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McHugh: Without Budget Resolution U.S. Faces ‘Dangerous’ Future
By Yasmin Tadjdeh

During one of his last high profile speeches as secretary of the Army, John McHugh warned of a dangerous future if the United States’ government continues to pare back the military’s budget.

“We are on the ragged edge,” he said Oct. 12 during a keynote address at the Association of the United States Army’s annual conference in Washington, D.C. “If we continue to strip resources from this Army … [then] at some point someone is going to have to tell us to stop doing something. As I look at the world right now, I don’t know what that would be.”

McHugh blamed some policy makers' “grossly naïve view of the geopolitical environment” for leaving the military underfunded to cope with unexpected demands, he noted. “We attempted to predict the future. Just one problem with that — that’s fortunetelling. Fortunetelling doesn’t work,” he said. “I didn’t foresee the United States Army being the foundational force to fight the Ebola outbreak in Western Africa. I don’t think we fully understood the rapid pace of the expansion of terror cells throughout the northern part of Africa with al-Shabab, Boko Haram [and] the Lord’s Resistance Army.”

The military was also taken by surprise by Russian President Vladimir Putin’s annexation of Crimea and by the rise of the Islamic State, he said.

“The problems we have most been befuddled by … [are] not the challenges that we saw, not the ones that we planned for, that we budgeted for, it’s the ones we didn’t see,” he said.

Gen. Mark A. Milley, chief of staff of the Army, echoed McHugh’s remarks during a media briefing at the conference.

“As I look around the world today, there’s no doubt in my mind that the United States is safe,” he said. But “the world outside the boundaries of the United States, the velocity of instability is increasing … and there are a lot of things going around the world today that present very real threats to the security of the United States.”

The military must maintain its capability and capacity. For the Army, Milley said his priorities include maintaining readiness and the future force.

McHugh said unless a budget is agreed to before the expiration of the current continuing resolution, there could be major issues for the Army.

“For the moment … we do have sufficient funds to move forward,” he said. However, come December the “lapse of the current CR could potentially open the doors to some very precarious situations.”

McHugh and other Army leaders have been vocal about the need for more funding for the armed services; however, he noted that some outside the Pentagon might not take the threat of reduced budgets seriously.

“There is a thought amongst some in this town that when the chief and I continue to talk about the challenges we face that we’ve been in some fashion crying wolf,” he said. “We’re in an extraordinarily rare position in American history where our budgets are coming down but our missions are going up.”

If the president’s requested budget is not approved, or if another unseen conflict pops up, it will “put this country in a very dangerous place,” he said.

Photo: John McHugh and Mark A. Milley (Army)

Defense Leaders to Discuss Next Steps in Private Sector Outreach
By Sandra I. Erwin

The Pentagon’s push to attract innovative technology firms is moving into its next phase as a group of government officials, senior defense industry and Washington think tank executives is poised to meet in Silicon Valley next month.

The upcoming discussions will seek to chart a path forward as the Pentagon figures out how to establish new business relationships with the commercial tech sector — including companies in Silicon Valley that are creating cutting-edge technology the Pentagon wants for its weapons and information systems, but are generally reluctant to work with the government and contend with onerous regulations.

These meetings are occurring amid a rising tide of skepticism within the defense sector and the investor community in Silicon Valley, where critics have dismissed the Pentagon’s initiative as high-minded rhetoric that is not backed up by serious efforts to lower regulatory barriers to businesses.

“It’s easy to be negative, but we have to try to make this work,” said Arnold Punaro, CEO of The Punaro Group and chairman of the board of the National Defense Industrial Association. Punaro will be taking part in a series of gatherings in Silicon Valley in early November, along with other industry representatives, Pentagon officials and experts from the Center for a New American Security.

“We’ll have meetings with key people, including the new head of DIU-X [the Pentagon’s new technology hub in Silicon Valley] and business leaders to get a better understanding of what people are doing and thinking, and where the barriers are that need to be overcome,” Punaro said. Attracting innovative suppliers is a key priority of Secretary of Defense Ashton Carter, and Congress has passed legislation to help DoD do business with nontraditional firms, he added. “There are some real opportunities here. We need to look at what we can do to make it work rather than wring our hands and complain that’s it’s never going to work. To me that’s a defeatist attitude that we need to set aside and figure out what we can do.”

After Carter launched a highly publicized campaign to lure Silicon Valley firms soon after he was sworn in as defense secretary, it did not take long for the naysayers to predict this was a doomed effort. Some of them noted that the commercial industry has little incentive to do business with a Pentagon that sets strict limits on corporate profits and demands access to companies’ intellectual property. Other critics in the defense industry questioned why the Pentagon needs new suppliers when there is already a sizeable government contractor community from which it can solicit ideas.

Punaro said everyone should be motivated to improve the current system. “We in industry are as interested in innovation as anyone else. We have the bandwidth to help companies that are very entrepreneurial and innovative but don’t have the patience to deal with a lot of the government requirements.”

The defense innovation experimental unit known as DIU-X should propose different contracting mechanisms to attract nontraditional companies, Punaro said. “The secretary of defense has acknowledged that one of the cultures that has to change is the government culture,” he said. “This is hard. There are probably people who will give up and maybe in the final analysis they’ll be proven correct but I don’t think we should throw in the towel.”

