SPECIAL REPORT: Pentagon Makes Moves to Speed Up Tech Transition

By Stew Magnuson
Heidi Shyu

Defense Dept. photo

This is part 5 of a 5-part special report on the health of the defense industrial base. Click here to download the full Vital Signs 2023 report.

SIMI VALLEY, California — It’s a well-documented problem in the world of defense technology development.

Small businesses, universities or startups received a couple million dollars to develop an innovative new technology that warfighters could use.

The project comes to fruition, but when the startup delivers the prototype as promised, the funding to incorporate the technology into the force isn’t available.

This is the so-called “Valley of Death,” and the “death” is usually the small business that doesn’t have the cash flow to stay in business while the Defense Department agency winds through its laborious budget process.

The lack of funding doesn’t mean a lack of interest, said Heidi Shyu, undersecretary of defense for research and engineering.

The Army, Air Force, Navy or Marines might want the technology it invested in badly, but it takes too long to secure the funding, she said.

“Small companies can’t twiddle their thumbs for two to three years waiting for a contract,” she said during a panel discussion at the Reagan National Defense Forum held at the Reagan Presidential Library in Simi Valley, California.

The worst-case scenario is when a Chinese company swoops in to invest in the small business and then takes the technology out of the country.

Shyu said her office is actively trying to tackle the Valley of Death problem, along with implementing other programs with a goal of putting innovative, new technologies into the hands of warfighters more quickly.

“We are on the path of innovative solutions,” she said.

One concrete move to bridge the Valley of Death came earlier in the day at the forum when Defense Secretary Lloyd Austin and Small Business Administrator Isabella Casillas Guzman signed a letter of intent to partner on the recently established Office of Strategic Capital.

The Defense Department office will seek to serve as a go-between connecting venture capital funds and the startups seeking the funding to wait out the Pentagon’s notoriously slow budget process.

The SBA, for its part, will propose a new regulation that introduces a new financial instrument called the “accrual debenture.”

This instrument is designed to align with the cash flow patterns of startups and supports the long duration often required to incubate and scale technology investments, a joint statement released after the deal was inked stated.

Guzman said: “This new mission-driven office will continue to build and align incentives for private investment in innovators who are producing frontier technologies that advance America’s security and economic competitiveness.”

Austin said: “This partnership will help secure funding for critical areas for national defense — and ensure that our warfighters get the capabilities they need, before they need them.”

Shyu said the best aspect of the office is that it will take relatively little funding to operate since its purpose is to convince the venture capitalists to invest their money in the startups. It will also seek to tap into Small Business Administration and other government funding streams to help the startups stay on life support until the contracts roll in, she said.

Tapping into the innovation found in America’s innovation hubs such as Silicon Valley has been a long-standing Pentagon goal dating back to the late Defense Secretary Ash Carter, who made it his mission to create bridges between the nation’s innovative private sector companies that don’t normally do business with the military and the Pentagon.

He created what would become the Defense Innovation Unit and set it up in Silicon Valley to serve as a Pentagon liaison to startups. It has since opened satellite offices in tech hubs around the nation. The services followed with their own versions such as the Air Force’s AF­WERX and the Navy’s Tech Bridges.

Air Force Chief of Staff Gen. Charles “CQ” Brown Jr. said at the forum that he had visited several Silicon Valley companies in the fall and saw increased interest in working with the Defense Department, but more needs to be done to speed up the processes.

“We need to start picking some winners and nurture them. We need to look at companies that have capabilities today that we will need in the future,” he said.

History has shown that the armed forces can quickly do innovative things if there is a crisis, he said.

A recent example is the Air Force helping Ukraine install the U.S.-made AGM-88 HARM, the High-Speed Anti-Radiation Missile, on Russian-built MiG-29s jet fighters.

If there were no crisis, the bureaucracy would push back and slow down the process, he said.

“What we want to do is not wait until there a crisis to actually move at a pace and a sense of urgency to do some things,” he said.

Theodore Colbert III, president and CEO of Boeing Defense, Space and Security, said there is disconnect between the fast-paced world of startups and the Defense Department and its traditional contractors.

Startups “work on processes that are about delivering products on a consistent ongoing basis. Our industry is really designed around programs, and there is not a natural coming together of those two approaches,” he said.

