As recently as a couple of weeks ago, we described recent statements by an official in the DoD Chief Information Office (CIO) – about the potential for a “faster, secure pipeline” for commercial SMBs trying to innovate on behalf of the DoD – as the rare DoD signal of an awareness of the challenges faced by small business tech contractors.
In contrast, equally as rare is the very recent cavalcade of reports of real movement on rapid acquisition initiatives, a letter submitted to the DoD by major industry players (Anduril, Palantir, etc.) to “speed up innovation” and a $1B House appropriation proposal to push commercial tech. To balance out the good news, we also include in this post metrics illustrative of the fact that, while the Defense Industrial Base “is still quite vast…it is steadily shrinking.” Finally, some interesting ideas about how AI/ML may be leveraged into innovation in the efficiency of procurement and the product development process for commercial firms dealing with the DoD.
The headlines captured below include:
- Kendall: More rapid acquisition is within reach if Congress acts
- Venture capitalists and tech firms beg the defense secretary to speed up innovation
- House panel eyes billion-dollar Pentagon fund to push commercial tech
- Defense Industrial Base loses thousands more firms, mainly because DoD is a tough customer
- AI data mining can bridge the gap between defense tech developers, users
Kendall: More rapid acquisition is within reach if Congress acts
In his first op-ed since becoming secretary of the Air Force, Frank Kendall calls on Congress to support a DoD measure to speed new tech programs.
by Frank Kendall (Secretary, Department of the Air Force)
Perhaps the biggest challenge facing the Pentagon — larger than any one geopolitical foe — is its struggle to move quickly enough to keep up with technological development and the breakneck evolution of the modern battlespace. And while the Defense Department has rolled out several initiatives to make up ground, in his first op-ed since assuming the title of secretary of the Air Force, Frank Kendall argues below that there’s a way to go faster, with Congress’s help.
Over the last two years in my position as secretary of the Air Force, I have begun each of my eight Congressional budget posture hearings with a reference to Gen. Douglas MacArthur’s warning that almost all military failures can be summed up in the words “too late.” My obsession is that the Air Force and Space Force not be “too late” in acquiring the capability needed to remain the most capable military in the world.
Ever since I returned to government service in 2010 after a 15-year absence, I have been sounding alarms about China’s military modernization program. There is no time to lose in responding to this challenge, and that is why the 2022 National Defense Strategy marked a historic shift by identifying China as the Defense Department’s “pacing challenge.” More than ever, we are hard at work deploying cutting-edge capabilities to our warfighters in the immediate term, and we are investing in the capabilities we’ll need in the future to make sure that deterrence across the Indo-Pacific region and beyond remains as real and strong as it is today.
As part of these efforts, the DoD has submitted a legislative proposal to the Congress that would cut at least one year, and often two years or more, from the lead time to fielding new capabilities.
“This is a modest request and a genuine reform that I have argued was needed for decades.”
During the first year of my tenure, the Department of the Air Force analyzed the operational problems that we had to solve to maintain our ability to project power in the Western Pacific. A year ago, that work produced well-supported recommendations for the initial set of capabilities needed to maintain our superiority. The recommendations were buttressed by analysis and included the funding streams needed to complete the necessary new product developments.
Included in the recommendations are a dozen “new start” programs. The Department of the Air Force then worked with the Office of the Secretary of Defense to finalize the fiscal year 2024 budget that was submitted in March 2023. Under the normal process, we will continue to wait for several more months, even if Congress passes authorization and appropriations on time.
The legislative proposal we have submitted would allow the Department to cut well over a year from this process, which currently requires formal congressional legislative approval before a “new start” program can be initiated. Under the Department’s proposal, we would have the authority to take the early and relatively inexpensive first steps down the path to fielding needed capabilities. Under our proposal, programs could not proceed beyond the early milestone known as preliminary design review. The activities we would conduct (generally in a competitive environment with industry) would include systems engineering, requirements definition, preliminary design, and modest risk reduction. All of this would be done without any contractual or budgetary commitments beyond the early preliminary design review milestone.
This is a tightly focused and targeted proposal. It builds on but does not replace other reforms enacted by Congress. The Department’s request is capped at $300 million per year, total. Service secretaries using this authority would be required to obtain approval from the secretary of defense and notify Congress within 15 days. This sum is adequate to conduct a small number of pilot programs to test out the concept, but not anywhere near enough for general application. This is a modest request and a genuine reform that I have argued was needed for decades.
“With Congress’ support, we can…hopefully avoid the disaster of being “too late” when we are truly needed.”
Over my career in national security and defense new product development, one drumbeat has been constant: the process is too slow. This proposal represents low-hanging fruit that would eliminate one to two years from critically needed programs without any risk.