Some of the Pentagon’s own rhetoric gets in the way, however, Punaro noted. A series of comments by Undersecretary of Defense for Acquisition, Technology and Logistics Frank Kendall is a case in point. Kendall recently voiced concerns about defense industry consolidation and suggested the Pentagon may seek ways to block mergers of prime contractors. Kendall also pointed out in a new study that some Pentagon subcontractors are making higher than acceptable profits. And he introduced a revised policy for the procurement of commercial products that many companies believe will deter nontraditional vendors from selling to the Defense Department.

“That’s why a lot of people are skeptics,” Punaro said. “On the one hand they say defense wants to do x, y and z and then on the other hand they are adding new barriers to be able to do that,” he said. “Policies like those that have been proposed for commercial pricing are inconsistent with the defense secretary’s directive and inconsistent with congressional language.”

Among the doubters is Stephen Rodriguez, a defense policy adviser at Coldon Strategic Advisors, a consulting firm that helps entrepreneurs in the aerospace, defense and government services sector.

“I appreciate what the Department of Defense has done to date with outreach,” he said. But public relations campaigns only go so far, he said. Tech companies outside the Beltway know about the Defense Department and the amount of contracting work it generates, he said. They know “exactly who DoD is” but still do not see it as a desirable customer. “This is not a communications issue,” Rodriguez said.

“The reason they are not working with DoD is not because they’re not aware of defense funding opportunities,” he said last week at an industry conference. That the Pentagon spends more than $200 billion a year on products and services, in itself, is not a draw for many investors who would rather not see their money tied up in government red tape. The Pentagon funding process is murky and unpredictable, said Rodriguez. “Why in the world would nontraditional companies even want to touch DoD?” he asked. There are too many reasons not to, he added, “Eighteen-month sales cycles, opaque contract language, the promise of money that may or may not be there,” he said. “Commercial businesses have their own warts, but I’ll take that any day over the DoD process where there may or may not be money at the end of the tunnel. That’s very discouraging to business.”

The Pentagon has billed its innovation initiative as an effort to “better identify the ‘art of the possible’ for national security.” Carter and other senior defense officials have championed it as a way to reenergize the military’s plodding technology development cycle. The key pillars of the plan are the opening of the DIU-X technology hub and the launch of a long-range research and development program. The DIU-X will “position the Department of Defense to be more open to the infusion of nontraditional technical ideas and talent,” a Pentagon news release said. The long-range R&D program was created to help DoD “better understand and prioritize new or unconventional application of technology.” The Pentagon has solicited technology pitches that it will consider funding in the 2025-2030 budget cycle.

These initiatives are a “big deal,” said John G. (Jerry) McGinn, the Defense Department’s principal deputy director for manufacturing and industrial base policy. To help contracting officers work with nontraditional suppliers, his office is putting together a handbook of existing procurement authorities and vehicles that can be used to “improve how DoD accesses commercial technology,” McGinn said at a Heritage Foundation forum. “Some authorities are well known, others not.” Fast-track contracting methods exist already but may not be familiar to many procurement officials.

Rodriguez said a deal breaker for small businesses is the exorbitant cost of doing business with the government. It requires specialized staff just to get through the paperwork, he said. “What DoD should do is build an incubator to enable incoming nontraditionals, to help them work through the contracting process, figure out who to partner with.”

The Obama administration has not helped the Pentagon’s cause as it has unleashed a slew of new regulations in recent years via executive orders that make it more expensive for government contractors to do business, said Peter Lichtenbaum, a partner at Covington & Burling. “Even the established industry associations and trade groups sent a letter to the White House saying ‘enough is enough.’ Imagine what it’s like for companies that are not used to that.” Regulatory burdens range from intellectual property rights to export controls, cybersecurity requirements and penalties for use of counterfeit parts, he said. “As regulations accumulate we start to strangle the very programs we want to succeed.”

Another gripe often heard from smaller contractors is that the cards are stacked in favor of established suppliers. It will be hard for DoD to innovate until that changes, said Kevin Kelly, CEO of LGS Innovations, an information and intelligence technology firm.

“DoD has frustrated vendors,” he said in an interview. “The government keeps awarding business to traditional players. That frustrates innovators.” The outreach to Silicon Valley will not achieve much if companies are not given a legitimate shot at winning contracts. “Companies come to the table with solutions and then you see legacy programs continue to get tens and hundreds of millions of dollars for the same old solutions,” he said. “They discourage innovation with their actions.” In his experience working with the Defense Department, Kelly said, “If a product doesn’t have a traditional trusted brand on it, it’s probably never going to see the light of day. That problem has yet to be solved.”

Companies are investing time and money in technologies and expect to make money from them, Kelly said. “They need to show return to their investors. If we don’t see a path to marketability, we don’t fund it. Some new companies may think the government is like an ATM machine that hands out money” until they realize this is a market without easy avenues to sell, he said. “I met with a Silicon Valley company that used to have a strong relationship with the government and no longer does. They don’t trust that the government is actually going to buy.” LGS Innovations usually partners with traditional defense contractors, said Kelly. “That’s how our technology makes it to the mission. If we were a small startup with a really innovative idea, I would have a hard time finding the right avenue to reach a government buyer.”

Photo: Ash Carter speaks with the Defense Innovation Unit - Experimental staff members during a visit to Moffett Field, Calif. (Defense Dept.)

