do and some of the principles that we embraced to animate our effort. And I'll let Jim catch up a little bit about where we are now and where we're headed and how we built on the foundation that we started with.

What is it that TSA had to do. Literally the night of the attack, we could -- we started to sit around in the secretary's conference room and plot how we would transform the industry that had been used as a weapon of destruction that night.

The sky was still glowing as I think many of you probably remembered and saw, that copper color of flame and smoke covering and blowing out towards National Airport. And we were sitting in the secretary's conference room and beginning to plan how to deal with these new threats, this new reality, before we knew there would be an organization called the Transportation Security Administration.

But we started off with a piece of legislation, which the President sent up and asked the Congress to deal with. And that legislation passed on November 19th, signed by the President on November 19th, and it established a series of very difficult deadlines and very specific activities that we had to do while people like [unintelligible] were working their component parts of the problem of security.

The aviation world became the initial focus, but not the exclusive focus. It was the focus of all transportation and the agency was tasked with managing security across all modes of transportation. And the vast bulk of the work came in the aviation world.

I'm going to talk about that mostly. But at the same time that was being chased, there was work going on surface and marine fronts that complimented this effort and -- efforts in other agencies, such as Customs and our other border colleagues working on components of this same set of aviation security matters.

But what we had to do was -- was basically three things and do them simultaneously. So, the first was we had to stabilize and then improve the existing system that -- that we had to manage security around the country; 422 commercial airports.

We had a system that the airlines had run and been responsible for and we had to assume responsibility by just a few months after passage of the act for management of all of that diversified work force.

And since the Congress had said they all have to be federal employees by November 19th, that meant that everyone there knew that their job was in peril. Every company that was working knew they would be out of that business -- that line of business -- by the end of the year.

So, we had to stabilize it, keep them working, incentivize them to stay and improve the performance significantly during that year.

Second, we have to plan for managing the deployment of people and tools to make airports safer. We didn't have a clue how to do most of it. And we had to figure out that plan in a very short order.

And, third, we had to start building it. What became -- on the day of transition, I believe, 68 thousand employees at the Transportation Security Administration -- at the beginning of the year -- a year before that set of goals had been reached, they were at exactly zero employees.

So, we went from one to 68 thousand in the course of this one year. And I'll tell you a little bit later on, we hired basically 90 percent of those people in four months. So, that was a massive task just to get the people there.

While this was going on, we had intense scrutiny from Congress, intense scrutiny, painful at the time, but I think constructive -- I say this despite the opportunity of looking obsequious to my colleagues from OMB [LAUGHTER] -- inside trying to figure out how to pay for it and what it was that we were going to do.

A lot of scrutiny from the press. A lot of scrutiny from our constituent groups in the aviation world. And virtually everybody was absolutely certain that we would flop and not succeed in doing this.

There were two guys that really didn't brook any of that. The first one was the President. The secretary him and the Vice President and others ten days after the passage of this act and basically laid out a plan of how we were going to do this.

And the President asked a lot of questions. He kept a focus on it and he said, okay, Norm, you do this and this will work. Don't deviate from this plan. And the plan wasn't what we would do, it was how to do it. How we would communicate, how we would coordinate, how we would test and make the product workable for this administration.

And then the secretary just took rather maniacally and appropriately and said, you can be excused anything but missing a deadline. You can be excused anything other than doing it right And, so, with those two small caveats [LAUGHTER] he led us on our way.

And basically the idea was we were going to plan for six, building seven. We were going to spend six months trying to figure out all the myriad of issues that we needed to figure out and then we would spend seven months actually doing it.

This was a risky thing which the administration supported us terrifically well at, but was hugely frustrating to everybody else in the world but us. Because by the time we got to May, it was a confirmed fact that we were a flop, a dead failure and could never get it done.

We'd gone six months into the new organization and there was not a white shirt to be found anywhere in America at an airport doing security screening. So, it was clear to everyone but us that we were dead meat. And we just didn't know it, according to them.

So, all that frustration built up, but in fact what we were doing was laying out a very precise roadmap, a chart of deliverables and a time table to perform that would be executed in a way that people could see visibly in June, July, August. And that's what the plan was.

So, we set out to do multiple things and I want to talk about three things that I think made for success. First it was this mandate from the top down from the President to the secretary that said, nothing but success will be tolerated.

That was just tremendously important because at times people didn't believe that we could do it, even on our own team. And we had to look each other in the eye and say, you know, like hell, I'm not going back to the boss and say we couldn't figure this one out. Let's just roll up our sleeves and do it.

The second key to success is that we knew that we didn't know how to figure out all the answers. And we then spread a loop around -- all around the government and outside the government.

