FORT MCNAIR—Move faster and invest more, Defense Secretary Pete Hegseth told hundreds of defense-industry executives on Friday—or we just might make you.
Hegseth, who spoke for more than an hour to a packed auditorium at the National War College, formally unveiled a slew of policy changes intended to replace his department’s Cold War-era acquisition processes with ones that value speed over rigid requirements. The secretary described the gathering as an opportunity to look executives “in the eye.”
“We commit to doing our part, but industry also needs to be willing to invest their own dollars to meet the long-term demand signals provided to them. Industry must use capital expenditures to upgrade facilities, upskill their workforce, and expand capacity. If they don’t, we are prepared to fully employ and leverage the many authorities provided to the president which ensure that the department can secure from industry anything and everything that is required to fight and win our nation’s wars,” Hegseth said.
In the wake of the speech, Hegseth’s office released a trio of memos: one to order the renaming and transformation of the Defense Acquisition System into the Warfighting Acquisition System; another ordering an overhaul of the joint requirements process; and a third focused on streamlining foreign military sales.
The Pentagon chief told defense companies to put more of their own money into developing military technology—or take their business elsewhere.
“You must invest in yourselves rather than saddling taxpayers with every cost. For those who come along with us, this will be a great growth opportunity, and you will benefit. To industry not willing to assume risk in order to work with the military, we may have to wish you well in your future endeavors—which would probably be outside the Pentagon,” he said. “We’re going to make defense contracting competitive again.”
Steve Blank, a professor and co-founder of Stanford University’s Gordian Knot Center for National Security Innovation, called the speech a death knell for the Pentagon’s existing acquisition system—”the Department of War just shot the accountants and opted for speed.” And he expects major defense contractors to push back against it.
“Their first response is going to be hiring a whole ton of K Street people to lobby Congress to point out the problems with this process, which is, we’re going to take a lot more risk and a lot more things will fail,” Blank told Defense One after the speech. “So this really forces primes, if they don’t want to hire lobbyists, to change their business model. And the problem is their business model is predicated on a system that’s no longer sustainable.”
Blank said Hegseth’s emphasis on speed and commercial technology will see traditional defense prime contractors pushed more than ever to compete with “startups banging on your door. Boy, the direction to me sounded pretty clear: that we’re going to people who have stuff that could be delivered cheaply and quickly.”
The shift could also mean the Pentagon shifts to more fixed-price contracts, where work has to get done at a certain price, opposed to cost-plus contracts, which allow for increases as a result of delays or unforeseen expenses.
In his speech, Hegseth called out cost-plus contracts as one of the symptoms that ail the Pentagon’s acquisition system.
“These changes will move us from the current prime contractor-dominated system defined by limited competition, vendor lock, cost-plus contracts, stressed budgets, and frustrating protests, to a future powered by a dynamic vendor space that accelerates production by combining investment at a commercial pace with the uniquely American ability to scale quickly,” he said.
But fixed-price contracts can bring their own woes. Boeing says they are partially to blame for delays to new presidential jets. Northrop Grumman’s CEO has said they don’t make sense in development work.
In introductory remarks before Hegseth’s speech, Deputy Defense Secretary Stephen Feinberg said the Pentagon and “our contractors need to change and do better” but “those who don’t and resist it will be done.”
Hegseth’s speech seemed well received among defense tech founders, executives, and investors. One attendee told Defense One after the speech that prime contractors should take Pentagon leaders at their word.
“It is a vindication of our thesis that America needs an acquisition system focused on meritocracy and transparency,” the expert said.
The directive to buy commercial first doesn’t just mean off-the-shelf, it means changing the contracting process to value metrics and speed, which could mean more fixed-price contracts with milestones for production, they said.
Arms exports
Beyond buying and producing weapons systems faster, Hegseth spent a chunk of his speech talking about improving the foreign military sales process.
“Believe me, I hear about this on every foreign trip. And every conversation I have with every president, prime minister, and minister of defense is, ‘What is wrong with your foreign military sales? We ordered it in 2014; it’s 2025 and it’s scheduled to deliver in 2032.’ And I sit there going, ‘I don’t know, what the hell?’ We didn’t break it, but we’re going to fix it,” he said.
“Not only are foreign military sales and defense commercial sales important to our American industrial base, but they’re also critical to our strategic vision on the global landscape…and to accomplish this, our allies and partners must be armed with the best and most interoperable weapons systems in the world. Foreign military sales allow our warfighters to stand shoulder to shoulder with our allies.”
One of the Nov. 7 memos orders the organizations that handle foreign military sales—the Defense Security Cooperation Agency and Defense Technology Security Administration—to be moved from the Pentagon’s policy shop to its acquisition shop.
The new focus on “burden sharing” and being a better customer to allies and partners is “refreshing,” said Jerry McGinn, who leads the Center for Strategic and International Studies’ industrial base division.
“The strong endorsement of the importance of allies and partners, it allows more overall industrial capacity. And so I think that’s a good thing,” McGinn said, noting that Denmark had recently canceled its order of U.S. Patriot missiles.
“They weren’t going to be able to get Patriots for at least five years because of the backlog in production. So, doing better on that will be better overall because you’ll have allies buying stuff that’s compatible with ours—and it’s good for overall capacity, good for the industrial base,” he said.
Implementing all this will take money and people, he said.
“I’ve been calling to have our industrial base on more of a ‘war footing’ for some time. And these are the kind of measures that you would have to take to do that. So follow through is going to be the key,” McGinn said. “And then the question is resourcing. Because some of this is…is going to require a lot of attention and some additional resources.”
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