Lord: Pentagon drafting new intellectual property acquisition standards

By Tony Bertuca / September 5, 2018

Under Secretary of Defense for Acquisition and Sustainment Ellen Lord said today the Pentagon is working on new standards for the procurement of intellectual property, something she acknowledged has long been a "thorny" issue between the government and defense contractors.

Lord, who spoke at a Defense News conference in Arlington, VA, said educating the Defense Department's acquisition workforce is a key aspect of IP reform.

"When you have a big problem on a program, you have usually a somewhat weak contract in terms of it wasn't written in a way that suited the purpose of what you were trying to do," she said. "What we need to do is educate our acquisition workforce on how to write the briefest contract that gets the warfighter what they need at the lowest cost as quickly as possible and make it clear to a contractor what the expectations are so there isn't a lot of ambiguity."

To that end, Lord said, DOD is developing standard contract language for IP acquisition.

"We tend to be a bit digital about intellectual property -- either we don't address it, it's kind of a zero, or we say we need everything," she said. "That's not the way it works. We typically need just enough to protect what the government has to have. Typically, that's because down the road we can compete the sustainability portion of it. So we're coming up with standard contract language that can be used across each service as well as throughout all the agencies so we're more consistent."

Bruce Jette, assistant secretary of the Army for acquisition, logistics and technology, recently said his service is drafting an "extensive" policy that would take a "much more familiar approach to IP" that is closer to private-sector practices.

Industrial base report expected

Lord, meanwhile, said she expects the White House to release a defense industrial base report "probably early next week" that reviews the fragility of DOD's supply chain and its dependence on foreign sources.

"I think what we need to do is make sure that we understand the entire industrial base, and the report actually segments it very nicely," she said. "And then understand where in some situations we don't even have a value proposition for critical components to have a regular business make a reasonable profit enough to be able to reinvest in the business. That's the one time government should step in."

For instance, Lord said, DOD is concerned with China's aggressive purchase of rare-earth minerals necessary for the manufacture of electronic devices.

"We need to talk with our allies and partners," she said. "Rare-earth metals are a real issue for us right now. China is buying up a lot of the supply in Africa and other places. We need to understand what alternate sources [there] are."

Communication sought on M&A

Lord also said she is setting up new lines of communication with defense companies regarding mergers and acquisitions activity.

"I think it's healthy in the marketplace to have activity," she said, noting there hasn't been "stellar communication" in the past between DOD and industry.

"We revamped the process right now," she said. "Quite often on the larger transactions, I'll have CEOs come in and meet with me a day or two before things go public. That allows us to be very prepared."

Lord said once the information becomes public she then sends out a DOD-wide request for feedback on the potential transaction and any possible "constraint of trade," which is then analyzed and transmitted to either the Federal Trade Commission or the Justice Department.

Frank Kendall, the former under secretary of defense for acquisition, technology and logistics, expressed concerns about defense M&A activity in the past, especially about Lockheed Martin's 2015 deal to acquire Sikorsky. 

The Pentagon in 2017 issued a directive reasserting DOD's role in reviewing M&A transactions involving major defense suppliers.