And I think a crucial point of this was that we brought in about ten very very senior private sector executives to help us look at the work of the government through new eyes. And that was phenomenally important to making it work.

Most of them had never set foot inside a government office building to do anything other than maybe file a regulatory petition. And we went out and we got the person who handled the Y2K problem for Intel. That person is now Jim's chief technology officer.

We got a person from Marriott to work on quality issues for customers. We got a guy from Selectron who'd won two Baldrige awards and that person helped put in place a quality management process for the new organization, measuring just like a business would measure the tools and the metrics we needed to be successful and to be able to validate and to count it and know what we were going and how we were doing.

We got a Fedex official to help manage this massive deployment at 442 airports. We borrowed a person from Disney to help us do line management. Whey we knew that the lines were totally messed up -- if you can talk your mind back to January of 2002, there were lines strung out at every airport around America, into the streets and into the alleyways.

And one thing we figured is at Disneyworld they had it right and darn if that guy didn't figure it out. So we just -- we were shamelessly willing to acknowledge how unprepared we were to figure out most of these things and we just brought people in.

We brought them in under a unique contractual relationship that allowed their firm to pay them and then work for us and be reimbursed. We just went and got those.

And then we stole people shamelessly from around the government. Some for a few weeks at a time. Some for a few months at a time. Others permanently part of Jim's team.

And we had a sort of passing test. If you interviewed somebody at that point back in a year -- you know, first few months into the game and they didn't look like they were ready to jump down your throat and get to the process, we said, thanks anyway and sent them back to wherever they came from.

We really put a passion test on to it. Somebody who knew why this was important and was determined to be part of something that would succeed. And that was tremendously satisfying.

I'll give you one little example on September 11th, we had exactly 33 federal air marshals to cover some 30 thousand flights a day. And within a matter of week, we had gone around to virtually to every agency that had law enforcement capability, including inspectors general and others around the government and said, would you loan us for a short period of time some people needed to get this up.

And you would have been amazed to see and gratified to see the type of passion that we found in Secret Service, the FBI agents, the agriculture department sent their folks over.

It wasn't an army from any place. It was a steady stream of people who wanted to do this work and to try to help plug a gap in that sort of dark set of days.

So, we borrowed consistently from around the government to find the best people we could and finally we built this team of folks who were committed. And Jim I think is going to talk a little bit about it, because it's management initiative and principles and how they got baked into the organization, so I'll leave that for him.

What we found was a tremendous group of people that wanted to do this. And, so, all of the things that you hear in the old hackneyed phrases about the federal government being slow and unresponsive and not being nimble was not borne out in the people that came to this party.

So, what we did is we set out to do all of this and for six months we had to figure out how to spend a couple of billion dollars on electronic detection, tools to detect explosives. And every year prior to this point, the most we'd ever built was 20 machines.

We built a thousand machines last year and deployed them in the field. Literally on Christmas day we had 100 trucks delivering these things to airports around the country to meet the deadline, putting them in every airport by 12:31.

So, on New Year's Eve, while some of you were out at other types of festivities, we were sitting in a war room with Boeing watching the lights turn green as we rolled to airports around the country.

We knew we couldn't lift the whole thing, so we did these massive procurement that brought teams in from outside. At the peak, we had 105 thousand people last fall working to meet that 12/31 deadline.

Our own people and contractors from Lockheed, Boeing, NCS Pearson, Seimans, others out there in the field trying to lift this work. And each of them brought this same type of creativity.

I remember one story from New Year's Eve, they were trying to move one of these big van sized pieces of equipment across a wooden pedestrian bridge and slide it into place and turn it on and do the factory acceptance test on the -- on the 30th.

And they found out that the bridge wouldn't hold the load. So, instead of just declaring failure and causing that airport to be on the list of red airports, the ones that weren't going to make the deadline, these guys went overnight and fabricated a steel bridge, which they built on top of the wooden bridge.

Slid the thing across the steel bridge, waited until they got the acceptance test and pulled the steal bridge apart, disassembled it. And when the passengers came in that next morning, it was all working and in place as it should be.

That's the sort of can do attitude that people had to find pretty much consistently through the year. We really tried to take the best of the private sector and we put out very broad performance and results oriented procurement and said, do these things.

And we often times didn't know how to do these things, but we used these partners and said you will be measured in your success by some very clear and simple metrics. How you're going to get there is yours to figure out.

And then we micromanaged the bejesus out of them and made sure that we were all in agreement about how they were going to get there and sorted out the problems.

But that was the procurement method. That was the business management tool that we tried to use to get where we needed to be. And I think that worked tremendously well for us and for folks.