Tough Balancing Act for Defense in Shaping Industry Consolidation
By Sandra I. Erwin

When Bell Labs was acquired by the French technology conglomerate Alcatel-Lucent, the Pentagon was not happy. It could not legally stop the acquisition but it had the prerogative to no longer do business with the company.

The question of how much power the Pentagon really has to compel its contractors to merge or to not merge came under scrutiny last week when Undersecretary of Defense for Acquisition, Technology and Logistics Frank Kendall criticized the recent takeover of helicopter manufacturer Sikorsky Aircraft by the nation’s largest military supplier Lockheed Martin Corp.

Kendall lamented the lack of legal means available to the Pentagon to prevent such deals. “The Department of Defense is concerned about the continuing march toward greater consolidation in the defense industry," he said. "The trend toward fewer and larger prime contractors has the potential to affect innovation, limit the supply base, pose entry barriers to small, medium and large businesses, and ultimately reduce competition — resulting in higher prices to be paid by the American taxpayer.”

But there is much the Pentagon could do to shape corporate consolidation simply because of its huge leverage as the industry’s largest customer.

The suggestion that the Department of Defense has no control over industry mergers is off base, said Kevin Kelly, CEO of LGS Innovations. “They can exert power with their checkbook like a consumer does,” Kelly said in an interview. “If they don’t like what they see, they can stop buying.”

In the case of the Lockheed-Sikorsky deal, the Pentagon may not have that option because both companies are sole-source suppliers of many key weapon systems the military buys. In other instances of contractor mergers, however, the Pentagon could exercise its buying power to show displeasure, Kelly said. “I’ve seen this personally.”

Dulles, Virginia-based LGS Innovations was previously owned by Lucent Technologies and was later spun off after Lucent combined with Alcatel. The Pentagon was directly involved in the review and approval process of that transaction because it involved foreign investment.

“When we were part of Lucent Technologies and Lucent and Alcatel combined, LGS was then owned by Alcatel Lucent, a foreign entity,” Kelly explained. The Defense Department did not like the merger because it did not want Bell Labs to come under French ownership, but could not legally prevent it from happening. “Even though DoD couldn’t disallow that merger, they just stopped buying,” he said. "Certainly if the DoD sees a combination of companies that makes them uneasy, they can vote with their feet and take their business elsewhere.”

Corporate mergers are closely reviewed by the Commerce and Justice Departments for antitrust concerns, as well as by the Securities and Exchange Commission. The Defense Department does not necessarily get a vote but it has other means to exert influence. “Usually before companies merge, they go talk to their customers to find out if they’re going to have a problem with the merger,” Kelly said. “The best thing the customer can do is be honest and say, ‘I don’t like this combination.’ That would be taken into account.”

LGS Innovations, an intelligence and information technology supplier, recently acquired another defense contractor, Axios Inc., a provider of communications and signal processing systems. Such acquisitions are going to continue and the government is unlikely to stop them because of the strong market forces that are moving in that direction. “We’re evaluating several companies for potential acquisitions,” Kelly said. “Now it’s a good buyers market, a fluid and stable market. There are a lot of companies for sale.”

The Pentagon faces a tough balancing act as it tries to preserve competition, Kelly noted. “You have to avoid monopolies, and we have plenty of laws and regulatory approvals in place for that. Apart from that, you have to allow businesses the freedom to maneuver, or you are effectively legislating inefficiency,” he said. “You don’t want to pull all the stops out of the system. At the same time, you have to give business some flexibility to combine when it makes sense for efficiency.”

Kendall last week softened his initial disapproving reaction to the Sikorsky acquisition. “I was not trying to be negative about anybody,” he said at an industry conference. “Lockheed made what is probably for them a good strategic move.”

But it is clear that the Pentagon is becoming alarmed by the potential ramifications of this trend. Not only will there be fewer companies that can provide specialized military equipment but the government might lose its leverage vis-à-vis an industry dominated by a small number of corporate giants. “It’s a fact that with size comes the influence over things like the budget, over how acquisitions go,” Kendall said.

Pentagon officials also have been frustrated by the propensity of large defense contractors to spend their cash buying back their stock to keep investors happy rather invest in next-generation technology the Pentagon needs. The Sikorsky acquisition and the stock buybacks are a reminder that the Pentagon has limited means to manage the defense industrial base, Kendall said. “The tools we have to manage that trend are inadequate based on my recent experience. The tools we have are more limited than I realized.”

The Pentagon’s industrial policy office was created precisely to monitor trends and recommend actions to the secretary of defense. The office collects loads of data about the Pentagon’s supplier base, but has little ability to predict trends.

“We have to take a more proactive and predictive approach to how we look at the industrial base, so we can understand where the base is heading and figure out where we would like it to head,” said John G. (Jerry) McGinn, principal deputy director of manufacturing and industrial base policy at the Defense Department.

His office regularly conducts surveys and assessments of different sectors of the industry, McGinn said last week at the Heritage Foundation. Analysts try to identify fragile points in the supply chain so the government can ensure it will not lose critical suppliers. Those studies are important, McGinn said, but are not always useful because they are a “snapshot in time” that don’t provide insight into what comes next. “What we’re trying to do it turn those ideas into something more dynamic and predictive.” When it comes to mergers and acquisitions, the government’s traditional approaches to weigh company capabilities and antitrust implications also are inadequate, McGinn said. “These are not always sufficient given the global trends that are impacting the national security environment.”

