Time to Accept Risk in Defense Acquisitions

Erin D. Dumbacher is the Stanton nuclear security senior fellow at the Council on Foreign Relations, Michael C. Horowitz is a senior fellow for technology and innovation at the Council and director of Perry World House at the University of Pennsylvania, and Lauren Kahn is a senior research analyst at Georgetown’s Center for Security and Emerging Technology. 

U.S. Secretary of Defense Pete Hegseth announced “a war of bureaucratic attrition” in a speech on Friday afternoon. The target of his address was the Pentagon’s perennially-criticized process for buying and fielding military capabilities. The first weapon in this bureaucratic war is a memo reportedly titled “Transforming the Warfighting Acquisition System to Accelerate Fielding of Capabilities,” based on an early draft the media acquired last week, which directs a sweeping set of reforms across the Pentagon’s entire acquisition system—such as the requirements for new military capabilities and how they are put on contract, tested, and fielded. 

The goal is to get the U.S. military new capabilities faster and foster a more competitive defense marketplace, where newer defense companies—such as Anduril and Palantir—as well as start-ups, can flourish alongside traditional defense primes like Lockheed Martin and Boeing. These proposed reforms are long overdue and, generally, reflect bipartisan consensus that the Pentagon’s baroque and antiquated approach to acquiring military technologies should be overhauled. 

The big question is whether these reforms will lead to actual change in how the Pentagon buys capabilities for the ground, in the air, at sea, and in space. Professionals across the armed services and the Office of the Secretary of Defense will have to shepherd reforms while also abiding by the rigorous constraints Congress imposes on defense acquisitions. There are decades of inertia and red tape to overcome. Reforms will succeed only if they propel innovation and will fail if they replicate old problems among new defense industry suppliers or undermine testing to verify if new capabilities work.

Built for another era

When the United States maintained an uncontested technological edge, the greatest risks in acquisition were overspending or moving more quickly than the armed services could absorb. Those risks have been eclipsed by a far greater one: falling behind. “We mean to increase acquisition risk in order to decrease operational risk,” Hegseth said.

The Pentagon’s acquisition system is not built to meet a moment where rapid technological change in areas like artificial intelligence is shifting the capabilities the United States should acquire. The United States is also increasingly facing down China, which is rapidly producing missiles, fighters, ships, drones, and other military capabilities that appear on par or even superior to those of the United States in some cases. 

Congressional hearings and investigations since the end of the Cold War, cost constraints imposed through sequestration, and the need to maintain large platforms while fighting the Global War on Terror have created a system that succeeds at limiting fraud; but in exchange, has led to increased costs and slow delivery speeds that can undermine effectiveness. Unfortunately, as Hegseth noted, the Pentagon’s acquisition procedure became a “process built to serve the process,” not the warfighter.

A litany of commissions and reports has criticized the current approach as too slow and too bureaucratic. It is focused on minor requirements as opposed to important capabilities, emphasizing but failing to deliver cost reduction, while not holding companies accountable for poor performance. The system also allows, or in some instances requires, the military services to keep funding systems that operators and military planners no longer want or need.

As Hegseth emphasized in his speech, the Defense Department must reconsider how it manages risk—specifically, by accepting more acquisition risk to reduce operational risk. He argued that “an 85 percent solution in the hands of our armed forces today is infinitely better than an unachievable 100 percent solution.” By over-indexing on perfection, which it then fails to deliver, the Pentagon has unintentionally accepted more operational and strategic risk. The F-35 combat aircraft illustrates such production and software issues, to take one example. 

What is changing?

The current system prizes procedural rigor and fraud prevention when procuring large, exquisite platforms such as aircraft carriers and fighter jets. However, this has been achieved at the expense of nearly all other priorities: cost control, the quick and scalable delivery of capabilities to the warfighter, and the rapid adoption of emerging technologies. China poses a generational military challenge, and the Pentagon can no longer afford those tradeoffs.

Against this backdrop, the reforms aim to shift from a compliance-driven procurement model to a more flexible and competitive approach centered on achieving timely results. The reforms promote competition among vendors for contracts, the use of simple, existing workarounds, and assign responsibilities for executive management of portfolios, rather than individual programs. 