I want to end with a personal story. In April, I took a trip out to Arkansas to give a cardboard check out -- Deputy Secretaries give out cardboard checks for a living [LAUGHTER] -- and I gotinto this little regional jet and I got to the back of the plane on row 14, I was in the last row Seat A.

There was somebody in my seat and I said, excuse me, ma'am you're in my seat. And she, you know, got and said, well, I've only flown once before, how does this A and B thing work. And I said, well this is A and that's B, if you have any more questions I'll help you out. [LAUGHTER]

So, I sat down and opened my notebook and started to do my homework for the next assignment. And she said, I'm going to Virginia. I said, that's great, I am too. She said, yep, got a new job. I'm a little worried, this is only my second flight and I'm thinking oh, my god [LAUGHTER] I'm not going to get any of my homework done.

And she says, I'm working for the Transportation Security Administration. Boom, I looked up. [LAUGHTER] The first one I'd ever seen except in my office. This was one of the people that we had to figure out how to train some 60 thousand people and we got 600 people down in Oklahoma.

And we trained the trainers, the classic philosophic problem of Aristotle, how do you get the first one to do the thing and then train the others. We figured that out. And she was riding around to go work on a pilot test on a new piece of technology.

So, I started talking to her and she told me all about her life. It turns out she's a single mom, she had a little disability which she had to carry some medicine on the plane and she needed a little help with that and that's how I had actually first started talking to her.

She had wanted to be a Marine and serve her country, but the medical condition prevented it. She never graduated from high school, but she went on and got a GED and after 9/11, she applied for a job working for a third party screener and got that job.

And then when TSA was created, she applied for it. She said, Mr. Jackson, I beat out a high school teacher. [LAUGHTER] She was so proud. And she was talking about her job. And she said to me, you know, people in airports are grumpy and nervous these days, but that's okay that they're grumpy and nervous. That just means we have to do a better job.

But whenever I feel a bit stressed out, whenever I feel like this is hard, I just turn my back to the x-ray machines for just a couple of seconds and I look down that jetway and I watch people going down that jetway and I think, if I do my job tonight well, they'll get home tomorrow to their child, their spouse, their mother who loves them. And she said, this is why I'm doing this job. It's just important to the country and I just feel great about it.

Well, I could have flown the rest of the way home without that airplane that night and that was proof to me that if we -- if we structured this thing and supported all of these literally tens of thousands of people out there in the world in the right way and gave them the tools and the capacity and the support they need to succeed, America would put the assets and the tools and the spirit that we needed against this challenge. And they did.

And we have tens of thousands if those people out there today. But it all goes back to what I started out with. Jim has been so magnificent about leading and defining and supporting which is this commitment factor that has animated TSA in a very unusual way from the beginning.

I've probably talked to long. Jim, I'll let you take a whack at it and then we'll answer some questions.

JIM LOY: Thanks, Michael. I think that what I'd add is a number of things. First of all, this vision notion that Michael began with, beginning with the President and just being recommitted by Secretary Minetta was one of those things without which I don't know we would have all gotten done what we got done.

They not only did not allow us to vary from the plan or to suggest that it was going to be impossible to get that piece done, they were constantly of the mind and body and spirit of reminding us as to what would be fundamentally unforgivable to any of us if we got to the right point on the calendar and we hadn't got accomplished what the country needed accomplished.

It had to do with the nobility of the work, had to do with the commitment of the people, which Michael described just momentarily ago with this one screener he met in the air.

Secondly, vision gets you excited, gets you to work in the morning, gets you committed to the long haul. But there is also, as we all know in all of our jobs, the in basket, the mechanics of actually making it happen day in and day out.

So, you needed a trail boss in that regard. And Michael became the trail boss long before I got to TSA. I never got there until the June time frame. At my ceremonial retirement from the Coast Guard, Secretary Minetta gave me 15 seconds of retirement and suggested that my butt would be in his office working the following Monday morning.

Which was just fine. This was the kind of time frame where all of us -- everyone in this room -- certainly everyone that has come aboard to our organization in the course of this last year -- there was something different in the air. And it called for a personal commitment that becomes and organizational commitment that becomes a national commitment.

So, this idea of the emotion laden end of the tasks that we had before us did have an awful lot to do with the accomplishment at the other end of the tale, and that should not go unnoticed.

Michael has mentioned this amazing team that came together. First of all there's a whole lot of people in this room that were part of that team at the very beginning.

I see administrators from the DOT, I see a whole lot of players in this room that were the OST staff members that when you looked around and saw zero on the balance sheet as it related to body count for TSA, they became the TSA work force augmented by those folks Michael mentioned And this astonishing public/private partnership that became the contractual arrangement by which we got so much of this work done.

