Some experts see promise in the sweeping acquisition reforms prescribed by a draft Pentagon memo that is circulating ahead of the defense secretary’s planned Friday speech on the topic, but others see risk.
Defense One reviewed and verified a copy of the six-page draft on Tuesday, which pitched the overhaul as a “historic opportunity to restore deterrence in the face of an increasingly dangerous security environment” by cutting internal review processes, reorganizing acquisitions efforts, and doling out harsher punishments for companies that go over budget on defense contracts.
Kingsley Wilson, a Pentagon spokesperson, said the Defense Department would not comment on the “pre-decisional” document.
The draft memo, addressed to combatant commanders and senior Pentagon leaders, says, “Today’s unacceptably slow acquisition fielding times stem from three systemic challenges: fragmented accountability where no single leader can make trades between speed, performance and cost; broken incentives that reward completely satisfying every specification at significant cost to on time delivery; and procurement patterns that disincentivize industry investment, leading to constrained industrial capacity that cannot surge or adapt quickly.”
The draft memo lays out several initiatives, including creating “Portfolio Acquisition Executives” who will have more autonomy over major program decisions, relying on “scorecards” to evaluate each portfolio’s progress, and levying “time-indexed incentives” to keep defense contractors on time and on budget. It also orders the office of the defense undersecretary for acquisition and sustainment to issue guidance for cross-cutting transformation within 45 days. Within 60 days, each military department is required to submit their implementation plans.
Politico first reported on the draft memo, which has emerged ahead of Defense Secretary Pete Hegseth’s scheduled address to top defense industry leaders on Friday. The Trump administration has made acquisition reform a top priority, with a Pentagon memo on fast software buying and a flurry of White House executive orders earlier this year.
Lawmakers, defense-budget analysts, and former officials say the acquisition process has long needed an overhaul. Many defense programs blow their budgets and schedules. Last year, the Air Force’s Sentinel ICBM program ran 81 percent over initial cost estimates, breaking the Nunn-McCurdy Act threshold. Before that, the Pentagon paid Lockheed Martin on-time bonuses for F-35s delivered late.
But some said methods prescribed in the draft memo could reduce the quality of procured goods and lead to more, not fewer, cost overruns.
Todd Harrison, a defense budgeting expert and senior fellow at the American Enterprise Institute, pointed to the “time-indexed incentives” espoused in the memo.
“That is a huge change from things like fixed-price contracts that incentivize controlling costs,” Harrison said. “It’s a big shift towards holding contractors responsible for keeping to schedule, but it comes with some big risks. It may incentivize companies to deliver poor-quality products before they are ready for prime time just to stay on schedule and not be penalized for being late.”
One former defense official had “some concerns” about the discouragement of Federal Acquisition Regulation-based contracts, which they said could lead companies to promise unrealistically quick deliveries.
“I’m not sure, honestly, that it’s going to have the desired effects, but I do think that that’s notable,” the official said.
Change on the horizon?
But others hailed the memo’s emphasis on a more portfolio-based approach, which is intended to enable smoother shifting of money between programs as technology and needs change.
Arnold Punaro, a defense consultant and former staff director for the Senate Armed Services Committee, welcomed the “ambitious” suite of reforms outlined in the memo, along with recent changes to federal acquisition regulations and the requirements process and yet more changes proposed in the draft National Defense Authorization Act.
“If fully implemented, these reforms will finally break the long-standing paradigm that has defined and constrained defense acquisition for decades and replace it with a model that delivers greater capability, faster, and at lower cost,” Punaro said by email.
Lawmakers in Congress have long called for acquisition reforms, though they have also expressed reluctance to allow the Pentagon to move money around without their approval.
Rep. Donald Norcross, D-New Jersey, told Defense One that fellow members of the House Armed Services Committee have been working for nearly two years on defense acquisition reform, but also highlighted the need to keep costs low and quality high.
“It is encouraging to see that the Secretary of Defense wants to improve the speed at which we deliver capabilities to our warfighters, a critical national security challenge in need of reform,” Norcorss told Defense One in an emailed statement, “but we cannot lose sight of the importance of also delivering better capabilities at a reasonable cost to American taxpayers.”
Overall, the memo echoes recommendations various people and organizations have offered over the years. But there’s still a “bold” element, especially in the tight implementation timelines, said Eric Fanning, the president and chief executive officer of the Aerospace Industries Association.
“As we’re looking at this, there’s not necessarily any big, new things [the administration] haven’t been talking about already. But it’s still bold because they have packaged it together, to me, in a really interesting, exciting way. There’s no ‘new industry versus old industry.’ There’s no ‘government versus the industrial base.’ It’s a forward-looking draft that has a lot of things in it that I think Pentagon officials, acquisition officials have been excited about [across] administrations—from both parties—for a long time,” Fanning said. “I think they’re focused on the right things: accountability, incentives, and procurement patterns.”