The United States needs a bigger toolkit to maintain our competitive advantages and strengthen stability and deterrence. When we discover innovative applications of technology that will give us a significant military advantage, we need to act.
The teams we assembled to address our highest-priority operational challenges did great work, and I’m very proud of them. However, their solutions were delivered over a year ago, and we are certain to have to wait at least months longer for new start authorizations and funding. With Congress’ support, we can get on with that work, and hopefully avoid the disaster of being “too late” when we are truly needed. (1)
Venture capitalists and tech firms beg the defense secretary to speed up innovation
Executives controlling almost $100 billion in assets co-signed a letter to Sec. Lloyd Austin, urging him to adopt acquisition reforms put forward by an independent Atlantic Council commission.
Yesterday, “a coalition of 13 tech execs and venture capitalists announced they’d written Defense Secretary Lloyd Austin, asking in an open letter for major changes to how the military procures cutting-edge technology. Topping their agenda:
- A beefed-up Defense Innovation Unit, the Pentagon’s embassy in Silicon Valley;
- A better user interface for the federal contracting website, SAM.gov;
- Less rigid cost-accounting rules for contractors;
- More generous grants through the Small Business Innovation Research program; a $250 million “bridge fund” to scale up new tech from field tests to production; and
- Most dramatically, an additional $20 billion in annual procurement.
The execs cherry-picked these proposals from a much longer list of suggestions in a recent report by the Atlantic Council’s Commission on Defense Innovation Adoption, which is co-chaired by former Defense Secretary Mark Esper and former Air Force Secretary Deborah Lee James.
“Unfortunately, antiquated methods for developing requirements and selecting technologies have drastically limited the Department of Defense’s… access to the best commercial innovation. This must change,” says the letter [PDF], delivered to Austin’s office Friday. “To this end, we strongly endorse the recommendations of the bipartisan Atlantic Council Commission…. Our window to act decisively is closing every day.”
“…a lot of outstanding commercial technology….is not…leveraged by the government… The root cause of this is a complex web of outdated processes.”
The ringleader of the 13 companies is Applied Intuition, a Silicon Valley firm that started out making software for self-driving cars and then expanded to work on the Army’s Robotic Combat Vehicle program and Air Force sensors. Based in Mountain View, Calif., Applied has pushed to raise its profile in Washington, working with the Atlantic Council’s reform commission and co-sponsoring a DC policy conference with the Council just this past May.
But with a market valuation of $3.6 billion, Applied is dwarfed by some of its co-signers. Anduril is valued at $8.4 billion, Palantir at $29.7 billion. Both do significant defense work already. VC firm General Catalyst has reported it manages some $33 billion in assets. All told, the tech companies signing the letter have a total market value of at least $42 billion, and the venture capitalists have at least $50 billion in assets under management. Long story short, these are firms with the financial clout and high-tech chops to make the Pentagon and Congress pay attention.
“Our co-signers, they have incredibly deep industry experience across multiple technologies that the Department of Defense has designated as its strategic priorities,” said Applied’s co-founder, Peter Ludwig, on a phone call with reporters. “Leading companies and investors in Silicon Valley are eager to work with the government, [but] there’s a lot of outstanding commercial technology that is not being leveraged by the government… The root cause of this is a complex web of outdated processes.”
“Hopefully…if one thing comes out of this, SAM.gov will be fixed.”
Ahmed Humayun, Applied’s head of federal services and a member of the Atlantic Council’s commission, said that “even in your best-case scenarios when everything is working correctly, it can take as much as six years…to get a company on contract… It takes too long.”
One particular point of pain, the letter signers said, was SAM.gov — short for System for Award Management — a site that is notoriously difficult to use, with a small industry devoted to helping companies just to navigate it. When the execs were picking acquisition reform recommendations to highlight in their letter, “We – I – very, very deliberately wanted SAM.gov in there because I have spent an inordinate amount of my life scavenging through that website, trying to figure out what the government wants, how it wants, what I’m supposed to do,” Humayun said. “It really introduces a ton of friction [for] a lot of people who …. could be providing enormous value to the Department, just because of that user unfriendliness.”
By contrast, Ludwig pointed to an internet behemoth that manages to combine ease of use and reliable performance with frequent software updates: Youtube.
“I think everybody would agree that YouTube is an innovative product,” he argued. “They regularly launch innovative [features], and they also operate with a reliability that is five nines [i.e. 99.999 percent], meaning that in an entire year, YouTube will be down for, at most, a few minutes.”
“Hopefully,” Humayun said with a laugh, “if one thing comes out of this, SAM.gov will be fixed.” (2)
House panel eyes billion-dollar Pentagon fund to push commercial tech
“…it will require intentionally taking calculated risks to incentivize positive, deliberate, accelerated change.”
