Political leaders need to stop standing in the way of defense innovation

Earlier this month, the global leaders of the defense industrial base converged in Washington DC for the annual Association of the United States Army conference. The entire convention hall overflowed with weapons, munitions, and any type of military gear that one could imagine.

Touring the show floor, it became clear that while defense giants like Lockheed Martin, Northrop Grumman, and Raytheon still rule the roost, the startups and tech firms moving into the defense sphere are no longer happy to just get a small piece of the pie, but instead are looking to tip over the applecart of how weapons are provided to the military.

Wall Street appears to be bullish on these new startups, and Palantir, arguably the first of this new wave, recently entered the S&P 500 with a larger market cap (as of Oct. 15) than Northrop, which is a phenomenal accomplishment.  And the desire of the warfighters to access the products and services offered by these startups appears to be bottomless; having uniformed leaders actively encouraging innovation is a rare sight in the military, but Army officials made it clear at AUSA that they want to engage

Which is to say, everything should be lined up for new entrants to succeed — except that standing in the way are three roadblocks, none of which are technological, and all of which the next President and Congress should consider challenging.

First are the incessant battles within the legislative branch, in particular from those who sit in the Appropriation Committees supporting national defense. The entire Congress approved a PPBE commission to address the appropriation process challenges, and while the report came back with many recommendations, the Appropriation Committees essentially responded in writing that the problem is not them, it is everyone else.

Appropriators manage defense spending down to the thousands of dollars, enjoying the power given to them by being able to decide, line item by line item, what programs get quantity changes or are allowed to be bought. Unfortunately, this creates a constipated system. To try to survive, many of these tech startups then pay lobbying firms stocked with former appropriators to help them navigate the process for the crumbs of funding that they need. This can change fairly quickly if those elected to Congress want it to change.

One small step forward would be to approve the Army’s request in the FY26 budget to provide flexible funding for unmanned aircraft systems, capabilities to counter them and electronic warfare tools.

The second roadblock resides at the Office of the Secretary of Defense (OSD), where the rules are written for how the Pentagon procures weapons. The rules, set up in the 1960s, often force companies to set up special pentagon-approved accounting systems. These rules have antiquated ideas of how labor should be tracked and compensated, sometimes forcing software engineers to account for their time in fifteen-minute blocks as if they were lawyers and allowing them to be compensated based upon educational attainment rather than productivity.

As Bill Greenwalt testified before Congress in March 2024, “progress in creating alternative acquisition pathways around the acquisition system have been marginal at best.”  One fix would be for OSD to deem all software purchases as commercial, giving the services the ability to just buy the majority of software directly while still requiring the services to get approval for any software that is procured on a cost-plus basis. Doing this will further drive the military services to using the multitude of software vendors that do not have compliant DoD-specific back office systems.

The third roadblock resides in the service secretary offices and staff.  The political leadership of the services control the acquisition powers and comptroller budget powers within the bureaucracy. They could, if they wanted to, devolve those powers down to warfighting leaders, with political leaders providing oversight but not day-to-day decision making. To do this, both money and acquisition authority would be sent to the major warfighting commands where they could procure items directly from defense firms.

This bottoms up approach is similar to how the American economy works, rather than the top-down centralized execution model created by the political leadership. Having different warfighting commanders procure different items will create a true marketplace of capabilities, allow winning and losing products to sort naturally.  In effect, the era of contracting-to-monopoly would be over.

It is hard to tell if the optimism in the air at AUSA will sustain itself once the war in Ukraine and the Isreal come to an end. Should budgets contract, tolerance for risk will be reduced and it is entirely possible that these startups will evaporate. This should not be tolerated, as it is these startups that are going to help secure our nation both militarily and economically.

As we approach the upcoming election, it is crucial for new political leaders to prioritize defense innovation by devolving power and reforming the system. We should ask all candidates for federal office where they stand on this issue. No matter which side wins, the new administration should step up, devolve power, and change the system.

Retired US Army Maj. Gen. John G. Ferrari is a senior nonresident fellow at AEI. Ferrari previously served as a director of program analysis and evaluation for the service.