Defense Secretary Pete Hegseth, in an address at the National War College that directed an ambitious overhaul of the Pentagon's infamously bureaucratic acquisition system, told senior executives from the world's largest defense companies that they will "fade away" if they do not move faster, deliver at greater scale and "assume risk."
“The defense industry financially benefits from our backwards culture,” he said. “These large defense primes need to change, to focus on speed and volume and divest their own capital to get there.”
Hegseth said the Pentagon is “big time supportive of profits.”
“We are capitalists, after all,” he said.
But big companies that do not embrace the new acquisition regime, Hegseth said, “will fade away.”
“I’m not here to punish,” he said. “I’m here to liberate.”
Many of the new initiatives Hegseth announced today have been previously reported by Inside Defense. They include guidance on a broad restructuring of defense acquisition, beginning with a shift from traditional Program Executive Offices to Portfolio Acquisition Executives who would oversee groups of related programs and have the authority to move funding among systems based on performance. These PAEs would serve four-year terms, with pay tied to measurable outcomes such as capability delivery speed, competition and mission effectiveness.
To strengthen oversight, the department would also establish portfolio scorecards that track cost, schedule, performance and the use of commercial or dual-use technologies. The new system also encourages program managers to avoid vendor lock by maintaining at least two qualified suppliers for critical elements of major programs.
On the industry side, companies would face stronger incentives and penalties depending on whether they meet delivery deadlines. The guidance further signals a preference for commercial and alternative contracting pathways, steering acquisition teams away from relying by default on traditional, more burdensome methods.
Hegseth also discussed several requirements overhauls as a result of the cancelation of the Joint Capabilities Integration and Development System previously reported by Inside Defense.
The reforms, Hegseth said, show the government is willing to do its part to transform itself into a better customer. Industry, he continued, must do its part as well.
“There’s no more complacency and no more monopolies,” he said.
Speed, Hegseth said, will be the department’s key metric. The department, he said, is willing to “increase acquisition risk in order to decrease operational risk.”
“Industry needs to perceive business with the Department of War from the perspective of growth and assume risk to partner with the United States,” he said.
Additionally, Hegseth said, DOD will be “open to buying the 85% solution and iterate together over time to achieve the 100% solution.”
The speech was attended by the Pentagon’s senior leaders and a wide array of defense industry executives including Lockheed Martin CEO Jim Taiclet and Northrop Grumman CEO Kathy Warden and others. Executives from Silicon Valley-backed companies like Anduril and Palantir were present as well.
Lockheed released a statement after the speech, noting that the company’s Chief Operating Officer Frank St. John also attended.
“We are already heeding Secretary Hegseth’s call by adopting commercial best practices and leveraging our unmatched expertise at scale,” the company said. “We look forward to supporting the Department of War in leading a defense industry that delivers overwhelming capability at the speed America and its allies need.”
Hegseth said his goal was not to “name and shame” companies and DOD entities, but rather to “wage an all-out campaign to streamline the Pentagon’s processes.”
“To the men and women of this department, both military and civilian, who work on acquisition and our industry partners, let me say this: You are not our enemies in this effort,” he said. “You are our allies. You are Obi-Wan Kenobi. You are our only hope.”
The system, Hegseth said, aims to reward and incentivize top performers, providing them with larger contractors for longer periods of time.
“We will award companies bigger, longer contracts for proven systems, so those companies will be confident in investing more to grow the industrial base that supplies our weapon systems more and faster,” Hegseth said.
Additionally, Hegseth urged companies to abandon diversity, equity and inclusiveness initiatives, deriding them as “garbage” policies that need to be jettisoned in favor of systems based solely on “merit.”
New ‘deal teams’ coming
His speech, titled “The Arsenal of Freedom,” also announced the creation of new “deal teams” that will work with the newly established Wartime Production Unit, previously known as the Joint Production Accelerator Cell.
The new deal teams, Hegseth said, will be composed of some of the “nation’s most talented experts” in business and will be led by Deputy Defense Secretary Stephen Feinberg.
Hegseth also announced that DOD -- previously reported by Inside Defense -- will also focus on streamlining foreign military sales, noting the Defense Security Cooperation Agency and the Defense Technology Security Administration will be brought from under the management of the Pentagon’s policy office and put under control of the acquisition chief.
“The defense acquisition system as you knew it is dead,” Hegseth said. “It is now the Warfighting Acquisition System.”