In this episode of Acquisition Talk, we’ll listen in on a panel discussion hosted by the Lincoln Network that focuses on defense acquisition, called, “From the Lab to the Battlefield: maximizing defense innovation.” This event took place during the Reboot American Innovation conference on May 2, 2019.
The speakers include Linda Lourie, who is the Associate General Counsel for Acquisition & Logistics and previously worked for the Defense Innovation Unit — Pablo Carrillo, the former chief of staff to Senator John McCain and a current counsel for Squire Patton Boggs — and Acquisition Talk host Eric Lofgren. The panel is moderated by Pasha Moore.
This discussion touches on the difficulty of lining up funding for new programs, the successes of the Defense Innovation Unit (DIU), barriers to entry for new firms to win major programs, the roll-out of the DOD’s new trusted capital marketplace — which seeks to identify companies with critical technologies for U.S. investment, and much more.
Podcast annotations.
With so much of the discussion on acquisition reform focusing on the 5000-series acquisition process, the requirements process, and the contract process, I was glad to hear that both Linda and Pablo opened their statements by addressing the problem of the defense budgeting. Here is a bit from Pablo on the budget:
That process is so rigid. How does a company that’s developing a particularly promising AI application angle into that?… Unless that question is adequately addressed, a lot of the programmatic decisions that relate to emerging technology — including but not limited to artificial intelligence — will be science experiments. They’ll never rise to a level beyond that.
This is a major point. Pablo called projects like project Maven a “grand exception” to the rule. Generally, emerging technologies more-or-less stay in the technology labs without really making it into the program of record. Even after Maven received a 580% increase in the FY 2019 NDAA, it’s funding still only reached $93 million, a tiny fraction of annual funding allocated to most major programs.
Major acquisition programs require several years of justification before funding can be made available. A lot of times, projects and companies cannot survive that transition across the “valley of death.” Here is Pablo on some ways to help bridge that gap:
Another way to thinking about this structural impediment we’re talking about in terms of the budget process is to think about how could we address it… You almost need — I don’t want to say slush fund — but some rapid innovation fund that’s been made available to program executive officers or program managers that can allow them to fail fast in connection with their procurement decisions related to emerging technology.
Congress has provided some rapid prototyping funds, such as $250 million to the small business prototyping fund, but generally the new authorities such as under Section 804 must work through the usual funding channels that justify programs before-the-fact. Pablo, however, advocates something closer to a slush fund, though he shies away from the term. Yet this is precisely what one of the founders of our modern defense management system advocated.
Roland McKean, one of the founders of the PPBS, later regretted the overly-centralizing effects the PPBS had, particularly on defense R&D. McKean and his protege James Schlesinger — who later became Secretary of Defense — recommended providing “untrammeled funds for R&D” to the lower levels, and keeping parts of the budget “To be scheduled.” Many others throughout the years have reached similar conclusions. Operationally, this looks something like an organizational budget, where funding can be redirected to programs based on information as it becomes available.
Here is Linda addressing the budget issue:
The problem when I was at DIU is that we would work with a DOD component who would say “I love that tech, I need that tech, but when I wrote my budget — when I did my POM [Program Objective Memorandum] three years ago, I didn’t know I was going to see what I’m seeing.”
Secretary [Ash] Carter was visionary in cracking the code out in Silicon Valley, in demystifying DOD to the Valley, of demystifying the Valley to the components, but the last piece of that puzzle has to be the budget cycle, because you don’t know what you’re going to love three years from now when you have to put your budget requests in today.
The POM process, of course, is what Melvin Laird renamed the Draft Presidential Memorandum (DPM), used by Robert McNamara who first installed the PPBS. It is the difficulty of justifying program objectives, and not merely the amount of personnel, contracts, and so forth, that adds so much time to the budget process.
While this gives Congress and the higher levels a means to control all the activities of the DOD, the same ends could be achieved by merely following up on accounting results and evaluating performance. It is ironic that the way it works today, the DOD focuses so much time and effort on the budget process, then it fails to follow-up on the accounting to ensure that program objectives were actually pursued.
Here is Pablo again:
The budget process is a significant structural impediment, far more daunting are cultural impediments: a premium on capital expenditure; risk-aversion within the department; things like that.
I agree that culture is an important consideration to acquisition reform. However, I’ll note that the budget process is the single biggest factor in the incentives and processes that have generated the culture we have today. As professor Aaron Wildavsky said, a “change in budgeting means change in politics.” He stressed how the PPBS was inherently centralizing. Similarly, Allen Schick documented how centralized control motivated the rise of the program budget in the early twentieth century. “PPB reverses the informational and decisional flow. Before the call for estimates is issued, top policy has to be made.”
Linda has also been working on a new DOD initiative, one which USD(A&S) Ellen Lord has said is the “most exciting thing going on in the building,” the Trusted Capital Marketplace. As Linda explains, it comes out of the Committee on Foreign Investment in the US (CFIUS) which reviews foreign investment in critical technologies:
We see all these cases where our subject matter experts say “this tech is so cool, and it is the best in the world, it cannot leave this country, we have to block that foreign investment.” At the same time, we block their investment. So we really feel the need to ensure the stability of these critical technologies and while our funding is sometimes available — and we’re certainly not withdrawing some of our funding — we would love to see this marketplace flourish as an alternative to foreign investments.
As Ellen Lord has explained that “I’m constrained legally from introducing one company to one venture capitalist, for instance. However, what we can do is segment the marketplace and then put in companies that need capital infusions that we think have critical technology for us.” It is a public-private partnership, rather than having the government pick winners and losers. This requires Trusted Capital Marketplace Managers, who will vet companies and third-party capital providers. The RFP for those spots has already gone out on FedBizOpps.
And here is Linda with the last word:
I think you throw everything at the wall and try. That’s my last word.
Be sure to check out the full podcast to hear much more, including my opinions on the budget process, scaling new companies, the JEDI contract, and other topics. I’d like to thank Zach Graves and all those at the Lincoln Network for hosting the conference and allowing me to re-post the audio. You can check out the video and more fascinating discussions on YouTube.
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