Finding multiple sources to build systems and scale production will now be emphasized, especially to enable more than one acquisition pathway for critical programs. This will naturally be easier for newer or lower-cost systems than existing aircraft carriers or fighter jets, and it should be particularly effective for precise mass systems and other more low-cost capabilities designed for mass production that will be replaced faster than big-ticket items. The reforms will also require Pentagon offices to pursue contracting authorities such as Other Transaction Authority, which can get companies on contract and work on projects much faster than the Federal Acquisition Regulations.

The memo also mandates the creation of Portfolio Acquisition Executives who will oversee multiple military programs simultaneously, allowing them to reallocate dollars between programs as needed and prioritize systems that are working, thereby giving them more autonomy. Scorecards with requirements to reduce the time for awarding contracts and delivering products aim to create accountability and incentives for delivery. It then directs several other reforms, which include changing the process that identifies what new systems to buy—an important under-the-radar move.

Why reforms might fail

Reforming the Pentagon’s acquisition process faces several obstacles that could undermine success. 

Decision-making. Contracting officers and program offices will still need to make decisions about what to fund and which companies to award contracts. Previous efforts have failed [PDF] to deliver technologies more rapidly. A shrinking (and currently unpaid or furloughed) workforce, combined with delays in implementing new technologies such as artificial intelligence to streamline paperwork, could create roadblocks. 

A process of tradeoffs. By ensuring there are at least two possible vendors to produce new capabilities and moving away from fixed-price contracts, the Pentagon could acquire capabilities more quickly, but it could come at the expense of increased costs. 

The risk of going too far. Emphasizing speed will lead to streamlining testing and evaluation designed to help ensure industry delivers not just on time, but with quality. Yet, testing can also be expensive and time-intensive. As Hegseth rightly argued, “efforts endlessly undergoing testing or awaiting additional technological development are of no use to troops in harm’s way.” It is also true that systems fielded under the current system are often error-prone or require vendor follow-up, justifying the need to try something different. Yet these reforms risk going too far. If industry delivers capabilities quickly, but they are not useful to the warfighter, no one wins.

Retreading old mistakes. Reforms will fail if the pitfalls of today’s industrial base are repeated with different firms and new capabilities. The Pentagon appears eager to shift some funds away from legacy defense industrial “primes,” such as Lockheed and Raytheon, toward newer players like SpaceX and Anduril. Such a shift could already be underway as smaller, more agile firms position themselves to deliver innovative solutions. These reforms could accelerate a generational transition, especially if the legacy firms fail to demonstrate that they can be agile and cost-effective. The Pentagon will need to make sure that the incentive structures that have undermined the defense industrial base today are not replicated in newer firms.

Missing the finer details. The reforms also thread a needle by outlining requirements for industry based on operational problems that need to be solved, instead of rigid, micro-managing details for systems. The best requirements should specify desired outcomes and provide rubrics for designers and engineers to manage programmatic and technical tradeoffs. Clear but imprecise requirements can confuse and frustrate contractors who aim to do the right work but need government customers to specify key characteristics of the products they wish to receive.  

Congressional backing. The Pentagon will establish a Joint Acceleration Reserve “a funding pool set aside to move promising solutions straight into the fight.” This mirrors attempts by previous administrations, but Congress has been skeptical about such funds, and it is unclear how the administration will garner support from appropriators.

More than a soundbite?

Hegseth emphasized his intention for the Pentagon, as well as defense manufacturers, to remain committed to these reforms. “This is not a speech,” he said. “This is not a fire and forget. This is the beginning of an unrelenting onslaught to change the way we do business and to change the way the bureaucracy responds.” 

Whether built by new entrants or the primes, if novel technologies—such as low-cost cruise missiles or precise mass drones—get scaled and into the hands of the warfighters faster, the reforms will have succeeded. If the rate of cost overruns for major defense acquisition programs declines, reforms will be worthwhile. The Pentagon should observe the tech mantra to “fail fast, fail often” and avoid the pursuit of perfection. If the department cancels underperforming programs more quickly or changes contractors when a vendor fails to deliver, taxpayers and servicemembers will be more likely to get the capabilities they pay for and depend on.

The Trump administration deserves credit for pushing forward what could be major changes within the Pentagon that, if successful, will align its approach to buying military capabilities more appropriately to twenty-first-century challenges. But as history has shown, intention does not guarantee real change. It will take persistent senior leader attention and oversight—from Congress, the Pentagon, and industry alike—to turn these reforms from rhetoric into reality. 

This work represents the views and opinions solely of the authors. The Council on Foreign Relations is an independent, nonpartisan membership organization, think tank, and publisher, and takes no institutional position on matters of policy.