Companies such as Boeing that understand the world of government contracting need to help these small businesses pull their technologies through the Valley of Death, he said.

A warfighter familiar with defense technology, a representative of a major contractor and one from a small business should all be sitting together in the same room to solve major problems for the Defense Department, he added.

Meanwhile, major defense contractors such as Boeing have long lamented the focus on Silicon Valley startups. They have plenty of innovation in their laboratories as well, they have said.

Colbert said new digital engineering practices are speeding up the development of Boeing’s new T7-A Red Hawk jet aircraft trainer.

“We just need to do that over and over and over again on many different platforms,” he said. “I think the whole system is working toward that objective. We just need to do it more,” he said.

Shyu said the office of research and engineering has a program in place that is taking advantage of these new technologies such as “digital twins,” that allow developers to experiment on computers without having to take the time and expense to create real-world models.

That approach is developing physics-based simulators that are tied into a campaign-level model. Researchers can experiment on the computer with several different technologies to see which ones are more effective. She can then know which technology would make the bigger difference in the outcome on a battlefield.

“That helps me to invest,” she said.

Another program Shyu helped to kickstart along with Bill LaPlante, undersecretary of defense for acquisition and logistics, is the Rapid Defense Experimentation Reserve, or RDER.

The idea is to take promising prototypes out of labs and — in partnership with the services — put them in real-world experiments simulating contested environments to see how well they actually work.

The concept will be to come up with three “scripts,” or scenarios, then try about four technologies to see how well they perform within the construct, she said.

Whether or not the technologies are at a high technology readiness level is beside the point, she said.

“It doesn’t have to be 100 percent solution, which takes a decade, right? But if it’s a 78 percent solution that solves a problem that we have within the joint warfighting concept, let’s push it out,” she said.

Rep. Rob Wittman, R-Va., said startups often have good ideas that can help the military, but they run into the classic push-verses-pull problem. Defense acquisition personnel are not set up to procure technologies unless they have a requirements document that justifies a need.

“What you see today is a structure that puts everything towards the concept of the requirement. So, companies say, ‘I have a great idea and I can do it less expensively.’ The Pentagon goes, ‘I would love to do that but guess what? I don’t have a requirement to do that, so we’re not going to do that,’” Wittman said.

Congress and the Defense Department have put forth some alternative acquisition processes such as mid-tier acquisition rules and other transaction authorities to circumnavigate the red tape, but those are the exceptions rather than the rule, Wittman said.

The Pentagon needs to “level the playing field” when it comes to useful technologies that have documented requirements and those that don’t, he said.

And the people who decide what innovative ideas are useful should be the same personnel who are using the technology on an everyday basis, he added.

“It’s great to have the Joint Chiefs of Staff and others say, ‘It’s good to have that great technology applied,’ but it has to start with that Marine lance corporal, with that Army private, with that third-class airman and that third-class seaman, and work from there on up because those individuals are incredibly talented, incredibly insightful and they know … and what we learn from them is invaluable,” he said.

As for the new Office of Strategic Capital, Wittman said the Defense Department must ensure that these companies have the funding needed to scale up. For example, a $100 million pot may sound like a lot, but split among 10 companies, it may not be sufficient, he added.

The office should complement organizations such as the Defense Innovation Unit, not compete against it, he also stated.

Part 1: Annual Survey Shows Growing Worry Over Health of Industrial Base
Part 2: Defense Companies Face Post-Pandemic Workforce Shortages

Part 3: How Immigration Reforms Can Help Counter China
Part 4: U.S. Begins Forging Rare Earth Supply Chain

Topics: Defense Department

Comments (2)

Re: Pentagon Makes Moves to Speed Up Tech Transition

The biggest reason why technology transitions typically take years to happen has nothing to do with innovation; it has to do with corporate profits. The longer a technology transition takes, the greater the potential profits are for the defense industry.

John L "Jack" Holmes at 9:18 AM
Re: Pentagon Makes Moves to Speed Up Tech Transition

Great article, and spot on! necoTECH is a fast-moving startup with several initiatives designed to help our warfighters. The AFWERX SBIR/STTR programs have been crucial to our company as we continue to research and develop new technologies.

Ken Hasty at 7:43 AM
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