Acquisition headlines (1/9 – 1/16/2023)

Why DoD should get out of the R&D business: Mislav Tolusic. (Bloomberg Law) “The DOD should go back to its primary mission of running a military and have the private sector fund RDT&E. First, the DOD should aggressively start redirecting RDT&E funds towards procurement. In fiscal 2023, $140 billion was obligated to the agency’s RDT&E and $167 billion went to procurement. Going forward, DOD should keep the total RDT&E and procurement spending constant but reduce the RDT&E spending and transfer those dollars towards procurement.”

• At the same time, American VCs are sitting on $290 billion in capital looking for investments.
• The DOD isn’t equipped to take such an approach. A 30% to 40% success rate would be viewed as wasteful spending.

It’s time for new incentives for defense primes to invest in startups. (Breaking Defense) “In 2021 alone, the top six Defense Primes received over $120 billion in defense contracts. Those same six companies invested over $6 billion of Independent Research and Development (IRAD) funding.”

• The primes do invest in startups, but they tend to use a partnership model instead of direct investments in the companies themselves because a portion of IRAD is reimbursable and direct investing is not.
• In the VC model, the investor has a stake in the startup’s success; in the prime partnership model, the prime is focused on securing a single piece of product or intellectual property (IP) and has little reason to support the company which created it.

It’s a bird, it’s a plane, it’s… time to plan for drones in other domains. (Modern War Institute) “On October 29, Ukraine deployed a total of sixteen drones in an attack on the Russian Black Sea Fleet… nly nine of the vehicles involved in the October attack were UAVs—unmanned aerial vehicles. The other seven were USVs, unmanned surface vehicles.”

• In January 2017, Houthi rebels used drone boats to cause serious damage to a Saudi frigate.
• An antiship missile may work fine against a USV, for example, but is it worth it?
• Jammers that sever the control link between the drone and the operator or the drone’s GPS links represent the most common form of drone countermeasure, accounting for over half the counterdrone systems on the market.
• The challenge is the United States does not appear well prepared to tackle these challenges.

Anduril industries to partner with Palantir technologies to deliver phase 2 prototype for US Army TITAN program. (Medium) “Palantir Technologies is one of the competing prime contractors and is leading a team of the nation’s best traditional and non-traditional contractors, with Anduril leading the hardware development of the prototype ground station.”

• TITAN will provide timely and assured intelligence for long range precision fires in contested environments.

Leveraging US capital markets to support the future industrial network. (War on the Rocks) “$56 trillion is nearly three times the size of the U.S. economy.  This vast pool of capital in U.S. capital markets — $46 trillion in public capitalization and another $10 trillion in private money – dwarfs that of China.”

• Seven Chinese companies now rank among the top-20 defense manufacturers in the Defense News Global 100, second only to the United States with eight
• Congress’ annual budget cycle hampers agility in a world where today’s most innovative technologies are being advanced by the private sector at speed. In the two years that it takes the government to appropriate funds, the commercial sector has already iterated three to four product designs.
• …  the Department of Energy has implemented a broad range of grant, loan, tax credit, and guarantee programs, such as the $161 billion in tax credits for deployment of zero-carbon energy sources and $116 billion in grants for clean energy research and development.

Pentagon officials tout new office aimed at linking defense startups with private funds. (Breaking Defense) “The Strategic Capital Office (OSC), announced Dec. 1, is meant to help provide long term funds aimed at bridging the so-called “valley of death.””

•  [OSC] will begin standing up in 90 days, eventually building out a staff off about 20 people, Shyu said… “We’re not setting aside a billion dollars of our own pot of money to fund this. That’s not the intent of this.”

OTAs are A-OK. (AiDA) Pete Modiligani: “It is critically important that OTs be protected from the traditional FAR bureaucracy at all costs. This is either done by critics in Congress, those who do so out of muscle memory after decades of FAR contracts, or novices who are skittish of the broad flexibility who add FAR clauses assuming they’re reducing risk. OTs are among a series of efforts to ensure the DoD operates with greater speed and agility to be more responsive to the changing technologies, operations, and threats.”

Navy secretary warns: if defense industry can’t boost production, arming both Ukraine and the US may become challenging. (Defense One) “Commander of U.S. Fleet Forces Command [Adm.] Caudle, the reporter said, worried that “the Navy might get to the point where it has to make the decision whether it needs to arm itself or arm Ukraine, and has the Navy gotten to that point yet?” Del Toro replied, “With regards to deliveries of weapons systems for the fight in Ukraine…Yeah, that’s always a concern for us.””