That means driving the defense industrial base and government workers to move quickly, while also encouraging private investment.
“We’ve got a system right now that discourages investment because they don’t know if there’s a return on investment over the horizon. So I read the memo and got pretty excited about it,” Fanning said.
A new incentive structure could foster more competition, holding companies accountable for program delays and push the Pentagon to eliminate chokepoints on their side.
“It’s okay to penalize [a company for] being behind schedule if there’s two elements to it: the Pentagon is balancing a reward for being ahead of schedule and, if there’s a delay, the Pentagon is bringing that company in and saying ‘you’re behind schedule, tell me why’” and then if it’s the government’s fault saying “we’ll fix that.”
That dovetails into the memo’s directive to shake up how the Pentagon trains contracting workers.
“You need to teach the Pentagon workforce what authorities they have, teach them that they’re going to be held accountable for delivery…because that’s really what’s going to be the most critical. And so when you’re holding companies accountable for timelines, you’re also holding yourself accountable for timelines hopefully,” Fanning said.
And if it works the result will be “everybody identifying what is slowing you down instead of what could go wrong.”
OTAs and other changes
Other pointed to other important changes: a mandate for dual-sourcing many purchases, so multiple contractors can provide urgently needed technologies; much greater use of fast-track contracting methods like Other Transactions Authorities that use smaller awards to bypass traditional rules and get money to contractors faster; and preference for modular, open-source designs, which are more adaptable and much more in line with the way the tech community designs software.
A former Defense Department official said of the new provisions in the memo, “this was necessary and we are headed in the right direction.”
A former military official who worked in drone design and purchasing described the new draft guidance as a long-overdue fix for slow, out-of-date processes, as in old rules that protect established defense prime contractors and shut smaller, more innovative players out of the Pentagon. The former official described themselves as “salty” on the issue after seeing how DOD’s method of buying and building slowed the deployment of vital arms and gear.
These longstanding problems are exemplified by the many easily-defeatable drones that the United States has sent to Ukraine, the former official said.
“I’ve got pictures on pictures on Signal of warehouses” full of useless donated drones, he said. “They’d rather have it, even if only 10 percent of it works. They’ll accept the other 90 percent of the garbage because they need it that bad.”
What new startups have long needed, the former official said, was “top cover” for risk-taking from the department. They pointed to the Defense Innovation Unit and the Fuze and University Accelerator efforts as vital Band-Aids.
The former official also said DOD often fails to provide clear demand signals, making it nearly impossible for companies to plan for workforce needs.
“No responsible executive wants to hire hundreds of people just to lay them off when Congress can’t pass a budget,” they said.
It’s just one of the ways the Pentagon’s buying process crowds out small, innovative companies in favor of larger companies that have the workforce and processes to weather lags in budget approval.
A boost to new players
The new guidance follows two other key steps the Pentagon has taken to speed tech buying; a March memo that prioritizes the purchase of dual-use technology and already-built software over software that the Pentagon would pay a contractor to write and implement for them, and July guidance that gave battalion-level commanders far more authority and influence over what they purchase by re-categorizing various types of weapons, such as drones, more like bullets or artillery shells than aircraft.
The latter, in particular, is a reflection of realities of the Ukrainian battlefield where innovation and product update cycles happen in days or even hours.
Those sorts of changes are enabling a new class of defense tech startup willing to do the work, go to Eastern Europe, and develop relationships with Ukrainian front-line operators.
One such company is Aurelius Systems, a startup with 16 people, but also Ukrainian partners. Aurelius makes directed-energy weapons to take down drones, an economically-attractive alternative to missiles, especially for a country like Ukraine where both soldiers and civilians live under constant drone bombardment. They rely largely on parts and supplies that are already in the U.S. medical and industrial base, lowering cost.
“We do a lot of testing in the U.S., at test ranges with emitters that really they’re not representative of that environment,” due, in part, to U.S. laws that govern the electromagnetic spectrum, said Dustin Hicks, the company’s head of growth. So experience in Ukraine has been invaluable, an impression that is shared by U.S. commanders in the region, such as NATO Supreme Commander U.S. Gen. Alexus Grynkewich,
Michael LaFramboise, the company’s 29-year-old founder, told Defense One on Tuesday that “We started our company doing a ton of user research with Ukrainian frontline operators, seeing what was being used, what was coming down the pike, and kind of what their development cycle is like. That was the initial genesis of the company, getting a glimpse into what the next conflict might look like.”
LaFamboise didn’t speak directly to the memo, but he said private capital markets are now much more interested in funding new defense tech startups, lessening the financial burden of having to do research and development. But, in terms of testing which products actually work in a real-world environment, Ukraine is providing a real advantage for those American firms willing to work with them.
“For the Ukrainians, obviously, there is [a huge need] to revamp how you do military development,” he said. “They’re willing to take risks.”
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