How to Drive More Competition in the Defense Industrial Base?
The Pentagon recently released a report titled “State of Competition within the Industrial Base.” The report was generated to address a long-growing problem within the Department of Defense: the number of companies in the defense base has shrunk over the years. As a result, there is a decrease in competition that spurs innovation and lowers prices. There are also fewer contractors reliant for critical defense capabilities. All which leads to pressure on national security. The report made five recommendations for the DoD to take moving forward.
The first recommendation is to strengthen merger oversight. Over the years, a few of the top DoD contracting companies have acquired or merged with some of the other top companies. This has resulted in a handful of companies dominating certain spaces, such as having 5 primary aerospace and defense prime contractors and 90% of missiles coming from just three sources. Moving forward, the DoD will now support the Federal Trade Commission and Department of Justices in antitrust investigations to make sure a merger does not threaten department interests.
The next recommendation is to address intellectual property limitations. There are procurements in which the DoD requires “Unlimited Rights” or “Government Purpose Rights” for Intellectual Property. “Unlimited Rights” mean that the government can use, modify, reproduce, release, or disclose technical data or software in any manner for any purpose whereas “Government Purpose Rights” are similar, but within the Government without restriction and outside the Government for a Government purpose. Many companies do not want to give their intellectual property away when selling a product to the government, which can result in fewer companies competing for a contract.
The third recommendation involves increasing new entrants. Entering the defense industrial base (DIB) is a complicated process. Through outreach and support, the DoD can reduce barriers to entry. Additionally, using procurement avenues such as Other Transactional Authorities (OTAs) allow for flexibility to the DoD and DIB to produce products and services, particularly under research, prototype, or production purposes.
Increasing opportunities for small businesses is the fourth recommendation. There are many small businesses that get overlooked for a contract due to a lack of past performance. But the more they grow and graduate small business set-aside programs, there are too few contracts they can complete with. So often the incumbent of a contract has the strongest probability of winning on recompete, even more so if it is a large prime contractor.
The final recommendation is one that could be considered the most critical for national security. That is to increase supply chain resiliency, particularly in the areas of: casting and forgings, missiles and munitions, energy storage and batteries, strategic and critical materials, and microelectronics. The past two years have shown how fragile our supply chain can be during times of crisis. Building up supply chain sources, particularly with United States based companies, would help ensure the warfighter has the critical components it needs to protect our national security.
Along with DoD recommendations, our team of Highly Qualified Information Professionals with 100+ collective years of Naval and DIB experience, recommend an additional two-fold action. The first part is to accelerate contract award schedules. By the time the DoD identifies a need, secures funding for that need, sets up and releases an RFP, reviews proposals, and awards a contract, the process can take years from start to finish, with the award process sometimes taking 8-12 months of that if not more. On top of that, once that contract is awarded, the winner can often be the recipient of a GAO Protest – which can be an additional financial burden (especially for a small business) to defend and, in the end, can cause delays for months, if not years. To accelerate contract awards, the DoD needs to build in more funding for research and development endeavors to anticipate future needs, increase and train additional procurement staff to evaluate and award proposals more quickly, utilize more of other types of procurements such as OTAs, and establish more controls to limit the ability to file a GAO protest for trivial or unsubstantiated claims.
As David Berteau, former Assistant Secretary of Defense for Logistics and Material Readiness and current President of the Professional Services Council put it “… excessive focus on low bids does not reward real competition, it reduces it. Competing on cost may raise competition percentages but competing on results generates innovation and creates jobs.” Our team at Giesler could not agree more.
Image Source: Aerial photo of the Pentagon in Arlington, Virginia on Sept. 26, 2003. (Andy Dunaway/USAF via Getty Images)