The Defense Department is overhauling its acquisition system to prioritize speed and transform its relationship with defense contractors, particularly the largest ones. But questions over cost, competition and government leverage are likely to shadow the effort as policies roll out in the coming months.
Pentagon acquisition chief Michael Duffey said today that DOD will spend the next several months hashing out the details of the new acquisition system laid out by Defense Secretary Pete Hegseth on Friday.
“One thing we’re doing around here nowadays is we’re now saying 'schedule, performance, cost' instead of 'cost, schedule, performance' just as a way of emphasizing the fact that speed is the priority amongst those,” he told reporters on a press call.
Budget and contracting questions, however, especially amid the ongoing government shutdown, remain unanswered, despite the release of several Pentagon guidance memos.
For example, will DOD pay contractors more for speed? How much more?
The department also wants to maintain multiple sources of production across the defense industrial base in the hopes of lowering costs in the long term -- something that will cost more money up front. Will Congress back a surge in program spending to maintain multiple sources of competition across the defense industrial base?
Duffey said today it is his job to work within the current budget, though he’s prepared to advocate for greater resources if needed.
“My focus has been based on the budgets that we have, how can we optimize the system to deliver the best capability at the greatest speed for the lowest cost,” he said.
The Pentagon, Duffey said, will “seek as much competition as we can” as a way to drive down long-term costs.
Industry, he predicted, will be incentivized to compete for new, “longer-duration” contracts and will even begin investing more of its own money in prototyping and experimentation to win business.
“I do think that some of these initiatives we’re undertaking will have great effect at extending the buying power of the Pentagon,” he said. “We are looking to industry to make greater investments in prototyping in research and development that it’s our hope would relieve us of the need to undertake those investments.”
Of course, it is unclear if industry -- especially the large companies who Hegseth warned on Friday would “fade away” if they did not get on board -- will respond.
Duffey, when asked whether DOD is considering taking stakes in defense companies to ensure production volumes, said nothing is off the table, though he said he is unaware of any specific moves underway.
“I think we’re looking at all options, but I’m not aware of existing initiatives to pursue that at this time,” he said.
Earlier this year, the Trump administration acquired a near-10% stake in chipmaker Intel, and Commerce Secretary Howard Lutnick said defense companies were also being eyed.
Additionally, analysts and congressional staffers asked about the acquisition transformation have voiced concerns that the acquisition workforce has been significantly cut or demoralized by deferred resignation programs, reduction-in-force initiatives led by the “Department of Government Efficiency” and the longest government shutdown in U.S. history.
Duffey, however, said DOD is open to hiring new acquisition professionals to help revamp the system, including in his own office where there are job openings. The acquisition chief also said he hoped Hegseth’s speech on Friday unveiling the initiatives would “attract interest” of “high-talent” applicants.
Unmentioned was whether DOD is actively hiring new civilians amid existing efforts to eliminate spending via attrition.
“We do have some need for additional personnel, at least in my office,” Duffey said.
Perhaps the most important Pentagon officials under the new procurement regime will be the newly created Portfolio Acquisition Executives, who will have budget flexibilities and “trade-off” authorities intended to make them fully accountable for delivering capabilities.
“The more we can push it to the lower levels to execute, the more effective I think we can move at the speed that we need to,” Duffey said. “This is going to be continually dependent on the judgment of program-of-record leaders who are executing these programs to understand where does the need for speed balance with the risk that we should undertake to cost and/or performance of the system.”
Duffey said DOD is not planning any program cancellations as a result of the acquisition transformation, though existing, “legacy” programs like the F-35 Joint Strike Fighter and Columbia-class submarine will see some impacts, like the consideration of long-duration contracts for sustainment and the acquisition of technical data rights.
“Our intent here is that this acquisition reform will be applicable across all of the weapon systems that we acquire but we’ll have to take a different approach between new, developmental items or prototypes and experiments versus legacy systems like F-35,” he said.
Within 30 days, Duffey’s office must issue implementing guidance for cross-cutting transformation based on the initiatives outlined Acquisition Transformation Strategy. Within 60 days of that guidance’s publication, each military department will then submit its implementation plan.
Jerry McGinn, a former Pentagon industrial policy official who is now an analyst at the Center for Strategic and International Studies, said implementing the ambitious acquisition overhaul “will be a bear.”
“The workforce and resources to accomplish this incredibly ambitious agenda are a question mark, but they have a three-year runway, which is great, and a strong head start. Congress should also be pretty supportive of most of this,” he said.
McGinn also said industry’s actual response, which must go beyond rhetoric, also remains to be seen.
“How industry of all shapes and sizes respond to those incentives will drive their success or failure,” he said.
Eric Fanning, the CEO of the Aerospace Industries Association, released a statement praising Hegseth’s speech, but also said for the plan to work, industry and the government must work closely and “fine-tune the details.”
“We welcome the push for innovation and the promise of real, actionable change,” he said. “The defense industrial base is ready to answer the call.”