Brett Lambert: Pentagon Buying Rules Stifle Innovation, Drive Up Costs

11/16/2010
By Sandra I. Erwin
The U.S. military is saddled with aging technology and is in dire need of modernizing. But the Pentagon’s inability to tap into the innovation of commercial markets is a huge impediment that is not only inhibiting technological progress but is also adding undue cost, says the Defense Department’s director of industrial policy.
“We must do more to encourage commercial firms that are in the leading edge of technology to supply products to the Defense Department. … We have to break down the barriers,” says Brett Lambert, who oversees industrial policy at the office of the undersecretary of defense for acquisition.
The Pentagon increasingly consumes less “specialized products” and seeks off-the-shelf items at competitive prices, he says.
When the Pentagon does manage to recruit vendors from the commercial sector, however, it ends up draining their innovative spirit by turning them into “defense contractors,” Lambert says in a Nov. 16 speech at the Center for Strategic and International Studies, in Washington, D.C.
In the venture capital world, promising technologies sometimes perish in what is known as the “Valley of Death” — the perilous transition between invention and the marketplace. Lambert says he Pentagon instead lures innovators to a “Summit of Death,” where ingenious products turn into expensive boondoggles.  
“What I’ve experienced in the department is something I call the ‘Summit of Death,’” Lambert says. “Innovative companies have ideas that can benefit the war fighter at a lower price to the taxpayer, and they start to climb this mountain. First they see how they can sell to the government. Next, they hire retired [military or government civilian] officials who know how to sell to the government. Then they get software that is approved by our accounting structures. So they continue to add costs at every level of their innovation cycle. Then they get to the summit and they fall off. And they become a defense contractor. At that point, we’ve lost innovation," he says.
“We pile on so much cost, so much burden, that we no longer are exercising our ability to reach into the commercial marketplace and get what we need in terms of innovation,” Lambert says.
One of his office’s goals, he says, is to turn that around, but it’s not yet clear how that will be accomplished.
The Pentagon does expect its existing supplier base, meanwhile, to help cut costs as the U.S. government prepares for painful budget cuts in the coming years, even if the Defense Department has been promised an annual increase of 1 percent, says Lambert.
The defense industrial base has been largely immune from economic realities. “That is no longer the case,” says Lambert. “We’ve grown the defense industrial base by 43 percent over the last decade. We’re not going to grow it another 43 percent over the next decade.”
Defense officials are aware of the potential shakeup that may occur in the industry as companies brace for a downturn, but cannot do much about it. “Companies will make their decisions based on what they perceive the market to be,” says Lambert. “We don’t have control over that. We have some ideas, but we don’t have control.”
Such a laissez-faire attitude about the defense industry has some companies anxious. With big-ticket military acquisitions expected to become scarcer, executives at top defense firms are fretting about the future. In the aviation sector, for instance, for the first time in nearly 40 years, there are no new advanced aircraft being designed, says Chris Raymond, vice president for program development and strategy at The Boeing Co. “What happens in five, eight, 10 years?” he asked during a panel discussion following Lambert’s speech.
The industry may not survive without new programs, he says. “When we project out five to 10 years, there might be three to four airplanes in production. Boeing will have the [Navy] P-8 maritime aircraft, Lockheed will have Joint Strike Fighter, Sikorsky may have a helicopter or two, and there may be a new tanker,” Raymond says. “Those might be the only airplanes in production in the country. That’s a startling fact if you look at our history.”
Past administrations may have been shortsighted about how defense procurement decisions have been detrimental to U.S. industry, he says. When the Defense Department awarded the Joint Strike Fighter contract to a single supplier, Lockheed Martin, the assumption was that there would be enough work to also keep Lockheed’s competitors in business. It turned out that the Pentagon overestimated how many projects would be in play. “If you go back and look at the programs that were on the cusp of starting, not a single one has started,” Raymond says.
The realization that no new aircraft may be designed for the foreseeable future is “fundamentally changing our industry,” he says. This is one reason why more companies are protesting defense contract awards. “A single competition puts you out of a sector, perhaps for a couple of decades,” Raymond says. Amid this uncertainty, the industry will be pushing exports, Raymond says. He praised the Obama administration for working to advance U.S. aerospace interests in the Middle East and the Asia Pacific region.
For defense industry supporters, the current circumstances are cause for consternation. They are mostly frustrated by the Defense Department’s seemingly apathetic stance about the health of the industry. And they blame both Republicans and Democrats.
Administrations from both parties have failed to take responsibility for managing the defense industrial base, says David J. Berteau, senior adviser and director of the CSIS defense industrial initiatives group.
“I’ve worked industrial policy under Republican and Democratic administrations,” he says. “The Republicans believe that no industrial policy is the right policy. Democrats believe that the only industrial policy is, given enough time and money, we can do anything we want. Therefore, we don’t have to do anything at all."
“If you look at those two extremes they actually converge on the same net result, which is innocence and lack of responsibility for the outcomes,” Berteau says. The rhetoric from senior administration officials, including Lambert, is that “they’ll let the market decide, as if somehow, the Defense Department is not the market and has no vested interest in the outcome,” Berteau says. “But the reality is that, in the U.S., the Defense Department is the market.”

Topics: Defense Contracting, Defense Department, DOD Policy

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