The Defense Department should spend $5 billion annually over a three-year period to buy production-ready systems that almost, but do not quite currently, meet requirements to help innovative technology companies generate business and get these systems into the hands of warfighters, the top executive at Kratos Defense & Security Solutions [KTOS] said on Wednesday.
The last 10 to 15 years the DoD has been very transparent through its strategy and budget documents, and its wargames around new and innovative technologies but things bog down near the goal line when it comes to acquiring new systems because the traditional procurement processes take over, Eric DeMarco said.
Using a football analogy, DeMarco said there are systems that are on “the 10-yard line,” which is 90 percent ready, and include counter-unmanned aircraft systems, low-cost cruise missiles, low-cost drones, “very low-cost hypersonic fliers” that are already flying. If he was put in “charge,” DeMarco said he would buy $5 billion worth of products and capabilities annually from companies like Anduril Industries, Epirus, Kratos, Palantir [PLTR], Shield AI, and others, as a pilot effort. This would be half a percent of the DoD budget, he said.
“You get it, get that stuff fielded, iterate off it, get it in the hands of the warfighter, and keep the FAR (Federal Acquisition Regulation), keep all that and let’s see what happens after three years,” DeMarco said at the National Security Innovation Base (NSIB) Summit hosted by the Ronald Reagan Institute. “I think it would be an incredible transformation without blowing up the system.”
On Tuesday, the Reagan Institute released the annual NSIB Report Card, giving a “D” grade in 2024 for defense modernization efforts, down from a “C” in 2023. Between 2018 and 2023, emerging defense technology companies received less than 1 percent of the funding provided to traditional vendors, it says.
The grade indicates “Limited material progress on fusing innovation into fielded capabilities over the last year. Use of commercial tech is trending upwards for select portfolios (e.g., space), but the lack of new programs of record addressing NSIB priorities underscores the lack of scaled progress,” the report card says.
The report card also gives the government a “D” for customer clarity, the same grade as 2023, saying that the Defense Department and intelligence community have initiatives underway to progress toward accelerating defense modernization, but this has been offset by the failure of Congress to pass a budget, blunting the “demand signal to industry and investors”
The report card says that the DoD Replicator Initiative, which is initially aimed at buying thousands of all domain, attritable autonomous drones within the next 18 months or less, “is a litmus test” for the government to back up its words with contracts.
Katherine Boyle, a general partner at the venture capital firm Andreessen Horowitz, who three years ago warned that investors would pull out of defense startups and these companies would begin to fail, said her prediction was “wildly wrong.” Instead, the “opposite” has happened and investors are still backing emerging defense companies despite headwinds outlined in the NSIB report card, she said during the panel discussion with DeMarco.
The ball moving 80 yards downfield is progress, she said, highlighting that investors, startups, and the government are “speaking the same language.” Boyle also said that investors are better educated today about DoD contracts and related mechanisms that are available to the startups they back and realize it is not easy working with the department.
There are “wins” now that did not exist five years ago “and I think it kind of sets the board to use the analogy again, like we are at the 10-yard line or the five-yard line,” she said. “Like all we have to do is close the deals.”
On the other hand, she cautioned, patient capital will run out “if we do not see startups winning programs of record,” and Silicon Valley determines “it’s impossible to work with the DoD.”