A strategy for harnessing technology from commercial and non-traditional companies proposed by former Defense Innovation Unit director Mike Brown has caught traction in one House committee’s fiscal 2024 defense spending bill.
The legislation, which the House Appropriations Committee approved June 22, would allocate $1 billion toward establishing a “hedge portfolio” made up of innovative, commercially available systems including low-cost drones and satellites, agile communication and computing nodes and artificial intelligence capabilities.
DIU, the Pentagon’s commercial integration hub, would oversee execution of the funds, which it would use to advance existing innovation initiatives and support fielding new capability within the next three years. The bill calls for the department to submit a report within 90 days of the legislation’s enactment that outlines an acquisition plan for the portfolio and identifies 10 candidate projects.
“This portfolio is a hedge against growing and innate tactical and logistical risks to current weapon systems, as well as a hedge against industrial base risk, given the lack of capacity and diversity,” the committee said in a report accompanying the bill. “The development of non-traditional sources and non-traditional solutions are essential to this hedge, and it will require intentionally taking calculated risks to incentivize positive, deliberate, accelerated change.””
“…the committee supports maturing and focusing ‘innovation organizations’ on rapidly fielding new capabilities from new sources at scale.”
The proposal echoes a “hedge strategy” drafted last year by Brown — who led DIU from 2018 to September 2022 — and retired Chief of Naval Research Rear Adm. Lorin Selby. They argued that while the Defense Department has a number of organizations focused on innovative concepts aimed at rapidly fielding new capabilities, it lacks a focused, systematic approach to delivering them.
Brown and Selby called on DoD to develop a process that fields emerging technology-based capabilities in large quantities, applies commercial capabilities with a sense of urgency and focuses on small, low-cost, AI-enabled autonomous systems.
The committee indicates that the push to create a hedge portfolio is also a response to the ways in which Ukraine’s military has harnessed technology from commercial companies in its resistance to Russian aggression.
“After observing the use of non-traditional weapons from non-traditional sources in Ukraine, the committee supports maturing and focusing ‘innovation organizations’ on rapidly fielding new capabilities from new sources at scale,” the report states.
Elevating DIU
“The bulk of the new funding is in a “Defense Innovation Unit Fielding” account, which supports a range of AI-related technology…”
The establishment of the portfolio, and the associated funding, would be a significant boost for DIU and follows Defense Secretary Lloyd Austin’s recent decision to elevate the office to report directly to him. The committee highlights the move in its report, saying the transition provides “a timeline milestone to deliberately create a hedge portfolio.”
“If properly executed, this hedge has the potential to reduce the taxpayer’s burden by leveraging private capital, expand America’s economic advantage by accelerating emerging technology, and broaden the pool of talent supporting national defense,” the committee states.
The proposed $1 billion allocation includes more than $612 million in additional funding for DIU, with the remaining $420 million transferred from existing accounts. Congress appropriated just $191 million for the organization in fiscal 2023.
The bulk of the new funding is in a “Defense Innovation Unit Fielding” account, which supports a range of AI-related technology, including $10 million for AI-enabled drones, $23 million for autonomous virtual take-off and landing logistics systems and $13 million for digital engineering. It also would provide $220 million to rapidly funnel field-ready hedge projects to combatant commands.
“The new organizations would “bring together the nexus of best practices identified in the last several years of defense innovation.”
The committee directs DIU to coordinate with the Pentagon’s chief digital and AI officer on these efforts.
The bill also recommends that the secretary of each military service create a Non-traditional Innovation Fielding Enterprise lead who would be responsible for working with commercial industry partners and shepherding projects within the service. The new organizations would “bring together the nexus of best practices identified in the last several years of defense innovation.”
“These designated Nexus fielding projects will begin with a problem statement and will iteratively mature requirements while developing software and hardware for fielding at scale within three years using small teams of warfighters, acquirers, and technologists,” the committee said. (3)
Defense Industrial Base loses thousands more firms, mainly because DoD is a tough customer
The Defense Industrial Base is still quite vast, but it’s steadily shrinking.
The latest edition of an annual report by the National Defense Industrial Association suggests that even though thousands of new companies are winning their first-ever DoD contracts each year, those new entrants aren’t nearly enough to offset the number of firms who are leaving the Defense market.
The latest figures NDIA compiled show the Defense market suffered a net loss of 3,300 companies in fiscal year 2021, the latest statistics available. Although more than 8,300 firms sold goods and services to DoD customers for the first time in 2021, even more left the Defense space. The industrial base has been declining every year since 2017, from 76,700 companies in that year to just under 60,000 in 2021.
David Norquist, NDIA’s president, said the latest declines don’t appear to be driven by industry consolidation, but by companies simply deciding not to do business with DoD.