Photo Credit: Army, Lockheed Martin
Budget Stalemate Puts Pentagon Programs Back on the Brink
By Sandra I. Erwin

The prospect of Congress keeping the government open via temporary funding measures through the coming fiscal year is sending shudders through the halls of the Pentagon.

With a bitterly divided Congress and no signs that lawmakers are any closer to agreeing on funding levels for fiscal year 2016, the Defense Department fears it will have to operate with short-term funding through the coming months, or even through the entire budget year.  Congress approved a stopgap spending bill Oct. 1 to keep the federal government open until Dec. 11. It temporarily continues defense and non-defense appropriations at the 2015 levels.

For Pentagon weapon buyers, continuing resolutions are a nightmare scenario, even worse than actual budget cuts, a panel of senior procurement officials said Oct. 6 at an industry conference hosted by Defense One. They described in the starkest terms the consequences of lacking a proper budget, including the possibility of having to cancel programs and cut some equipment orders short at a time when the Pentagon is trying to modernize U.S. forces with more advanced technology.

Officials lamented that the current partisan budget standoff comes just as the Pentagon is beginning to recover from the Oct. 2013 government shutdown and fiscal upheaval that ended with the Ryan-Murray budget deal signed in December 2013.

“The biggest fear I have is of this ‘incremental CR’ that goes on in perpetuity,” said Heidi Shyu, the Army’s senior acquisition executive. “It really devastates our programs.” An internal Army study estimated that about 400 programs would be derailed to some degree if the government is funded by continuing resolutions for the remainder of the fiscal year.

“In just about every major program, we won’t be able to procure the quantity we planned,” she said. For instance, half the projected order of Apache combat helicopters would have to be nixed. Programs that are starting engineering and manufacturing development — like the armored multipurpose vehicle the Army is buying to replace aging troop carriers — will not be ramping up, Shyu said. “You’re stuck at last year’s funding.”

Undersecretary of Defense for Acquisition, Technology and Logistics Frank Kendall said, under a full-year CR, the Pentagon would first protect the accounts that pay for force readiness and training, so inevitably procurement, research and development projects would take a hit. Further, the Defense Department would be at risk of having to break multiyear contractual commitments with suppliers for major weapon systems.

Case in point is the multiyear contract the Air Force signed with Lockheed Martin for C-130J cargo airplanes. “If we go to a year-long CR, we’ll break that multiyear,” said Air Force acquisition executive William LaPlante. “It’s pretty severe.”

The Air Force estimates about 50 programs would be thrown into chaos. “What’s worse than sequester? A year-long CR,” LaPlante said.

One of the Air Force’s most prized acquisitions, the KC-46 aerial refueling tanker, could be affected, even though the aircraft development is being funded under a fixed-price deal with The Boeing Co. “The tanker is going well even though it has challenges. The biggest threat to the tanker is actually the government’s behavior,” said LaPlante. “So far we’ve been good at keeping our part of the deal. But it has been very difficult in this climate.”

An illustration of the inefficiency created by short-term funding is what happened in 2013 when the Air Force had to delay a contract award for a space surveillance system. The plan was to sign a contract for the so-called “space fence” in September 2013, but with no budget in place, the Air Force held off. By the time funding was approved, the pricing in the proposal was no longer valid so the service had to go back to square one. That ended up costing the program a whole year and $120 million in extra costs, LaPlante said. “That was just because of the uncertainty.”

Navy acquisition executive Sean Stackley painted a similar picture. “We are still recovering from the 2013 CR and sequester,” he said. The Navy has a growing backlog of airplanes and ships waiting for repairs and upgrades at depots. “New starts were slowed down in 2013, but that’s minor compared to what we’re staring at in 2106,” Stackley said. “By and large the uncertainty of not knowing what your budget will be puts you in shackles in terms of executing in the course of the year.”

Kendall said he and Deputy Defense Secretary Robert Work have been putting together a potential hit list of programs that may not make it in 2016 if the CR continues beyond December. “I’ve given the deputy secretary a list of the major commitments we’d be making in 2016, with some thoughts on which ones we would defer because of the uncertainty,” said Kendall. ”Some of the things we were planning are going to have to be deferred.”

Photo: Frank Kendall, Heidi Shyu, Sean Stackley & Dr. William LaPlante (Defense One)

Defense Acquisition Reforms: The Studies Keep On Coming (UPDATED)
By Sandra I. Erwin

Pentagon procurement chief Frank Kendall just released the third annual “Performance of the Defense Acquisition System” as well as status reports he has received from program managers. The Center for Strategic and International Studies last week unveiled “Measuring the Outcomes of Acquisition Reform by Major DoD Components,” which was funded by the Pentagon via the Naval Postgraduate School.

Despite an abundance of data, there is much confusion in the defense industry about where things go from here. There is clearly a desire by the Defense Department to light a fire under its contractors and to shake up the industrial base by recruiting new suppliers from the tech sector. Regardless of what happens with the now deadlocked 2016 National Defense Authorization Act, the idea of finding “alternative pathways” to innovation is here to stay.

Many defense executives have been frustrated that so much of the debate has been about internal government processes — notably the NDAA’s language that would have the secretary of defense delegate major procurement authorities to the individual military services — and less about how the industry can better work with the government to design and build weapons that will give the military an advantage in combat, but also that can be produced at affordable prices and on schedule.

