Pentagon criticized for stagnant innovation, lack of investment strategy

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It is disappointing that after two years of budget growth “we don’t see a shift to a competition agenda,” said Kathleen Hicks, member of the National Defense Strategy Commission.

SIMI VALLEY, Calif. — Much of the talk this weekend at the West Coast Aerospace Forum and the Reagan National Defense Forum was about the sluggish pace of U.S. military innovation. Experts warned that the Pentagon does not have a solid plan to modernize capabilities in areas where China and Russia are advancing, such as hypersonic weapons, space systems and cyber warfare.

After a two-year defense buildup, the Pentagon is “fixing readiness but it’s not a program that points to a culture of innovation,” said Kathleen Hicks, senior vice president of the Center for Strategic and International Studies and member of the National Defense Strategy Commission. The bipartisan group was created by Congress to review the Pentagon’s National Defense Strategy.

The commission’s final report released last week was highly critical. It says U.S. military capabilities have “eroded to a dangerous degree and …. America’s ability to defend its allies, its partners, and its own vital interests is increasingly in doubt.”

In a keynote speech at the Ronald Reagan Presidential Library, Defense Secretary James Mattis hailed the strategy he unveiled a year ago. He described it as a guiding document that “maps out our emergence from strategic atrophy, expands the competitive space with our adversaries, and rebuilds our military advantage.”

A much more downbeat assessment was offered by commission co-chairs Eric Edelman and retired Navy Adm. Gary Roughead, who spoke at the Reagan forum. They noted that the Pentagon faces the possibility of funding cuts next year as a result of Trump administration efforts to cut federal spending. After a two-year defense buildup, growth  could come to a halt in 2020, and the Pentagon has done little to show it has invested in technologies to counter China and Russia, they said.

“What are we doing?” Hicks asked. “Our standard operating procedure is to recapitalize, but I don’t see innovation.” This is going to be a growing problem for the Pentagon if budget hawks in the administration and Congress decide that the Defense Department is not investing wisely, said Hicks. Once DoD figures out an innovation strategy for great power competition, “then you have a stronger basis to have a conversation about increasing defense spending.”

It is disappointing that after two years of budget growth “we don’t see a shift to a competition agenda,” said Hicks.

Deputy Defense Secretary Patrick Shanahan told reporters last year that the fiscal year 2020 spending proposal will be the “masterpiece” budget that will set the direction for long-term strategic investments. Hicks seemed skeptical that DoD can deliver on that promise. “In this coming budget, is it going to double down on some key asymmetric advantages like hypersonics, undersea warfare, space and cyber? I’ll be looking for that.”

The commission said the Pentagon will need at least 5 percent budget growth each year to accomplish all its goals, but Hicks insisted that the problem is not how much money but how it’s spent. “I hear people say: ‘If we just cut the defense budget they’re really going to have to make choices,’” she said. But that criticism ignores the realities of defense programming. When the top line is reduced, the Pentagon takes money out of research, development and procurement accounts those are easier to cut than politically contentious personnel reductions. For the Pentagon, “it’s a damned if you do and damned if you don’t,” said Hicks. “If you give them too much money, it can get whittled away. If they don’t get enough, they cut modernization and slow down programs.”

The solution is “predictability,” said Hicks. Whatever top line is decided on, it should be be stable. And there should be a national consensus on the level of investment for defense, she said. “What we’ve had is fits and starts.” As the 2020 budget nears, “the risk is very high that we’re going to see that, and not a ‘masterpiece’ budget that gets to competition,” said Hicks. “I’m not holding my breadth.”

Tina Jonas, a senior adviser at the CSIS International Security Program and a former DoD comptroller, said the Pentagon has to first recognize it has a problem, and that could lead to changes in investments. The topic came up last week during an industry gathering where Gen. John Raymond, commander of Air Force Space Command, talked about ongoing efforts in “resilience and offensive space,” Jonas said.

“The threat is emerging in a way that we have got to focus,” said Jonas. “It’s not the urgency we felt on 9/11 but it’s getting there.”