So, the combination of OST staff, loan executives, contractors and then the emerging stand-up of the organization itself, that team became what was composed to get the work done.

Ken Meade our IG at DOT, he was the kind of guy that I went to immediately, because of my association with him at the Coast Guard and realized he could become one of our most constructive critics and hold on to the role that he retains as an Inspector General.

So, when we had wild ideas that we thought were going to be incorporated as part of the next scheme to get something done, bouncing them off Ken and his staff offered us a chance for advanced constructive criticism, such that what we ended up with was a refined policy at the end of the day was better for it.

We learned very early that telling the story along the way was an enormously important ingredient in getting this work done.

We flunked for the first six months, because all we ended up getting was skeptics after skeptics after skeptics and we lived in a goldfish bowl. There was no doubt about that.

And the nature of this planning for six months, execute for six months notion that Michael put on the table was absolutely true. But what it offered was a field day for the skeptics who were gradually growing with this almost wave of there's no way you're going to get that accomplished.

Chet and his team -- before we ever had anything called a Public Affairs staff at TSA -- became the arm by which we attempted to shape stories in the press that enabled us at the other end of any given day, any given week, to have a -- a positive outlook on where we going next.

The notion of a brand new organization I think has been an attractive part of an awful lot of people that have come to work at TSA. The idea of that as a leadership experience -- in addition to the personal and organizational and national commitment -- we had to get this work done right.

Here is a chance in the federal sector of taking a clear sheet of paper and designing whatever it was that it was going to become -- this TSA -- especially given the tools that ATSA, Aviation Transportation Security Act, offered the early stake holders, the early clank[?] in the administration of TSA to make happen.

So, the design of a culture there, design of the mechanics about how to do business, the whole notion of being able to put into place those five pillars of the President's management agenda and use them constructively and use them well.

So, if you're talking about the human capital end of the President management agenda or the government end or the outsourcing end or the whole notion of metrics and calibrating by performance at the other end of the day whether you're getting done -- the accountability piece if you will, the financial effectiveness piece.

The idea that the taxpayer deserves a return on an investment notion to every nickel and every dime that was being spent.

Well, we have been spending by the billions in order to get done what was necessary to get done this past year. And you can take any one of those five major dimensions of the President's management agenda and I can show you how we consciously made and effort to put that into practice at TSA in the design work of the culture.

We are by far the most diverse organization anywhere in the federal government. We have outsourced our human relations contracts both initially to get started and we realize that it's got to be a awful lot better for us to have 20 or 25 federal employees overlooking whatever was necessary to provide not only recruiting, assessing, training and deploying services to our replacement work force, but also the servicing of the existent work force.

That that's something that can be done infinitely better in the public sector than is currently being done in the federal government.

So, this notion of outsourcing was not a remote transient thought for us, it was how do we think our way through one or two or three or four actually applications of outsourcing in the design work of the culture of this new organization.

We had to put things into practice that meant ongoing commitment, the whole notion that whatever our -- whatever our security paradigm is today at the airports or elsewhere in the transportation sector, by definition it's not good enough for tomorrow.

This simple notion that the bad guys are out there and the image of them sitting in a cave in Afghanistan trying to figure out what to do next -- we all now know is hardly anywhere close to the truth.

In reality, they're sitting with lap tops somewhere -- I made the mistake one day of saying at MIT -- I don't say that any more [LAUGHTER] -- that somewhere gaming exactly what they see as doing in the security work of today to beat it tomorrow.

So, our compensating a cultural attribute has to be whatever we're doing today is not good enough for tomorrow and we have to literally be redesigning almost as we're installing. That challenge is an enormously exciting part of the intellectual applications on a daily basis.

Core values, we need to have -- when I came into the organization in July, we went to an off-site with the leadership -- they were already about five or six months old. And I asked about core values.

Because I knew in my Coast Guard the core values meant something. Every young recruit going through boot camp understood not only to be able to recite the words, but to really know what those words meant.

So, I wanted to make sure we had the right core values. So, I asked the question, do we have any yet at this new organization. And they said, yeah, we have about 13. I said I want to see somebody in this room stand up and tell me what the 13 core values are. And, of course, none of them could.

So, we reduced that to three. And they're about integrity, innovation and teamwork. And we've had written stories about each of those in our little newsletter that we're putting together before we're able to actually have a fancy magazine like most mature agencies have in the federal establishment.

The notion of a model federal agency for the 21st Century became the design fabric with which we wanted to sit down and actually take those things on.

Michael mentioned quality -- and the contributions from the private sector were terrific in terms of the Baldridge Award winner we had on the staff designing those things.