It is a sore subject among defense executives that the Pentagon is looking at Silicon Valley for answers to its innovation challenges. The notion of “alternative pathways” excites a lot of people because everyone is so fed up with the current system. But how that idea will translate into actual work in the defense procurement trenches is still unclear. As one industry insider put it, an alternative pathway is like the second-string quarterback: Always the most popular player on the team who hasn’t made the mistakes that the first stringer has made. But can the backup guy the counted on to perform?

The NDAA will tell the Pentagon to create an alternative path for procurement programs to move faster, and to inject more commercial technology. The details of how that will be applied to specific projects are yet to be hashed out.

Lawmakers have put a big spotlight on internal Pentagon organizational issues — like shifting milestone decision authorities and charging the services penalties for cost overruns — that would have a huge impact on the government side but will not change much in how the industry does business.

A central question that defense executives would like answered is how the Defense Department will rank its priorities as it plans for the future. So far, it has been all about the process rather than the substance.

An illustration of the special attention paid to process issues is the constant back and forth over how the Defense Department buys commercial items. Defense contracting officials spend a lot of time and energy determining whether something is commercial or not, in order to ensure it is priced fairly. Recent revisions to existing regulations have sparked blowback from companies that allege the Pentagon demands excessive cost and pricing data for products that are privately developed. The uproar has masked the larger question of what commercial products the Pentagon needs that it cannot obtain at fair prices. If the Pentagon wants to work with Silicon Valley, it first has to know what it wants and decide if it wants to pay the asking price before it spends valuable time determining whether the product is actually commercial.

Nowhere in the NDAA or the latest DoD studies is there a guidebook for how the military would channel innovation to tackle national security challenges. Everyone says they want it faster and cheaper but little is discussed about how the acquisition system ought to adapt to changing requirements as the battlefield becomes more complex.

Kendall’s new study on the performance of defense programs paints an optimistic picture of military acquisitions. It provides data that show what works and what doesn’t work.

All that procurement program number crunching still does not answer a major concern within the Pentagon of what specific investments should be made to help U.S. forces deal with savvy enemies. The issue is how to balance the pursuit of lofty goals like “technological superiority” against the immediate demands to fight today’s enemies who kill American troops with roadside bombs and AK-47s, and fire rockets from the back of pickup trucks.

Richard Ginman, the Pentagon’s former director of defense procurement and acquisition policy, cautioned that the prominence given to “metrics” in defense programs can detract from important questions such as the “output,” or whether the needs of combat troops were met in a timely manner and at an affordable price.
“I applaud efforts to put metrics on how to make decisions,” Ginman said last week at the rollout of the CSIS study. “What we usually look at is process. What is the contract type? Is it the right contract type? But do we understand why we’re doing what we’re doing? I worry about bumper stickers.”

Steven Grundman, a former Pentagon industrial policy director and now a fellow at the Atlantic Council offered one takeaway from the voluminous research on acquisition reforms. “The data says that this is an immensely complex system. And acquisition managers do need better tools and better direction on how to make difficult choices.”

UPDATE: This story was updated with a link to the new DoD report on the performance of acquisition programs.

Photo: Frank Kendall (Defense Dept.)
New Navy Division Will Help Resource Cyber Initiatives
By Jon Harper

In the face of growing digital threats, the Navy has established a new division within the office of the chief of naval operations to oversee the service’s cyber security efforts.

The unit will build upon the efforts of “Task Force Cyber Awakening,” which was formed last year to remediate vulnerabilities after the service’s networks were hacked in the fall of 2013.

“It’s an active fight against a witty enemy and it’s ongoing every day,” Deputy Chief of Naval Operations for Information Dominance Vice Adm. Ted Brunch told reporters Oct. 1, as the federal government kicked off “cyber security awareness month.”

The Navy Cybersecurity Division was established in September by outgoing Chief of Naval Operations Adm. Jonathan Greenert.

The staff of about 40 people will have wide-ranging responsibilities, including synchronizing cyber strategy, standards and requirements, and evaluating and prioritizing investments, Navy officials said.

“A big part of that puzzle is making sure we get the standards right … so that we can bake in some of the cyber security” into systems “as opposed to having it bolted on like we have done” in the past, Branch said.

Troy Johnson, the director of the new division, said oversight of compliance with cyber requirements early in the acquisition process would be a key task for his office.

The Navy sees dealing with cyber vulnerabilities as an enduring problem. Branch said the amount of money dedicated to the new group’s work would continue to increase.

“There’s real money in this game so far,” he said. “We spent about $225 million in [fiscal years] ’14 and ’15. That money was largely for remediations” to address network incursions and threats, Branch said. “We have about $300 million programmed in … [fiscal year] ’16, and we expect that number to grow in the out years.”

He said the Navy would reach out to industry as it tries to tackle cyber challenges.

“We are partnering with industry and we’re partnering with academia to try to get to the best solution and the most cost-effective solution, and we will continue to do that,” Branch said. “A lot of times we might not be on the cutting edge at DoD with some of the cyber security technology or even methods … It’s very definitely in our interest to continue those partnerships and continue to expand” them, Branch said.

He expects the new cyber division to have a “big” role in setting and vetting the requirements for the Next Generation Enterprise Network follow-on contracts. The NGEN is expected to provide “secure, net-centric data and services” to Navy and Marine Corps personnel, according to the Navy.

Photo Credit: Thinkstock
Russia Not Striking Islamic State Targets, Air Force Official Says
By Yasmin Tadjdeh

As Russia enters its second day conducting airstrikes in Syria, one Air Force leader said its bombs appear not to be striking Islamic State targets.

