The U.S. ’s upcoming fiscal 2015 budget request and long-term spending blueprint will lay out a unique and significant allocation of funds toward weapons systems prototypes and research and development (R&D) efforts, according to an official.
Elana Broitman, acting deputy assistant secretary of defense for manufacturing and industrial base policy, declined to provide details when asked at the Cowen and Co. conference here Feb. 5. But she told the investor conference that there will be a recognizable spurt of pilot programs, prototypes and other efforts that aim to maintain the military’s technological edge and keep industry’s design teams and engineers together.
For the first time in a Pentagon budget-crafting process, the industrial policy office was asked for recommendations by the Deputy’s Management Action Group – the deputy defense secretary’s budget-crafting advisory group – for funding suggestions, and they were approved as part of the Pentagon request.
The recommendations revolved around industrial base issues “where we needed to put funds from some big programs to some very small programs or else we were going to have a real industrial base hole.
“We want to preserve those niche capabilities, and we want to do more to help those companies,” she added. Among technologies of interest she noted were those related to the military’s Asia-Pacific “pivot,” outer space and cyber.
The Pentagon will invest in weapons in the “very beginning” of the average 15-year product development life cycle, and the department wants to motivate companies to pony up their own independent R&D around the same.
“We are doubling down on trying to prototype programs, to experiment with prototypes, and in a couple of cases, keep R&D going so we can follow strategies that have been used in the past,” Broitman said.
Since last year, Broitman and her boss, Pentagon acquisition czar Frank Kendall, have been highlighting the legacy of Defense Secretary Bill Perry, who after the Vietnam War as then-head of defense research and engineering, fenced off funds for numerous R&D efforts that led to today’s weapons, including stealth fighters and unmanned aircraft. Kendall has been saying publicly that defense officials are beginning to become sensitive to China and Russia’s increasing pace of technological development, and that with U.S. systems taking decades to develop and field, they want to take a similar strategy. “A lot of our force today rests on those investments,” she said. “We want to be in a position where when budgets go up – and they will eventually – that we are going to have something innovative to purchase, and this [prototype effort] gets us really, directly to the industrial base, which is our other concern,” she said.
Still, Broitman, and Kendall previously, have acknowledged that many or even most of those investments did not make it into production.
Broitman also addressed the Pentagon’s policy regarding industry mergers and acquisitions (M&A), and reiterated that the implicit ban on prime contractors consolidating will continue. But with mid-tier and third-tier companies – many of which provide niche technologies or supplies – showing lower profits, higher debt leverage and “a lot of concern,” the department will look to both using its own funds or allowing M&A to help make sure the goods remain available.
“We’re going to commit to looking at every case on its merits,” Broitman said.
Moreover, while traditional U.S. defense M&A was weighed with an eye toward maintaining enough domestic competition, the Pentagon increasingly will consider global competition in its approval calculations. In other words, more domestic consolidation could occur through the supply chain because the Pentagon feels there is a foreign provider it considers reliable and trusted enough to provide comparison. Also, foreign buyers will not necessarily be turned away. “We’re not against transnational transactions at all,” she said.