I don't know about you all, but back when the quality movement was in such vogue, I was never one to sign on to, you know, this guru or this guru. Rather I took all dozen of the gurus stuff and tried to put it in a matrix and look for what the common bonds were among all of them and pressed those as the means by which we designed the quality program in the Coast Guard.

And I would almost offer the same thing about what we have all seen as this alphabet soup of almost New Dealy kind of legislation over the last decade that's about GPOA and ITMOA and the CFO act, et cetera. You can run the whole gamut.

My notion here was what's the common ground about all of these things and what makes sense. And it's about efficiency, it's about effectiveness. It always goes back to performance based efficiency and effectiveness and the metrics at the other end of the day -- to be able to define for whoever it is that you're being asked to prove your mettle as to whether or not you can do that.

So, those are the kind of discussions we had. Those were the kind of design parameters we wanted to use to take this incredible opportunity we had, to literally design the -- a model work force living in a model work place in the model federal agency for the 21st Century.

We had -- you know, as much as I love the 213 years of legacy that I always bragged about in the Coast Guard, I didn't have to worry about one day's worth of that when I came to this job.

Because we could literally design whatever we thought was best for the nation, best for the mission, best for -- for getting the work done.

The last thing I would mention before questions -- is to intellectually think through -- there's about -- there's three or four very important conceptual frameworks that we have to wrap ourselves around, to take this agency responsible for the transportation sector and move it over to DHS as a functioning commodity, perhaps even one that can be learned from a bit, while they go through not their stand-up, but their merger -- an enormously different economic set of challenges.

But nonetheless we think we have done some things very, very well. And they're based on intellectual parameters. For example, we have all talked for years about this notion of prevention and response and consequence management as sort of a standard paradigm of what might be the best way to think through many of our problems, especially in the operational sectors.

I am of the mind that across the decade of the 90's -- and I've spoken about and written about this for several years -- that we've begun to miss the bubble about the awareness piece that has to go in front of prevention response and consequence management.

There is this crazy gene in all of us called complacency and it's in people, organizations and unfortunately in nations on occasion. And I am of the mind that across the decade of the 90's and before 9/11/01, we had actually lost the edge a bit based on having won the cold war, having watched the wall come down, watched the Soviet Union dissolve. And we gained national complacency, unfortunately.

And you all remember the stories about how in the world we connect the dots. This is not finger pointing at intelligence agencies or anything else. This is just a reflection of what can become personal, organizational and national malaise if you are not focussed on whatever the target might be at the moment.

So, putting awareness up front of prevention response and consequence management means a lot to me. I think you can design better prevention protocol, you can design better response protocols, if you really know what's going on in the domain in which you're responsible So, that's one of those theoretical concepts.

Another one is understanding that in any one of the transportation sectors -- as we build a national transportation security plan for the nation -- [unintelligible] maritime and the four major theses of land -- you know, pipelines, rail transit and highways -- I believe that whole package has to come together almost like puzzle pieces that interact, interrelate.

And then that piece is just one of the 14 major sectors that we have in our economy that we're all concerned about and responsible for.

So, if I can make that piece come together and offer that to Secretary Hutchinson to offer to Secretary Ridge to be concerned with the DHS wide spectrum, then I think we will have done -- made a contribution.

Lastly, the notion that inside the transportation sector, it invariably comes down to people, cargo and infrastructure. Infrastructure meaning either conveyances or facilities.

And that one varies a whole lot. But in the people it's either about crew or passengers and cargo, that pretty much speaks for itself and in the -- in the infrastructure piece, whether it's a ship in the maritime sector or a car on the highway, train on the tracks -- whether it's a right of way on that train, which has very different security challenges associated with it than a people concentrated airport hub, for example -- the variance between -- feed into that national plan, running down through standard settings on ability assessments, mitigation strategies, action plans and compliance of some kind at the other end of the day.

That's that loop that I need to answer back to Secretary Hutchinson, Secretary Ridge to make this happen in our -- in our world.

So, these almost theoretical constructs have to become matrices where the boxes get filled in. And there is so much good work going on in that regard, along the way, that it's not as if we're starting with an empty matrix. There is great work being done in cargo, in people, in conveyances across any of the other dimensions that I just mentioned.

Lastly, my commitment story, on a personal level. We have a screener that is currently working at Dulles show up at Dulles with a ticket in his hand to Los Angeles on 9/11, went to the ticket counter and he was there early, which the FAA had told him to do.

He asked if there was an earlier flight and the ticket counter employee said, yes, there was, made the arrangement for him. He got on his plane and off he went.

And he was over Kansas or some place and the captain came on the line and indicated that they were going to have to go down. No, mechanical problems, everything is fine, we'll let you know when we get to the ground.