“There is an incongruency between what president [Vladimir] Putin is saying and what his forces are doing,” said Lt. Gen. Robert Otto, the Air Force’s deputy chief of staff for intelligence, surveillance and reconnaissance. “One of the things we’re asking is, ‘Well, what are Putin’s intentions?’ His stated intentions and what I saw in airstrikes yesterday are not congruent.”

Russia, a long time ally of the Bashar al-Assad regime, has indicated that it intends to enter the fight against the Islamic State by providing air support for Syrian forces. However, U.S. leaders have questioned that assertion and believe Russia may target other Syrian rebels.

Otto reviewed unclassified imagery of airstrikes conducted Sept. 30 and that based on his assessment they were “not anti-ISIS strikes, he said during an Oct. 1 breakfast meeting with defense reporters in Washington, D.C.

Russian warplanes, like the SU-30, have been dropping “dumb bombs” over Syria, he said.

“Those aren’t precision weapons,” he said. “To me it was representative of what you would expect from dumb bombs being dropped from airplanes at medium altitude which … [is] not that impressive.”

If Russia begins indiscriminately bombing Syrian civilians who are injured or killed, 
it could have major ramifications, Otto said.

“Precision matters and I think … when you hit things that you’re not intending to hit you create second and third order consequences,” he noted.

It’s still too early to tell if Russia will become the de facto air force for Assad’s military, but Otto said Russia likely entered the conflict because it believed the Assad regime was losing its civil war.

Otto noted that Russia only gave the United States and its coalition partners one to two hours of notification before it began airstrikes, which is not in line with deconfliction. Deconfliction refers to entities’ efforts to avoid operating in the same area at the same time.

“Yesterday, our forces got ... two or one hours notice that ‘Hey, we’re going to conduct strikes, we would like you to exit Syria,'” he said. “Well, that’s not 
deconflication and that’s not something we’re going to do.”

“We would certainly like to avoid [a direct confrontation of a Russian aircraft and a coalition aircraft]. The best way to avoid that is to be in consultation for deconflication,” he said. Ideally, the military would like to share air tasking order information, he added.

Otto said it is unlikely the military will share ISR information with Russia in its presumed fight against ISIL. 

“I have a low-level of trust in the Russians,” he said. “I would not envision a relationship where I would share some of my intelligence with them. I’m not saying it couldn’t happen, I just don’t envision it based on where our interests are and based on … where their air strikes are.”

There has been an “insatiable” demand for ISR in the conflict with ISIL, he said. However, because of a lack of human intelligence on the ground, it has been tough to receive enough information to call in airstrikes.

“I would say we are challenged in finding enough targets that the airplanes can hit that meet the rules of engagement that the commanders want,” he said. The U.S. military has been extremely cautious in its application of force to ensure that it is does not harm civilians, he added. 

“When you look at when we had a higher tempo … we had people [on the ground] that could identify targets that we could trust,” he said. “Human intelligence is a piece of this and then ground observation is a piece of this. And those are things we don’t have to the same level that we had say in classic counterinsurgency operations.” 

While the U.S. military uses sophisticated sensor platforms against ISIL, the terror group's capability is much less advanced, Otto said.

ISIL's systems are "rudimentary" and there is a heavy reliance on human intelligence, he said. However, its use of cheap, commercially available drones is in some ways "innovative," he added.

Photo: A Russian SU-30 (Sergey Krivchikov)
U.S. Military’s Largest Helicopter Engine Procurement Gets Under Way
By Sandra Erwin and Yasmin Tadjdeh

Top aerospace firms are gearing up to compete in a high-stakes program to produce nearly 3,000 engines for Army helicopters.

“It will be the largest engine program in the Department of Defense,” said Craig Madden, president of the Advanced Turbine Engine Co., a joint venture of Honeywell and Pratt & Whitney.

The company will be challenging the Army’s incumbent engine supplier GE Aviation in the so-called “improved turbine engine program,” or ITEP.

The Army is expected to budget more than $500 million for development and engineering of the new engine over the next five years. The selected manufacturer would begin production in 2019.

The Army said it plans to buy about 2,135 ITEP engines for the Black Hawk utility helicopter made by Sikorsky. Nearly 700 would be produced for the Apache attack helicopter, made by The Boeing Co. The 3000 shaft horsepower ITEP engines would be a significant upgrade compared to the 2000 shaft horsepower T701D engines that power the latest Black Hawk and Apache models.

The Army has billed the ITEP program as a centerpiece of its aviation strategy. “This is Army aviation’s number one modernization program,” said Lt. Col. Curt Kuetemeyer, product manager for ITEP.

With limited funding in the foreseeable future to buy new helicopters, the Army has chosen to hedge its bet on a new engine that would make current choppers more fuel-efficient, give them longer duration and additional power to carry extra weight.

“More engine power to the Black Hawk and the Apache means farther range, more time on the objective … all resulting in a more lethal, more effective mission,” he told reporters Sept. 28 in a conference call.

The Army published a draft request for proposals in December and the final RFP was released Sept. 24. Vendor proposals are due Nov. 9. The Army will award up to two 24-month contracts for the preliminary design of the new engine. By the end of the fourth quarter of fiscal year 2018, the plan is to eliminate one vendor and the winner would continue on with the engineering, manufacturing and design phase, Kuetemeyer said.

