The Defense Department is planning more multiyear deals and expects they’ll help smooth kinks in fragile supply chains. But the way prime contractors manage their suppliers, and the potential for bottlenecks, could stall progress.
Quadrupling munitions production “takes leadership—and I think we’ve got that in the [defense] secretary and the deputy. I think it takes money. I think it takes commitment,” Michael Duffey, the Pentagon’s acquisitions and sustainment chief, said Thursday during the Ronald Reagan Institute’s national security summit.
Duffey said multi-year procurement deals, such as recent ones with Lockheed Martin and RTX, have helped create “a trust level with industry because of that frequent engagement.” The hope is that conditions set in those deals will flow down the prime contractor’s supply chain.
“One of the key components of the deal is that all the conditions that are a part of the prime contractor will flow down. So the longevity of the deal will benefit all the suppliers, all the way down the supply chain, which hopefully then incentivizes a flywheel of investment in the key components, in the raw materials that we need,” Duffey said, noting that high engagement with industry has helped foster conditions for these types of deals.
While the Pentagon is happy with progress so far, Duffey said “not every program will be a perfect candidate” for long-term production deals. Those that would be a good candidate share a few things, including long-term need, lack of an emerging competitor, and “ramp time” needed to build a supply chain and intellectual property.
“That all, kind of, creates the incentive for a long-term deal here. And putting that contract in place, not only to incentivize the contractor to make the investment, but it’s putting real penalties in to ensure that we’re able to stick to the present and the secretary’s priority, which is speed and volume,” Duffey said.
In its annual report card analyzing the defense industrial base, the Reagan Institute found the Pentagon has gotten better at telling industry what its modernization plans are compared to a year ago—jumping from a D-plus to a B-minus—but still struggles to make those plans a reality.
Roger Zakheim, who leads the Ronald Reagan Institute in Washington, said the second Trump administration’s moves thus far have been positive “building blocks” for substantive change, but there is still a long way to go.
“There are great aspirations for what has to happen within our innovation base and the impact it should have on our national defense. And we haven’t seen sufficient, in our judgment, movement there. The production, the modernization is sort of not revealing itself across the force like we think it should,” Zakheim told reporters at a Defense Writers’ Group event ahead of the summit. “But at the same time, we have seen some significant movements, particularly this year, in the customer clarity,” due to policy shifts, among other things that “could ultimately drive this defense modernization.”
Defense modernization has received a grade of ‘D’ on the institute’s report card since 2024.
Some of the positive signs the report mentioned: acquisition reform and reorganization efforts, talks of $1.5 trillion defense budgets, and procurement contracts spanning several years—which have clarified the Pentagon’s intentions with industry.
But supply chain risks persist and likely need more attention.One of the barriers to increased production and defense modernization is supply chain management, which the Pentagon has typically left up to prime contractors, said Frank Futcher, the former director of NavalX.
“I think for too long, the Department of War has relied on the big primes to do all of that, like it was more of the hands off, laissez faire economy…We’ve now started to shift to more of an industrial policy,” said Futcher, who is now a consultant with Ernst & Young.
There’s a misconception that major defense contractors “go deep down the supply chain…on a day-to-day basis” and can actually see where risks to production could be, he said.
“There could be a mom and pop shop. There could be long lead material that they don’t realize that’s going to prevent them from scaling,” Futcher said. “And I think the program offices, or now these new PAEs, these portfolio acquisition executives, have to make this a priority…they really need to be working together with industry in much more of an established sort of industrial policy as to how they’re going to do this together.”
Read the full article here