And, so, they landed the plan in some Kansas cornfield instead of Los Angeles International Airport. The young man went into the terminal and saw that the plane he had a ticket for originally was the plane that hit the Pentagon.

So, the notion of where that young man comes to work day in and day out is an enormously personal level for him.

We have a group of our screeners called 9/11 screeners. Mostly as you might imagine -- Laguardia, Newark or JFK -- who lost parents, lost siblings, lost children.

That group of people forges the core around which the rest of what happens at those airports. And the challenges are enormous on a daily basis.

I am not here to suggest even remotely that over the course of this incredible amount of work and energy that's invested this past year -- that we're where we want to be.

The layered system that we've developed is a good one. But there -- the vulnerabilities in our open society are enormous and we all know that. But our challenge is to -- is to raise the confidence of the American public.

And in so doing as government operatives, I believe that chore to be almost above all -- that we do. Let me stop here and we'll be happy to tray and answer questions.

QUESTION: What's something you didn't handle well as you look back and what are the lessons learned form it.

JACKSON: We didn't know how complicated the job of hiring all these people would be. And our first contract out of the chute, we gave a set of very simple performance metrics to a contractor that worked very, very hard. And ended up getting very, very good people, the proof is in the pudding.

But we spent a phenomenal amount of time and money trying to figure that out. And that's an area where when I look back on the performance, that was the one that we had to struggle at the hardest. We're still struggling in the audits that follow all of that.

But that was the front end of where the people who wanted to work with TSA met the government. We didn't do as good a job of that as we could have and should have.

And it was extremely hard, but no excuse. That's something we didn't do as good a job as we could have.

LOY: For me it would have been trying -- when we knew very well how important it was, it seemed to be impossible to overcome this tendency to get really really good at last year's war.

In other words, what happened on 9/11 was about taking airliners and turning them into weapons of mass destruction. And, so we have concentrated, out of the public wealth, billions and billions of dollars to sort of fight last year's war and I -- I have always been concerned along the way that we were not articulate enough to stretch that focus on that particular single event, to understanding a simple little two by two matrix, which would have vulnerability on one axis and value on the other axis.

And then go to the high value, high vulnerability corner and start there with our investment of our public wealth to deal with it.

It's a natural thing, the US Congress and administrations have historically done that. But I sometimes wish we would have been able to articulate the -- that vulnerability value package a little better than we have.

JACKSON: We had two really crucial things in that top right hand quadrant that Jim was talking about. One of them is a so-called CAPS II program, which is a very intensive technology effort to look what -- Jim's metaphor for this one is not to find the needle in the haystack by rooting around in the side of the haystack, but by taking hay off of the stack.

We're trying to find a way electronically that's consistent with personal freedoms and privacy concerns, to focus in on who the bad guys are. I think the Customs Service is working on exactly that same theory on the freight side, trying to figure out who are people that we're comfortable with, relatively speaking. And how can we then focus our precious assets on the ones that we don't know enough about.

That's one of those high top quadrant thing. And that's something that we really are working hard on. I think it will be a tremendous value to the country.

Another one is core R&D money, which has slipped away from us in the Congressional process by them earmarking things that look more immediate. But core research on explosive detection -- we need to do that better, we need a new Manhattan project to make this new generation of tools. The ones we have are not as good as we need. And we need to focus on that.

QUESTION: First a comment. I had the good fortune to travel the week before and the week after you put in the new people and it was night and day. And I like the fact you left in all the barricades and the lines to show what it might have been.

Sustainability at the government employee - public interface, which is essential becoming an assembly line operation again. How do you keep that charging through and what your thinking on carrying that program forward?

LOY: Well, for me the most important part of sustainability is the screeners and their supervisors and their bosses all the way up to the security directors at the airports holding the edge.

You know, there's a zeal associated with our initial work and as time goes further and further away from the event, I think there is a disproportionate potential to go the wrong way as it relates to energy associated with this work.

We have to continue to invest in the training requirements necessary on a daily basis, let alone a recurring basis. So that we don't just get the notion that we have trained these folks, we did a really good job, we are investing more than 100 hours of training in every one of those screeners. The numbers prior to 9/11 were in the single digit range. It was simply perceived as a cost item on the bottom of the budget.

We think the initial investment is about right, but when we gain sophistication in terms of on screen resolution in this electronic equipment in the EDS world, that set of skills is something that will erode over time, if we allow it to.

So, we are scheduling breaks to be sure through the course of the day, but a number of those breaks aren't just to go have a cigarette somewhere or have a snack somewhere or just go take a deep breath.

They are back to the training room to allow images to cross the screen and to refresh -- so holding the edge of the screeners at the work place is to me the most important piece of sustainability that we need. And then the second thing is to finally get to a normalcy as it relates to our budget cycle. I mean, there just hasn't been such a thing so far. We have -- there's a lot of advocates in this room I suppose for a two year budget cycle in the federal government.