Army officials said the ITEP engine will be more advanced and consume less fuel than the current General Electric T700 engine that was fielded in the 1970s and upgraded over the years.

“We estimated savings of $1 billion in fuel and maintenance for the Army,” Madden told reporters Sept. 28 at Honeywell’s DC office.

The new engine is required to fly at 6,000 feet in temperatures up to 95 degrees Fahrenheit. During the war in Afghanistan, the T700’s performance in hot conditions was severely degraded and would require aircraft to be flown with less crew and equipment.

Rich Kretzschmar, ITEP’s program manager, said feedback from soldiers over a decade of war compelled the Army to seek an improved engine — not just for use in deserts — but in any region of the world.

For the Army, the stakes are high because ITEP could be the first major program in years to transition successfully from research to development and production. It also is viewed as a test case for how aggressive industry competition can help the Army get what it wants at reasonable prices. Before it became ITEP, the program was known as the “advanced affordable engine.”

“We do expect healthy competition and hopefully that keeps the price reasonable for the taxpayer and also healthy competition hopefully gets us more refined or more competitive proposals,” said Kuetemeyer.

ITEP competitors — which have huge commercial engine businesses — are motivated to win this program because of the prestige associated with supplying an engine to the Army and because the government is committed to funding the entire development.

GE Aviation is expected to propose a new design to replace the latest version of the T700. Honeywell joined forces with Pratt & Whitney in 2006 in anticipation of the Army’s engine program. Madden said the ATEC joint venture will make a big play to win the business from GE. The company has spent years testing engine prototypes and working with airframe manufacturers Sikorsky and Boeing to learn the ins and outs of the aircraft. The Army requires that the new engines fit in the same space as the older ones. “We can’t grow it. That is a big challenge.”

Whoever loses ITEP could still have opportunities to bid for new engine procurements after 2030 when the Army is expected to begin acquiring new helicopters under an umbrella program called “future vertical lift.”

The improved turbine engine will be “available for future vertical lift, but the requirements for future vertical lift have not been finalized,” said Kuetemeyer.

Madden said the 3000 shaft horsepower ITEP would probably work for future light helicopters but a bigger engine would be needed for medium and heavy lift airframes. “Either competitor in ITEP still has opportunities in future vertical lift,” Madden said. “It could be either a 3000 horsepower or a larger version. And the technology can spin into other engines.” The ATEC engine, he said, could be scaled up to 4500 horsepower.

Kuetemeyer said the current budget standoff on Capitol Hill affecting the entire federal government should not hurt the ITEP program. “In the short term, second order effects may eventually affect us if we have a longer term shut down or if … this lasts a while and other priorities are more important to the Army,” he said. “Right now, no, it won’t have a direct impact.”

Photo: Sikorsky UH-60 Black Hawk helicopter (
Defense Dept.)
Airbus Ready to Compete Again for U.S. Air Force Tankers
By Sandra I. Erwin

Airbus Group CEO Allan McArtor says he feels no schadenfreude from the growing pains the Air Force is experiencing with a new refueling tanker aircraft made by his company’s archrival The Boeing Co.

The European aircraft maker five years ago lost a $35 billion bid to supply the U.S. Air Force with refueling tankers after a protracted and highly political fight, including allegations that the bid rules were written to favor Boeing, which offered a smaller plane.

But all that is water under the bridge now. “As a former U.S. Air Force fighter pilot, I take no pleasure in seeing difficulty with the KC-46 program,” McArtor tells National Defense in an interview. “It’s really essential that the Air Force recapitalize its tanker fleet.”

In private conversations with Boeing leaders, McArtor says he wished them success. “I told them, ‘You have to get that airplane flying, you have to get it going because the Air Force needs it.’”

It is no secret, however, that Airbus has big ambitions to become a major player in the U.S. defense market, and winning a tanker contract is no small part of the grand plan. As chairman and CEO of Airbus Group Inc. — overseeing the company’s businesses in the United States, Canada and Latin America — McArtor has long been a strong proponent of building a commercial aircraft assembly line in the United States. An Airbus manufacturing plant officially opened earlier this month in Mobile, Alabama.

Having a domestic industrial foothold is central to the company’s efforts to win Pentagon contracts, he says. And McArtor is convinced the Air Force would consider buying an Airbus tanker to supplement the Boeing 767-based KC-46A fleet.

“At some point, I firmly believe, the Air Force is going to recognize that a split fleet is just fine,” he says. Boeing is poised to build 179 tankers but the overall requirement is for more than 500 to replace the current aging fleet. “Because of the need for additional tankers, there’ll be a time in the next few years when we’ll be able to compete once again for some Air Force tankers.”

The Air Force could reopen the competition for the next batch in about a decade, after the first 179 are acquired. McArtor estimates that, by then, the service will be eyeing a larger airplane with longer legs, like the Airbus 330 multirole tanker transport.

The Air Force selected the Boeing tanker in 2011 in a second round of competition that initially was won by a Northrop Grumman/Airbus team in 2008 but was subsequently protested successfully by Boeing.

There were lessons to be learned from that contest that will help Airbus in the future, McArtor says. “The Air Force did get what it asked for, twice. When it asked for best value, best capability, they selected our tanker. Then they changed the spec for a technically compliant, lowest cost and they got what they asked for there too.”

The KC-46 is “limited in what it can do, even on its best day,” he says. “It’s limited in range, in off-load capability. Assuming that it does everything it’s promised to do, it’s still insufficient.”

