Deputy Defense Secretary Kathleen Hicks, who recently met with dozens of defense business executives, said today the Pentagon is discussing the ongoing impact of historic inflation with both large and small defense contractors, but noted there has not yet been a substantial uptick in requests for equitable adjustments to contract prices.
“We’re always in conversations around equitable adjustments. We have not seen a huge influx of those,” she told reporters at a breakfast in Washington.
Inflation has emerged as a bipartisan concern on Capitol Hill in recent weeks, with Chairman of the Joint Chiefs of Staff Gen. Mark Milley telling lawmakers last week the fiscal year 2023 defense budget assumes an "obviously incorrect" level of inflation at about 2.2% when some price indexes place it as high as 8% or 9%. Pentagon Comptroller Mike McCord, however, has pledged to work with the congressional defense committees to provide a more accurate picture of the U.S. military's lost buying power in the coming months.
Hicks, who yesterday spoke at a Business Executives for National Security meeting that included more than 130 defense industrial base executives, said today that inflation and its potential long-term impact on defense contracts is difficult to pin down.
“Inflation will affect different kinds of contracts in different ways and inflation fluctuates,” she said. “So, one of the questions will be where is inflation going, where is it going over what period of time. We have to be both looking out for ensuring that we have a good contract base that wants to work with us, but also again looking out for taxpayers so that we’re not locking in rates, for example, that don’t make sense to lock in today for long term-contracts.”
Meanwhile, Hicks said the Pentagon is focused on increasing competition in the defense industrial base, specifically when it comes to bringing in small businesses.
“In terms of initiative around competition, we have seen a substantial decline in particular in small business,” she said. “We’re down to about five prime contractors, a substantial decline over the years on the small business side in the defense industrial base. We know in the American economy that innovation largely occurs in that small business community. We know we face a problem there and competition can get us better results. Of course, competition we believe will help us manage costs effectively, get the best value for the taxpayer.”
Hicks said the Pentagon’s Innovation Steering Group, led by Under Secretary of Defense for Research and Engineering Heidi Shyu, is planning to establish a new website early next week that “maps out” DOD’s “innovation ecosystem” to give contractors another portal to access the contracting process.
“It’s a minimum viable product, but it’s a pretty good minimum viable product . . . that shows that ecosystem,” Hicks said. “That’s the step one, that’s kind of the front-door approach.”
The portal, she said, will provide basic information to contractors regarding “who does what and who should you contact.”
“We start with mapping and we get to, OK, where are those barriers within the system?” Hicks said.
Newly confirmed Under Secretary of Defense for Acquisition and Sustainment Bill LaPlante will begin working “by the end of this week” with Shyu to bolster the Pentagon’s approach to innovation, Hicks added.
“They work great together,” Hicks said. “They’ve known each other a long time. I anticipate a really strong [Office of the Secretary of Defense] team, alongside the vice chairman being able to come together and start to build out, from a concept basis, what are those key technologies and what experiments with those technologies that will lead to breakthroughs.”