• “It’s obvious that you know, these companies have a substantial pipeline for the future,” Del Toro said. “They now need to invest in their workforce, as well as the capital investments that they have to make within their own companies to get their production rates up.”

Space Force official: To beat China, US has to spend smarter. (Space News) ““I have never in my 25 years of service seen the department move so much money so fast toward priorities that the secretary laid out. That’s exciting,” Felt said.”

• Calvelli has been insistent about the need for speed in acquisitions, and that goes along with the idea of using more commercial technologies, and building smaller satellites, said Felt.
• “I would caution against focusing on what China is doing versus what it is we want to do,” [Doc Klodnicki] said. “I’m not so sure that number of launches is always the right metric.”

Navy shipyard optimization must include a digital backbone. (Breaking Defense) “Just last month Rear Admiral Bill Greene confirmed that the Navy has 41 surface ships currently in a major maintenance period, with 100 more in planning, and is expecting a 36 percent on-time delivery rate in fiscal 2022, down from 44 percent in FY21.…The three major challenges to efficiency include:

• Inefficient workflows: Sometimes the right person is not available or doesn’t have the right materials at the right time.
• Talent & training gaps: There’s a dearth of skilled maintainers needed to perform these incredibly unique tasks.
• Oceans of data: Maintenance solutions are hidden in vast quantities of historical repair information that is unstructured and time-consuming to locate and use.
• The Navy is tackling these challenges across three SIOP lines of effort (LOEs): Drydocks, Infrastructure and Industrial Plant Equipment. H ere are four recommendations for overcoming these barriers and seamlessly integrating digital within the broader SIOP strategy:
  • Dedicate 3 percent of SIOP budget to digital.
  • Start with operator challenges and work back.
  • Prove the value using existing and simulated datasets.
  • Do no harm.  Avoid ‘rip and replace’ of major data systems and focus on problem-oriented solutions that can be seamlessly integrated.

SEWIP rollout continues to US fleet. (Naval News) “The US Navy is continuing to recapitalize its shipborne electronic warfare (EW) capability through the fleetwide roll-out of the Surface Electronic Warfare Improvement Program (SEWIP) Block 2 sensor to major surface combatants, nuclear-powered aircraft carriers and large amphibious ships.”

• SEWIP is introducing a series of staged hardware/software uplifts designed to improve electronic surveillance (emitter detection, analysis, identification and threat warning) and electronic attack (to counter anti-ship missile threats).

Startups thrive with contracts via defense innovation office. (Bloomberg) “DIU handed off 17 new products to the Pentagon in fiscal 2022, double the number in 2021. That success pushed the organization’s transition rate overall to 47% since fiscal 2016. In that period, DIU has awarded $1 billion in prototype contracts.”

• DIU is increasingly focused on the transition of tech into established defense programs.
• Companies get funding only as they hit development milestones, which means less risk—and potentially less money—for the government.
• The prototype contract with DIU ran four months and then “DIU coached the government on how to reach us,” Roy said.

Appropriators puzzled by Air Force cuts to critical programs. (Roll Call) “In their report, they called on the Air Force secretary to send the defense committees a list of all the aircraft programs that the service plans to truncate, plus descriptions of each decision’s impacts on operations, strategic basing, cost avoidance by fiscal year, quantity change and “the rationale for truncation.””

• F-15EX Eagle II: 80 instead of 144 over the FYDP (44% decrease)
• Combat Rescue Helicopter: 75 instead of 113 (34% decrease)
• Lower spending on Space Force, despite requirements for protecting satellites, hypersonic defense.
• “Competing needs,” led by modernizing the service’s nuclear missiles and bombers, are “crowding out” funding for other programs.
•  The Air Force will shrink its squadrons by roughly 400 planes in the next five years

China’s new quantum code-breaking algorithm raises concerns in the US. (Interesting Engineering) “Chinese researchers claim to have introduced a new code-breaking algorithm that, if successful, could render mainstream encryption powerless within years rather than decades.”

• The “new algorithm could dramatically reduce the scale of a practical quantum computer to 372 qubits.” This is even less than IBM’s Osprey, the most potent quantum computer in the world, which only has 433 qubits and is incapable of cracking codes.
• To demonstrate the feasibility of SQIF, the researchers used a tiny 10-qubit superconductive quantum computer at Zhejiang University in Hangzhou to break a 48-bit-long encryption key.