The next chapter of defence acquisition

In the 10 years from 2001, the U.S. DoD spent more on the procurement of capabilities that never made it into the hands of warfighters than most small to medium sized countries spent on their entire annual military budgets in any given year. One of the big drivers of this was that protracted procurement timelines pushed delivery dates so far into the future that the capabilities themselves began to near obsolescence and were deemed unfit for purpose. Other than the obvious waste of taxpayer money, more worryingly, this leads to significant gaps in our overall defence posture. This is especially threatening as we shift away from fighting less sophisticated adversaries, and inch closer to potential conflict with near-peer adversaries. 

Historically, innovation/tech evolution cycles were longer, and the axis for disruption fewer; meaning, it was possible to acquire a future capability, and have a high degree of confidence that despite a few (inevitable) delays, the asset would still achieve a relative competitive advantage, since your adversaries were encountering similar obstacles/limitations within their own delivery programmes. 

Today, as design and manufacturing technologies have evolved, the axis of enablement and differentiation have shifted to digital, threats are persistent across new domains (Cyber, Space), and opportunities exist to cause E2E disruption (e.g. AI, ML, quantum), the need to keep up with this disruption is more pressing than ever. Delays in procurement, even those that were traditionally considered negligible, can now have a disproportionately large impact on defence outcomes. 

When considering the Replicator programme, given the current programme timelines, and the need for industry-led innovation, the as-is acquisition process is not fit for purpose. 

Why might traditional acquisition processes lead to negative outcomes?  

Simply put, the acquisition processes aim to deliver the following: 

1. Satisfy the authorised requirement set 
2. Value for (taxpayer) money 
3. Control over the spend of public funds 
4. Process fairness and transparency 
5. Timely delivery 

The key thematic above is control, i.e. the need to control outputs, spend, processes, and schedules. 

Inherent to this aspiration for greater control are some complex trade-offs that increase the risk of non-best-for-programme outcomes: 

• Control vs. performance 
• Control vs. speed  
• Control vs. cost 

 The perils of striving for greater control – 

Control vs. performance: 

As custodians of government funding, it is crucial to ensure that controls exist to closely govern all spend, ensuring that suppliers remain accountable to delivering value-for-money. The mechanism that the DoD (and other international militaries) use to exert this control is to define a tightly scoped, comprehensive, and legally binding requirement set, contracted out to a supplier at a fixed price. The benefits of this to the contracting authority are a committed deliverable, and a legal route to resolving any supply-side discrepancies. 

From a supplier perspective, however, this highly transactional relationship leads to risk-aversion. The path of least resistance is to deliver the exact requirement as it is specified, receive the committed payment (and avoid a protracted legal arbitration downstream). When faced with a scenario where potential enhancements, or innovations could be delivered, suppliers will often opt to continue along the path of delivering as per the requirement set (sometimes saving enhancements in their back-pocket to push through to the end customer as a future billable change-request) 

Control therefore can deliver the desired, committed performance, but closes off the option of any upside/disruption owing to innovation. 

Control vs. speed and cost: 

Programme governance tends to be designed as a pull-based relationship where the authority establishes a (not insignificant) cadence of review sessions, committees, and working-groups to track budgets, timelines, and conformance to requirements. This routine requires evidence, and participation in often lengthy, cross-stakeholder steering committees, tasked with evaluating programme RAIDO (risks, assumptions, issues, dependencies, opportunities).  

The various committees exist at different levels and engage a wide audience (lower-level working groups with engineering teams and internal requirement owners, to senior board-level engagements with budgetary holders, delivery directors, and lead customers). This extensive (often manual) process drives time and cost into the programme. Something commonly joked about across contractor-heavy defence floorplates is the tendency to “spend more time reporting on what I’m doing rather than actually doing the doing”. 

A long-term systemic issue of this contracting mechanism is that vendor eligibility criteria favour incumbent Defence primes who have fine-tuned their operating models to satisfy the strict federal governance requirements. This is compounded by the fact they operate at a scale that allows them to deliver governance requirements, and remain profitable, despite the fixed price arrangements. This often rules out non-traditional players from participating in these tenders, despite potentially having suitable IP. 

What does the new form of contracting look like? 

To solve for this rigidity within the Replicator programme, the U.S. DoD has developed a more “lite” mechanism referred to as Commercial Solutions Openings (CSO). CSOs offer operational owners the opportunity to define a less rigid set of requirements, akin to a strategic intent, which suppliers then have the flexibility to develop concepts/proposals around. This framework was developed mainly as a way of enabling, and encouraging, the following: 

1. Quicker route-to-acquisition for shorter cycle technologies (e.g. digital, IT, modular architectures) 
2. Greater access to commercial IP/technology from the commercial vendor ecosystem 
3. Mechanism more conducive to R&D (i.e. accommodating for failures) 

Middle tier acquisition pathways like the CSO have previously been deployed; think back to the Space Development Agency (SDA) trailblazing the use of Other Transaction Authorities (OTA) to acquire its proliferated LEO constellation. OTAs allow federal authorities to bypass certain Federal Acquisition Regulation (FAR) requirements, speeding up the acquisition process, making it more flexible, and better aligned to commercial processes. The OTA mechanism also aims to reduce reliance on traditional defence providers, and looks to introduce non-traditional commercial partners who would otherwise be dissuaded from competing for government tenders. This is a critical enabler of a future, innovative, and disruptive domestic industrial base.  

What does this mean for suppliers? 

We expect the ecosystem to exhibit the following changes: 

Some might read this as a threat to the incumbent defence landscape, however, the purpose of these initiatives isn’t to disadvantage traditional suppliers, rather, to alter the shape of collaborative programmes from teams of traditional partners to collaborations between traditional and non-traditional partners across USG, commercial industry, and academia. The outcome should be an industrial base with greater diversity, heightened levels of innovation, and improved collaboration.  

Specifically on the Replicator programme, there are multiple parts of the equation requiring different competencies; some in which the defence industry is absolutely leading the way, and others where the commercial sector has piloted some truly disruptive technologies. The DoD must provide an environment within which all parties are equally incentivised to work collaboratively to deliver best-for-programme outcomes.  

This transformation isn’t unique to the DoD, and there are equally ambitious programmes underway globally (e.g. UK MoD) to test the procurement authority to commercially engage more flexibly, act more like a prime, take greater ownership of IP, enable greater risk-reward sharing mechanisms across its supply chain, bolster the industrial supplier base of tomorrow, etc.  

Our team has a lot of experience supporting traditional and non-traditional players navigate competitive routes to getting their capabilities in the hands of end-users that genuinely want for cutting-edge tech. Do get in touch for a further, deeper discussion. 

These are some high-level thoughts on complex issues being faced by most of our clients and across their supply chains, not limited to the Replicator program or the DoD. Our clients in the UK will recognise the UK MoD are experiencing similar themes across some of the more future-leaning programs. This is especially apparent on programs where the authority are taking greater ownership of responsibilities typically associated with primes within design/delivery/acquisition programs that must be more nimble and agile. For a deeper discussion on any of this please contact Anirudh Suneel or email globaldefense@bceconsulting.com.

Anirudh is a Principal at BCE Consulting based in London UK. Anirudh’s experience spans Strategy through to Transformation, covering Corporate and Business Unit Strategy, M&A advisory, Operating Model design, Change management and complex Programme and Project management. Anirudh’s industry specialism is across the A&D supply-chain where he has worked on various Strategy and Transformation engagements for the likes of Airbus, Babcock, Leonardo and the various arms of the UK Ministry of Defence. Anirudh holds an MBA from Warwick Business School.