To those at Reagan National Defense Forum #RNDF, if there’s one BLUF you take away from the weekend, you should know: Time is running out with Silicon Valley. In the past five years, thousands of startups have received funding from various innovation orgs. OTAs. STRATFIs. Startups believe they’re getting REAL contracts and many investors do, too. Investors heard the call too: In 12 months, roughly $2 BILLION of private venture capital went to defense-focused companies.
DOD doesn’t need acquisition reform or to burn down the house and start from scratch. It needs to award production contracts to venture-backed startups that can build technology for defense, fast. So what should DOD do right now?
1) Award production contracts to the most important startups with the teams who’ve proven they can build. These don’t have to be big contracts. But they have to be real production contracts that show founders and investors that DOD is serious.
2) Change the culture of procurement: Procurement officers are punished for betting on a young startup. Incentivize the procurement officers to work with venture-backed startups that can build needed capabilities for the warfighter.
3) Commit to long-term changes: We’re in a business-as-usual state even though we’re watching our adversaries have Sputnik moments. This is not a drill. We have to act now.
This is urgent. The future of American national security depends on us finding a way to solve this procurement crisis. And talented engineers are ready to move fast and serve their country.
That was selections from Katherine Boyle’s interesting twitter thread. Certainly Katherine and others have been sounding the alarm on this for the last couple years. I think making the term “Silicon Valley” synonymous with startup and nontraditional activity isn’t the best. Katherine herself has moved from the Valley to Miami. But I sympathize with her points. Here are some more quotes coming out of the Reagan Forum, quoted in Breaking Defense:
- Joe Lonsdale, 8VC partner and founder of Palantir: “People are watching. Is this an area where people can actually make big money?”
- AF Chief of Staff CQ Brown: “If we don’t do that, then I really believe all that venture capital is just gonna walk. They’re going to find someplace else to go.”
- SecDef Lloyd Austin: “Let’s face it: For far too long, it’s been far too hard for innovators and entrepreneurs to work with the department.”
- Rep. Ken Calvert: “The US government has been a lousy partner, quite frankly. We don’t protect intellectual property. We get companies in and we waste their time.”
In the end, investor and co-founder of Anduril says DoD doesn’t need to get 100 transitions within a year, but two or three to show it is possible. He is optimistic.
There’s a $100 million innovation fund being eyed in the FY 2022 NDAA that Rep. Calvert is a big fan of, as well as a $200 million RDER fund.
The RDER fund looks like it will be spread across 30 or so efforts, or perhaps $6 million each. Even if defense officials were ready to take risks and allocate the $100 million to just two companies at $50 million each, that doesn’t solve the “valley of death” problem but merely pushes it to the right. There is no program set up. Thus, if a company received $50 million, that will have to hold them over for 2 or 3 years until a program is lined up, in which case the outcomes of their work will be put into a solicitation to be competed against the big traditional contractors like Lockheed or Northrop, and then there will be another two-year lag until the contract is awarded.
I think it will be interesting to see whether these companies, with $50 or so million and all their private investment, can have a ready-made solution that can transition directly to the field and skip this competition for a program of record. Can they go straight to O&M funding using an “as a service” model? Or can they go straight to procurement contracts with a sole source?
That straight to sole source is possible with SBIR Phase III follow-on or a follow-on production contract to a competitive OTA prototype award. Unfortunately, most contracting offices will not take that risk at this point. More than words at a conference will be needed to jolt the acquisition yeomen into action.
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