Alternative ways to invest

Defense officials acknowledge that rearranging budget priorities is like turning around a battleship. Spending plans are drafted years in advance and it takes a lot of negotiating within DoD and with Congress before funds can be reprogrammed. Air Force Secretary Heather Wilson said there is an urgency to innovate so some of the initiatives being pushed today are nontraditional investments such as awarding contracts through industry consortiums and setting up cost-sharing agreements with private companies.

“We are using new authorities Congress gave us to prototype technologies and do faster acquisitions,” Wilson said on Saturday at the Reagan forum. A Space Enterprise Consortium was created last year to attract commercial vendors to bid on military contracts. Wilson said 228 companies have joined the consortium to date, and 75 percent never have done business with the Air Force before. The consortium awarded 35 contracts in its first 10 months and the average timeline to award a contract is 90 days. “We need to do more of that,” said Wilson.

Jamie Morin, executive director of the Aerospace Corp. Center for Space Policy and Strategy, said DoD is at a crossroads as it weighs how to capture innovation from the private sector and decides what it should develop in-house. The big question is “How do we get real capability and not just one-off demonstrations?” Morin told SpaceNews.

A case in point is the soaring interest in commercial broadband constellations of small satellites, which are capturing billions of dollars in private investment and positioning themselves to grab a share of the military market. The  National Defense Strategy calls for investments in resilient space systems, as opposed to traditional satellites that have huge price tags and make attractive targets for adversaries.

“The low earth orbit activity is very exciting,” said Morin. “There is enormous potential there. But right now DoD is trying to wrap their heads around this.”

How to tap into privately developed LEO capabilities illustrates the innovation dilemma facing DoD. “Should LEO constellations be viewed as an augmentation to the traditional way of doing things, a substitute, or a complete disruptor that we need to think about doing space missions in a completely different way?” Morin said. “There are big decisions in front of the department right now.”

Another reason innovation in defense and space has sluggish is that DoD can be fickle about novel approaches to investing and contracting. A case in point are Other Transaction Authority contracts. OTA contracts are cooperative agreements with companies to share the cost of a project, with the expectation that both government and contractors end up benefiting from the investments. The Air Force in recent years has used OTA contracts to ensure commercial rockets that are being developed meet national security requirements.

OTA is seeing a resurgence, but who knows how long that will last, wondered William LaPlante, senior vice president and general manager of MITRE National Security Sector, and a former Air Force procurement executive.

According to new contracting data from CSIS, DoD has  increased spending on OTA contracts from about $700 million in 2015 to more than $2.1 billion in 2017. Andrew Hunter, the think tank’s director of defense industry initiatives, called this a significant trend. He said DoD contract obligations for applied research — known as 6.5 projects — for next generation weapons systems were just under $3 billion in 2017. “So you’re getting close to parity with what was spent on OTA.”

“What I get concerned about is the pendulum swinging on OTAs and section 804,” LaPlante said at the West Coast Aerospace Forum hosted by RAND Corp. in Santa Monica, Calif. Section 804 is the legislation that allows DoD to accelerate funding for prototypes. “I first started experimenting with OTAs in 2014,” said LaPlante. At the time DoD was against it after several high-profile failures that drew congressional ire.

“OTA and 804 are good for a certain part of the acquisition,” said LaPlante. But what happens after the prototype phase? “How are you getting at fielding at scale?” he said. “You fall in love with OTA. And then you have a glorious dead end.”

Just like OTA goes in and out of fashion, will the same happen with consortiums? LaPlante said the high participation in the space industry consortium is “exciting” even though it only handles small projects.

Hunter said recent contracting data analyzed by CSIS shows that even though the Pentagon’s procurement budget grew in 2017, most of the funds were spent to buy more of the systems it already has, and not on next-generation systems. “It is completely unapparent that the strategy is driving the recovery and the acquisition system,” said Hunter. “You can squint pretty hard to try to see it, maybe there’s a few things there. I think it’s not there,” he said. “The National Defense Strategy says we’re in a strategic competition. That does not show up in R&D contracts.”