Well, we've had the other side of the coin. We have five or six budget cycles a year. We're getting to the point where we thought we understood what the mission was going to be and what resources were required to do it, only to find more or less being -- the adjustment process.

So, we literally had to get back over and be back to the appropriators, back to the authorizer and help them understand that here we three months later with an almost totally different laydown.

And then our organization really was stung badly by the CR process through the year, mostly because of two things: A. We had no base line from the previous years on which to project a 1/12th feed out over a monthly basis.

And, second, perhaps more importantly, the first quarter of fiscal '03 is when we were supposed to finish our work, quote/unquote. Buy all the equipment, pay all the contractors and to continue at the '02 funding level. It was just a nightmare for us. So, we're still catching up with all of those kind of things.

To the budget piece -- and then sustainability for me is always going to be about the screener workforce in the airports and our ability to manage through lots of other players, hopefully somewhat approaching the same quality of performance level in the other modes of transportation.

We're not going to have hordes of white shirted TSA employees running around bus stations and train terminals, cruise ship terminals. But we will use their employees, their trade associations, their folks to do largely the same thing about people, cargo and infrastructure.

QUESTION: Could you talk a little bit about the internal dialogue about going from 13 core values to three and were the 13 actually values?

LOY: I think they were. They were good adjectives, a couple of nouns thrown in there I suppose.

For me, core values for this organization had to be about integrity, innovation and team work. Describe the team piece early, you know, among so many disparate players. It was contractors and OSD staff members and a growing TSA group and executives Michael spoke about.

So, the team work piece I think is -- is just so applicable to teams at airports, teams at terminals, teams at lanes, let alone the teams within the federal bureaucracy and the administrative staff here in Washington.

The innovation piece is all about that notion of being better tomorrow than you are today. Knowing that what you're doing today is not good enough in the national interest. And when you measure that against the importance of the work to be accomplished, something about creativity or innovation or whatever had to be part of that. And the integrity thing I think speaks for itself.

We are -- you know, we are now, as necessary, opening bags at airports and slipping a little note in there that says your bag has been opened by a TSA employee -- clipping locks where we have to meet the mission, which is to make absolutely certain that every bag and every passenger going on that airplane does not pose a danger.

So, the integrity associated with not ever being perceived as an organization that went into that bag -- and do anything other than treat with the greatest respect to that passenger's piece of luggage.

So, it just ripples throughout. The first three became -- and the process to go from 13 to 3 was easy. I said we're going to have three. [LAUGHTER]

JACKSON: I'll say a word about the innovation message that Jim had. We just put, as a core value, from the beginning that we would value China breakers. Not people who couldn't get along as a part of a team, but people who looked at the way we were doing it and said, why does it have to work this or is this good enough for us.

I'll give you one example, to get to 60 thousand screeners in the airport -- we had applications from 1.7 million people. We had something over nine hundred thousand complete. We did several hundred thousand full reviews of the applications and winnowed it down to job offers and people trained and roughly 60 thousand in the field.

We broke the system on trying to figure out how to do background investigations. You could never get this force in the field using the tools that the federal government brought to get each one of us in this room. [LAUGHTER]

So, we had to find new technology, new procurement, private sector partnerships, we had to rebuild a new pipeline into the FBI. They helped. We had to use other agencies in way they had never thought about doing -- we also on a parallel track had one million people that we did clearances for as airline and airport employees during that same time period.

So, we had to create an interface out in the private sector to let a trade association help the switch between the public sector work and the private sector retail front end.

So, I guess what I would say is that innovation gene has to be baked into here. And actually when you start getting people thinking like that -- in the rest of the department we've seen salutary ripple effects of that -- that sort of forced marched mentality.

Now, our senior management team looks around and says we did a million background reviews, what about this little piddly thing, let's fix it too. So, it did become a little bit infectious.

QUESTION: We know the President starts his morning with an intelligence briefing on the war on terrorism. Do you have anything similar that keeps your focus squarely on the task at hand?

LOY: We do. I do get an intelligence brief every morning. And, of course, what we're trying to do is synthesize from all the various vectors of intelligence that are part of our government on a daily basis that which relates to the transportation sector. And do our analytical work with that.

We're not in the collection business very much. And I suppose if you think of the screeners out there as censors to one degree and if they report what they see that's a good thing.

But mostly we're in the analysis and the dissemination business. Analysis of what we see crossing the -- you know, crossing the screen that is transportation related, translating that hopefully into some kind of products that we make decisions about and put out to the right players.

