The US Intelligence Community's Annual Threat Assessment, released last month, provided a sobering overview of geopolitical risks the US faces from rival and/or adversarial nations. The report focuses on the challenges Russia, China, Iran and North Korea, individually and collectively, pose to US military and economic strength both regionally and globally through asymmetric and conventional hard power tactics. The report further discusses how rival governments are directing their private sectors, especially those operating in science and technology, to advance state military capabilities, seeking to reverse perceived US hegemony.
The Ukraine war has demonstrated dramatic changes in how military conflict is waged on the battlefield, such as with the deployment of AI-enabled autonomous weapons that work to enhance domain awareness for warfighters. Beyond the battlefield, irregular warfare tactics (also called gray zone operations) are exploiting new technologies to threaten communications systems, deny access to strategic waters, jeopardize navigation systems, and promote malign influence operations.
The US military, which has stood unrivaled for decades, is seeking to harness American innovation to maintain a narrowing military edge. To do that, the Trump administration has ordered a transformation in how the Department of Defense (DoD) acquires new capabilities, creating opportunities for private sector startups and innovators to partner with the government in next-generation defense technology.
Understanding the "Modernizing Defense Acquisitions and Spurring Innovation in The Defense Industrial Base" Executive Order
The Trump administration has signaled a clear intention to modernize the US defense industrial base (DIB)—likely introducing a shake-up that can benefit smaller players. Since the end of the Cold War, the US DIB has consolidated from 51 "prime" defense contractors to six, whose sheer size privileges them in receiving large winner-take-all and follow-on contracts, weathering disruptions in government funding, and vertically integrating smaller players into their supply chains. While these new primes have achieved a scale capable of efficient production, the lack of competition and the reliance on fixed, long-term government awards constrain supply chain flexibility, undermining surge capacity (i.e., the ability to ramp up production) and the experimentation and adoption of innovative technology.
Meanwhile, smaller players leading the charge on disruptive technology are crowded out of the bidding process altogether, undermining competition and innovation. The result: companies within the US DIB, once the vanguard of the US innovation economy, have lagged behind commercial technology players, such as those in Silicon Valley, in 11 out of 14 critical technology areas and spend 10 times less on R&D.
As such, DoD has begun increasing its engagement with the commercial sector to keep the US DIB competitive. In 2016, DoD launched the Defense Innovation Unit and the Commercial Solutions Openings solicitation process, which allows for case-by-case agreements with commercial actors that do not need to abide by the same Federal Acquisition Regulations requirements as normal procurement solicitations, which can take years.
These "Other Transaction" (OT) agreements have opened the door to nontraditional defense contractors who do not regularly conduct business with DoD. Since their uptake in 2017, OTs have expanded in use through the Adaptive Acquisitions Framework, steering successful projects like Operation Warp Speed (when the government procured COVID-19 vaccines at speed and overcapacity to incentivize rapid development) and the software for the Replicator Initiative (DoD's tender for developing autonomous drone systems). These small contractors comprised 92% of the total $10.7 billion in OT obligations in FY2022, and the use of the mechanism is set to increase as DoD revamps its defense procurement processes.
The Trump administration's April 9 executive order intends to elevate OT authorities as the standard in defense procurement. Per the order, DoD will submit a plan by June 8 to make OT authorities and other mechanisms in the Adaptive Acquisition Framework (such as the Software Acquisition Pathway, which allows for procurement of software systems including AI during iterative experimentation and development stages) as the "first preference" to simplify the acquisition process for commercial technologies. The order also calls for centralizing risk management for acquisition programs under one umbrella called the Configuration Steering Board and submitting a DoD review by July 8 on potential cuts to all Major Defense Acquisition Programs for projects that are i) 15% behind schedule, ii) 15% in cost overruns, or iii) do not align with DoD's objective in streamlining the acquisitions process. By August 7, DoD will submit a report proposing an overhaul of the defense acquisition workforce to increase familiarity with OT authorities. By October 6, DoD will submit a report on reviewing and streamlining the integration of innovative technologies in the Joint Capabilities Integration and Development System (i.e., the Joint Force).
Opportunities for Private Sector Innovators
DoD has identified 14 critical technology areas as vital to maintaining US national security, including Advance Materials, Advanced Computing and Software, Biotechnology, Directed Energy, Energy Resilience, Future Generation Wireless Technology, Human-Machine Interfaces, Hypersonics, Integrated Network Systems-of-Systems, Integrated Sensing and Cyber, Microelectronics, Quantum Science, Space Technology and Trusted AI and Autonomy.
Potential applications cover the full gamut of defense and intelligence operations. In the area of battlefield awareness, advances in AI offer the ability to process large quantities of data from multiple platforms and simulate options for commanders to review, select, and execute at speed. Drones piloted by AI with next-generation anti-jamming capabilities offer advanced capabilities for radar and countermeasures avoidance. Reconnaissance and surveillance systems using breakthrough sensing technology could advance over-the-horizon detection and reduce risks to human operators. Large language models and machine learning could transform information operations to make influence operations more effective, or to identify and counter adversarial information operations.
Revised acquisition processes by the government will remove one set of barriers connecting innovators to defense technology users, but not all. Technological breakthroughs risk outpacing imagination for use cases. Bringing innovators and operators closer together will be needed to create the synergy of innovation-to-application. There are currently several regulations designed to limit influence in contracting; the next challenge may be how to deregulate and create an ecosystem where the operators and the innovators are embedded, perhaps through professional rotations through industry or specialized billets for industry.
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