“What you’ve seen mostly in the more recent time is a drop in firms who are willing to enter the Defense Industrial Base, or firms who are already here leaving,” Norquist, a former deputy secretary of Defense said during testimony Wednesday before the House Armed Services Committee. “For the smaller firms, the ones you’re trying to grow and get to come in, what are the barriers that we are putting in their way? Why are people not staying, and how do we draw people in? Because that’s the best way to sustain competition.”
“…it’s really going to take dedicated senior leader attention.”
According NDIA’s survey of its members, 42% now say they’re the government’s only supplier for at least some of the products they sell.
And of the companies who are selling to DoD, 66% said dealing with the department is “very difficult” or “somewhat difficult.” For comparison’s sake, only 9% of the same companies characterized their private sector customers that way.
The biggest challenge is the bureaucracy of the DoD acquisition process, according to 30% of the respondents.
“We’re poised for peace in terms of our processes, how we invest, and we’ve got to move dramatically away from that to a sense of urgency,” Eric Fanning, the president and CEO of the Aerospace Industries Association said during Wednesday’s hearing. “Our foreign military sales (FMS) process is a good example of that. When we transition from giving things to Ukraine to selling things to Ukraine, it’s going to grind down to a very slow process in the FMS system. I think there are a number of things we have to do to streamline the process, and it’s really going to take dedicated senior leader attention.”
“The growing bipartisan, bicameral support for increased funding in recent years has been an important signal to industry.”
In NDIA’s survey, another 22% of companies said the lack of stability in the federal budget is their biggest challenge.
Fanning, a former secretary of the Army, said the regularity of continuing resolutions in every appropriations cycle is a particular problem.
“Over the last 25 years, Congress has passed more than 120 continuing resolutions instead of on-time appropriations bills, and we are still digging out from the effects of sequestration a decade ago,” he said. “I saw some of these effects firsthand during my time at the Pentagon, but others have taken years to manifest and could take years to unwind without a sense of urgency. One result of these many years of successive decisions is an industrial base maximized to meet peacetime needs. This means excess capacity for surging is not always built into the system … The growing bipartisan, bicameral support for increased funding in recent years has been an important signal to industry. But it’s also critical that this funding is on time and predictable.”
“…when we have instability in the work forecasts, it creates real disruption with [the] workforce and the supply chains.”
And companies say broader workforce challenges are an even bigger issue than inflation. In NDIA’s survey, 23% of companies said finding and retaining talent is their single biggest challenge.
Industry representatives say many of the other problems companies face in the Defense market also play into their workforce challenges. Uncertain budgets, for example, make it difficult to know how many people they need to hire and train.
Predictability is especially important in capital and labor-intensive portions of the Defense sector, like building and maintaining ships, said Matthew Paxton, the president of the Shipbuilders Council of America.
“Ship maintenance and modernization goes through a lot of ups and downs,” he said. “When we try to get somebody in our trades, they go through our apprenticeship programs to become a machinist or electrician or a welder, and they have a sense of belonging. But then companies have to let some of that workforce go because workflows don’t come into the home port like they were predicted. That tradesman was going to be a project manager or a supervisor, but it takes about five to eight years for that to happen. A lot of the guys in our shipyards are generational; they’ve had a mother or father that’s worked there, and they want a career. But when we have instability in the work forecasts, it creates real disruption with that workforce and the supply chains.” (4)
AI data mining can bridge the gap between defense tech developers, users
“Uncertainty in the DoD procurement process and limited access to real end users early in the design process has made it difficult for early-stage developers to understand the risks and opportunities in their product development process. Defense capability developers also do not have the same extensive real-world market testing environments as commercial firms because many defense solutions may only be fully tested in limited amounts of no-fail combat situations. A new tool needs to be developed to enhance this early user testing.
A DoD managed web portal could allow developers to input the features, planned timelines, and potential uses of their new solutions. The portal would then use AI/ML tools to analyze and identify operational units and organizations with the relevant mission types, training events that match new solutions being tested, and request access to test a solution at an identified training event.
Advances in AI/ML data mining tools will allow for the DoD to utilize data already being input into the current digital training systems, analyze existing data formats, and limit changes or disruptions to the operational unit’s training reporting processes. Capability-specific procurement managers could help manage and prioritize the testing requests coming from developers and prevent unnecessary requests and disruptions to units conducting the training.” (5)
A “Faster, Secure Pipeline”: DoD Signals Awareness of the Challenges Faced by Small Business Tech Contractors
The Latest DoD “Accelerate the Procurement and Fielding of Innovative Technologies” (APFIT) Pilot Projects
Is a Surge in U.S. Defense Industrial Capacity Possible?
The Current Debate on ‘Forging the Defense Industrial Base for the Digital Age’
The Disintermediation and/or Self-cannibalization of the Defense Industrial Base
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