One of the enormous -- the other important thing -- to go directly to your question -- I have a picture on my wall in my office of the World Trade Center and that is consciously a reminder to me day in and day out.

And when I go talk to new work force members I ask them to do three things: to remember why many of them are giving up professional and successful careers to join this organization.

Put a bent coin in your pocket or a picture on your wall so that on a daily basis, as you go to work, you have a reminder as to why it is you chose to do what you're doing at the moment.

The second thing is I ask them to think about balance; and, the third thing is about attitude. Balance is all about helping them understand that we can build a security paradigm that literally puts aviation out of business or rail out of business or anything else out of business. And we can't go there.

If there has been a guiding light from Norm Minetta from day one, it was build yourself a teeter-totter. One end of that is security, on the other end is customer service. And you must keep those things in balance and understand that all of that apparatus is sitting in an economic foundation which is the fundamental underpinning of the quality of life of America. And if you forget that, you've lost the bubble a bit.

The thing about attitude -- I would hope that all of you have seen just a remarkable change in the attitudinal end of screeners across the country. But I will also tell you that that's the classic iceberg.

You know, what you are seeing and the respect, courtesy and professionalism of these people is the ten percent above the water. It's the 90 percent below the water that is our mission. And that is don't let the guns on board, the bombs on board and all of the operationally meaningful things.

The ten percent above the water, we consciously said, we can make that such that people never want to go through that experience again or we can make it in such a fashion that people not only sign up, but are more than happy to endorse whatever it is that they have just gone through, because they can comfortably get on that airplane and feel that they're going to be okay at the end of the day.

But it is the iceberg. We had a little event in Denver last week where one of our local managers dealt with children in a much better fashion that we had been routinely dealing with them across the country -- little kids, who were petrified. And the screening supervisor got tired of kids screening and hopping on their dad's legs or whatever.

So, they went to great lengths to put puppets on the wands, really neat things and it was a wonderful story. And given the resources we'll find a way to make that a best practice that we scan across the country.

When I heard the story, I said, if there is one moment of deflection of tension that is about making sure kids aren't crying that does not deal with the 90 percent below the water, that is not a good thing for us to do It's just one of those lessons you have to constantly remind yourself about day in and day out.

We can do a lot of things better on that ten percent above the water. It's the 90 percent below the water that is our challenge and our mission.

QUESTION: One of the concerns about federalizing employees is that it takes an act of god to get rid of a bad employee. What, if anything, do you have in place for those few bad eggs.

JACKSON: We wrote the law with the Congress specifically to make sure that we could terminate an employee when we needed to.

LOY: And we have.

JACKSON: And we have done that consistently where it was required. So, it's a great deal of flexibility that that GSA enjoys to take somebody out of the line. It's a necessity in a safety and security function like this.

I'd like to say one last thing. The one thing that is also so important is that the people who signed up for Jim signed up with this maniacal attention to detail.

Just to talk reengineering the gate screening process we built during that first six months a tool, tested and then built a more systematic model to chart out the things that needed to be done to improve the process at 442 airports where people pass through screening check points.

At the end of the day in the fall, we were tracking 187 thousand specific tasks in 442 places and people owned a portion of each. And there was somebody assigned. There was somebody that was measuring the progress towards it.

And the tool was automated to help you flow up a change on delivery of materials for this construction component -- would then sweep down and flow through the rest, so that we could manage it.

That was the engineer's impulse that took over the stand-up of the organization. And it really is a core component of what TSA needs to bake into its genes. Jim is absolutely right, we're not done with TSA. It is still an infant and it will grow and improve and make things work. Jim's attention to details and core values I think is an important part of its future success.

LOY: I guess my last thought would be security is not a guarantee. It's a filter. So regardless of how much any of us would like to go home on any given day and say that cargo thing is squared away today. And we all know that it is simply not.

So, we have developed this layered system where if there's any single tool that's around 50 - 70 percent effective, we want as many of them in place as necessary to allow the statistical results to be pushing the 90's. But we're never going to get to 100. If we ever get to 100, we will have cashiered those inalienable rights that we so dearly love in this country and we ain't going there on my watch.

CLAY JOHNSON: I'm willing to bet that everyone in this room is thinking how can I go back and make sure that my part of the federal government is approaching its business, professionalism, intelligence and attention to detail that you all have employed to stand up TSA.

I feel very comforted by the fact that I'm betting that the Department of Homeland Security is attempting to apply to the overall subject of Homeland Security what you have applied to the Transportation Security Administration.

The greatest compliment we can pay to you is we are all so very very proud to be on the same team as you all and thank you so much for all that you and the 168 thousand people have done to bring great repute and great credit to this county and this administration. I think we owe them a huge round of applause. [APPLAUSE]

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