By Daniel Gouré
February 26, 2016
The Department of Defense is desperate for innovative solutions to extremely challenging problems. Senior Pentagon leaders have repeatedly warned that the United States is losing its long-held advantage in critical technologies not only to prospective adversaries but to the private sector as well. Last year, Deputy Secretary of Defense Robert Work announced the creation of a Third Offset Strategy intended to pursue leap-ahead technologies in such areas as robotics, advanced human machine teaming and semi-autonomous weapons hardened against electronic attack that would confer on the U.S. military the kind of long-term operational and strategic advantages provided in past decades by nuclear weapons and precision-guided munitions/ISR. Secretary of Defense Dr. Ashton Carter, has made several pilgrimages to Silicon Valley in the hopes of encouraging U.S. IT companies to devote some of their extraordinary talent and innovative spirit to meeting the Pentagon’s need for leap-ahead capabilities. The Pentagon is also considering ways of spending some $100 million Congress provided in the FY2016 defense spending bill for a Technology Offset Initiative that would accelerate the deployment of high-payoff capabilities.
The Pentagon’s concern about its eroding technological advantage has taken on an almost frantic air. Consequently, it is acting like the proverbial bull in the china shop. It is overturning established practices, policies and even long-standing programs in a seemingly desperate effort to promote greater innovation by defense contractors.
One example of DoD’s misguided efforts to drive innovation is its treatment of Independent Research and Development (IR&D) funds. The Pentagon spends about $4 billion annually on IR&D. IR&D dollars are an allowable charge on DoD contracts. Companies use IR&D funds to work on high risk ideas, creating the possibility for a significant improvement in the performance of an existing system or even a revolutionary breakthrough leading to the creation of a new and dominant military capability.
With all the other problems and crises besetting defense acquisition programs, any one of which could easily exceed the $4 billion spent annually on IR&D, AT&L nevertheless decided that it needed to establish greater insight and even influence over the topics on which companies spend IR&D dollars. Last year, AT&L proposed reforms to the IR&D process that required companies to find a sponsoring agency within DoD for each project. In essence, this would have given the government control over what innovative research the companies chose to pursue. The tsunami of criticism caused AT&L to shelve the plan.
But no bad idea ever dies in Washington. AT&L has gone back to Congress with a modified version of its prior proposal. Now companies will be required only to brief appropriate DoD personnel prior to initiating an IR&D funded project and to share the results with those same officials. The proposed regulatory change specifically states that this interaction is not intended to serve as a bureaucratic approval of IR&D projects or otherwise reduce corporate independence in this area. Rather, AT&L insists this is an effort to improve the exchange of information between government and industry and allow companies to receive feedback on the relevance of their efforts.
The reality is that if the Obama Pentagon had not so stigmatized direct communications between DoD officials and private companies, it would not be necessary now to write regulations promoting interaction and feedback between the two halves of the acquisition system. In effect, this regulation is an effort to undo the damage done by prior policies. Unfortunately, if recent experience is an indication, the current attempt to improve industry-government communications will morph into an effort by individual DoD officials and offices to influence or even control what companies do. It is in government’s nature to treat requirements for consultation as the camel’s nose leading to direct control.
DoD’s concern that it is not getting its money’s worth from corporate IR&D has no evidentiary basis. Moreover, if Pentagon officials pushing the new regulation thought for a moment about the dynamics of the industry-government relationship they would realize how misguided these concerns were. The more work a company does for DoD, the more IR&D resources they accrue. Therefore, a company with a relatively large IR&D pot has the strongest incentive to use that money, perhaps in addition to its own corporate resources, to improve its products and performance on future DoD contracts. In essence, it is in the interest of companies expending IR&D dollars to focus those resources in areas that they believe will produce the most beneficial outcomes for themselves as contractors, which is by offering the government improved capabilities and processes and, in particular, leap ahead technologies. Obviously, the company conducting the IR&D hopes that such success will lead to an advantage in competing for future contracts. Therefore, the risk that IR&D resources will somehow be misused by the companies is extremely low. In addition, it is just possible that the company will develop something that government officials didn’t know they needed or weren’t sure could be invented.
If AT&L wants to improve the flow of information between DoD and the private sector, a first step should be to remove the presumption that increased communications could lead to unfair competitive advantage. DoD needs to rein in the lawyers and create a normal environment in which the Pentagon and the private sector can exchange ideas freely.
This article orginally appeared at Lexington Institute.
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