Our Defense Industrial Base—We Get What We Pay For

Introduction

Over the last few years, there have been several attempts to address perceived shortcomings in the industrial base that supports the Department of Defense (DoD). Most of these efforts have had little impact, as they’ve neither identified the core problems with the industrial base nor addressed them. To change the defense industrial base (DIB), we need to be clear about what we want to accomplish and realistic about how it will be achieved. In my opinion, the DoD itself must change; if it does, the DIB will follow.

Key Takeaways

• Overall, the U.S. defense industrial base has successfully supported the DoD.
• The established defense contractors are good at what they do; they work hard to provide the high-quality, complex, and advanced technology products that the DoD demands.
• There is no free lunch; if DoD and Congress want something different in the U.S. industrial base, they will have to pay for it.
• Excess production capacity is hard to prioritize in both corporate and DoD budgets and must be invested in selectively.
• To procure cheaper—and therefore less complex or less capable—products, U.S. warfighters will have to support this approach.
• The DoD needs to work collaboratively with all stakeholders, from government operators and acquirers to academic and government science and technology generators to both traditional and new-entrant firms. This will help to better define the products and capacity needed, finance them adequately over the time frame required, and procure them at scale.

The American DIB Makes Great Products

The traditional DIB built the systems that won the Cold War and have dramatically defeated every conventional opponent the United States has faced in modern times. I don’t think we would trade our military for anyone else’s (although China is doing its best to displace us). Most of the world wants to buy U.S. products. The DoD has and always will want better products faster, but the DIB doesn’t define the things we buy. U.S. operators set requirements and the DIB responds. The main reason, by a significant margin, that U.S. programs take so long and cost so much is because the DoD asks for or demands very advanced products that are high risk to develop and very complex. Contracts are then awarded to the bidder with the most aggressive cost and schedule estimates. This has worked well, despite frustrations with development time and overruns.

I’ve spent a lot of time in both industry and government. Every new product development program I’ve ever worked on has done its absolute best to deliver as fast as possible. For the most part, U.S. contractors have delivered the high-quality products the DoD has demanded. There are notable failures, but they are the exception. The engineers in these companies are the best in the world at designing and building the types of products demanded of them. Each new product, again with exceptions, tends to be more advanced than its predecessors by a generation (e.g., F-15 to F-22 to F-35 to F-47). This push to advance systems so significantly in each iteration is inherently high risk; the DoD asks industry to build things that are markedly better than anything created before and that employ the most advanced technology available to give U.S. warfighters a significant and enduring advantage. Nobody is better at this than the established primes.

The DIB Responds Rationally to Incentives

Capitalism and competition work because of the motivation to make a profit. Despite all the exhorting and posturing, industry will not change its behavior without a financial incentive. Sometimes these incentives can be negative, but to encourage investment, the return should be attractive to investors. The government is fundamentally limited, unfortunately, by its inability to make the long-term commitments needed to encourage capital investment. With grudging occasional exceptions such as multiyear procurement contracts for missiles and incremental funding for shipbuilding, Congress is reluctant to allow the DoD to provide the kind of future business assurance needed to convince chief executive officers and boards of directors to invest for the long term. Privately held companies have more flexibility and risk tolerance than publicly held companies, but even privately held companies need a reasonable expectation of return and limited downside risk. Unfortunately, the DoD is a fickle customer, and priorities often change with political or military leadership transitions, shifting budgetary environments, and unforeseeable international events. Given this, it shouldn’t be surprising that industry is reluctant to invest beyond short-term horizons.

There have been shortfalls in production capacity when operational needs have outstripped inventories and supply chain capacity. We can’t afford excess capacity for everything, and we can’t expect industry to create excess capacity unless we pay for it up front. Based on recent experience in Ukraine, two areas I think should be seriously considered for investment are selective munitions and high-demand spare parts for when operational tempos are high. I’ve built or helped build a lot of budgets, and there are always many competitors for funds. The reality is that the DoD will only be able to fund a handful of investments in these areas; it will have to make careful choices.

Acquisition Reform Rhetoric and Acquisition Decisions Are Mismatched

There is a lot of lip service being paid to acquiring cheaper, lower-risk programs right now. When one looks at recent decisions, however, this rhetoric doesn’t seem consistent with practice (the F-47, Trump-class battleship, and Golden Dome come to mind). Moreover, the DoD will not buy anything at scale unless a military service decides to buy it and prioritizes it in a service budget over several years. The established primes understand this well. New entrants may not know this history, but they will experience it and learn. A counterexample, where a less-expensive and less-capable system has won operator support, may be the Air Force Collaborative Combat Aircraft program that I initiated. It is still in early days, but I’m encouraged that operator support seems to be holding up so far. Without long-term operator support, programs will fail, and industry knows this.

The best results I have seen in defense acquisition over hundreds of programs have come from endeavors that involved highly professional government and industry management and collaborative participation by all relevant stakeholders. In the last few decades, there has been an explosion of dual-use technology from non-DIB sources. These new contributors must be part of the process, but they also lack the expertise of the traditional primes when it comes to the many complex requirements of weapon systems. The ultimate customers, U.S. warfighters, must be intimately involved in defining and adjusting requirements throughout the life of any program. There is no substitute for professional collaborative management. Successful programs, like happy families, are all successful in the same way. Process and policy are not the problem; they have been changed endlessly with no major positive impact and often a negative one. People are the key to success.

Recommendations

The key challenges facing the defense acquisition system originate in the DoD itself, not in the DIB. To that end, the DoD should:

• Use scenario analysis and operations research to define cost-effective products and excess capacity investments—in the services and in the Office of the Secretary of Defense. These tools will help the DoD ensure it is asking the DIB to produce the most cost-effective systems.
• Set aside funds at the DoD level to selectively acquire excess capacity based on risk analysis focused on the most stressing and consequential defense scenarios.
• Work with Congress to create mechanisms that reduce the risk to industry of capital investments.
• Restore acquisition leadership to the DoD by recombining Acquisition and Sustainment with Research and Evaluation so that entire product lifecycles—from requirements generation to replacement, including industrial capacity planning and investment—are overseen by a single senior leader. (The military departments don’t need to change—they wisely never copied the DoD on this.)
• Remove the artificial, bureaucratic, and cultural constraints on cooperation among industry and the various DoD and military service stakeholders.
• Focus on identifying talent and building and rewarding professionalism and technical depth for government acquirers and requirements setters alike.

Conclusion

If we want something different, it isn’t the DIB that needs to change—it’s the customer. Change the customer and the DIB will follow.

About the Author

Frank Kendall has worked at the intersection of technology, engineering, program management, operational requirements, and government acquisition in industry and government for several decades. He has been secretary of the Air Force; a board member for Leidos; under secretary of defense for acquisition, technology, and logistics; vice president of engineering for Raytheon; deputy director for defense research and engineering for Tactical Warfare Programs; and an Army operator and project engineer. He is the author of Getting Defense Acquisition Right, published by the Defense Acquisition University in 2016.

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