Air Force leaders celebrated the KC-46A’s maiden flight Sept. 25. "The KC-46A will provide critical refueling capacity and enhanced capabilities to the war fighter," said Secretary of the Air Force Deborah Lee James. "This flight represents progress and brings us a step closer to fielding this much needed aircraft."

It was a confidence boost to Airbus that it beat Boeing in a $1.3 billion competition to supply South Korea with four aerial refueling tankers. Boeing had been aiming for South Korea to become its first foreign customer for the KC-46.

“We won every international competition we bid on,” McArtor says. Airbus withdrew as a contender for Japan’s tanker program, however. “We saw that Japan was heavily invested in the 767,” he says. “It didn’t make sense for us.”

The A330 is now refueling U.S. fighter jets in the Persian Gulf and “it’s doing just fine,” he adds. The Airbus tanker is now in the middle of qualification trials in Australia, a key military ally of the United States that will use the tanker to refuel F-35 joint strike fighters.

McArtor recognizes that an Air Force tanker deal will be a steep hill to climb, but says the company is motivated to take it on.

“We have a renewed energy to assert ourselves into the defense and space market,” he says. “In the past we have been somewhat content to be the largest defense contractor in Europe but we want to be a competitive contractor in the United States as well,” he adds. “Over the next several months and years, you are going to see the Airbus Group go up with the best of them.”

If a future competition required that military tankers be built domestically, Airbus would expand its facilities in Alabama, he says. “That is our industrial home. If we had an opportunity to bid on a tanker program, that is where it would be.”

The opening of a U.S. manufacturing plant is a huge milestone, McArtor says. Even if it is a commercial operation for now, it is still a boost to Airbus’ marketing efforts at the Pentagon, he notes. “It’s already helped us from a perception point of view.”

The company currently spends about $16 billion a year in the United States to support its Europe-based manufacturing, but that is not enough to secure political support for a big-ticket defense program, he says. “Despite all the money we spend here, we are not truly an industrial player until we have a factory that creates jobs.”

The company has taken other steps in recent years to improve its standing as a military contractor. One was to bring its various autonomous businesses under the Airbus brand. Another was to change its shareholder structure after a brief courtship with BAE Systems that ultimately collapsed. The reorganization was intended to combat the perception of foreign influence in how the company is run. “We still have shares owned by Germany, France and Spain, but they have no say in naming directors or influencing our company,” says McArtor. “That has been recognized by the Department of Defense.”

McArtor was determined to have Airbus acquire helicopter maker Sikorsky when the company was put up for sale last year. That would have given Airbus a significant U.S. presence but Lockheed Martin ultimately won the $9 billion prize. “I would have liked to buy Sikorsky,” says McArtor. “I was personally very interested. We bid as aggressively as Lockheed did but we didn’t get it. That would have been a great acquisition for us.”

Photo Credit: Airbus
Pentagon to Encourage More Frequent Interaction With Private Sector
By Sandra I. Erwin

Deputy Defense Secretary Robert Work and Undersecretary Frank Kendall are asking all branches of the military and defense agencies to more actively participate in industry conferences as part of a broad effort to inject more innovation into weapons programs.

“DoD participation in conferences and similar events is critical to our ability to share information and break down barriers that block innovation,” Work wrote in a Sept. 23 memorandum to all military department and agencies. 

Over the past three years, government participation at industry conferences took a beating due to cutbacks to travel budgets and political fallout from the General Services Administration’s over-the-top 2010 gathering in Las Vegas.

Work and other Defense Department leaders have criticized restrictions on conferences as detrimental to the government’s ability to interact with the private sector and learn about the latest technological innovations. “Excessive restrictions on conference participation and attendance by DoD personnel have become counterproductive, undermining the professional development for communities such as our science and technology, medical and education personnel, and making it more difficult for them to come together with others to promote the free exchange of ideas that drive creativity and innovation,” he stated in the memo.

Work, along with the memo, issued a new “DoD Conference Policy” that updates current guidelines for conference approval in order to make participation “easier, not harder.” He assigned the deputy chief management officer as the key point of contact regarding conference policies. 

Kendall, the undersecretary for acquisition, technology and logistics, carried a similar message in an Aug. 6 memorandum titled, “Importance of Strategic Outreach Targeting Small Business, Commercial Markets and Global Technologies Through Industry Forums.”

He advised that it is “important for the acquisition community, particularly DoD small business professionals and those who conduct international acquisitions, to engage with industry and participate in industry forums and outreach events.”

The Pentagon needs “exposure and access to new technology” in order to “maintain our technological superiority,” Kendall said. “We also need to encourage entrepreneurs and non-traditional suppliers to bring their ideas into the department through business with DoD.” Face-to-face interaction, he added, is an “effective way to gain exposure, create access and remove barriers to commercial technologies.” 

Curtailing participation of DoD personnel at conferences to save money on travel costs can be detrimental, Kendall noted, because it “constrains their ability to conduct their mission.”

Kendall asked all agency and military service leaders to “emphasize the importance of industry outreach to small businesses and global commercial markets.” By improving communications, he added, “we will promote effective competition, receive better proposals from industry and obtain more innovative solutions.”

This guidance should not be viewed as a license to overspend, he cautioned, but to “be fiscally responsible and strategically focused on outreach with results.”

Photo Credit: NDIA
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