America Needs Better Defense Acquisition

And the Trump Team has a generational opportunity and mandate to get it done.

Note - this piece was coauthored with my colleague John Noonan, who works in DC to help defense companies navigate some of the bureaucratic nonsense which we describe below. Defense is one of the areas where I’ve worked a lot in the last 20+ years. I founded not just Palantir — but also Epirus and Saronic, and invested in multiple others, like Anduril. This is an important part of our society that must do better: to deter our adversaries, save American lives, and stop wasting billions on subpar outcomes.

Pete Hegseth was confirmed as Secretary of Defense last night, and was sworn in this morning by Vice President Vance. We are bullish on this incoming team: not just Pete but his deputy-designate, Stephen Feinberg, and undersecretary-designate Emil Michael (whom I interviewed for American Optimist); as well as Congressional leaders like Chairman Wicker of the Senate Armed Services Committee, whose plan we discuss below, and his House counterparts, Mike Rogers and Adam Smith. And among the class of brand new Senators are people like Tim Sheehy, a Navy SEAL who built an aerospace business, and Dave McCormick, who won the bronze star and then led Bridgewater, one of the great investment firms of the world. There are many other great leaders in the Pentagon and Congress with whom I’m in touch and who understand the stakes — too many to name here.

We’ve got the right people to get it done.

- Joe

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During a rebellion in the Philippines a century ago, American soldiers found that their service pistols lacked stopping power and were inadequate for the harsh realities of jungle warfare. In response, Army leaders drafted a simple request for a new semiautomatic pistol of “at least .45 caliber” to replace the service’s aging revolvers.

Six firearm manufacturers answered the call. Their pistols were put through a series of rigorous field tests. The sidearms were refined iteratively throughout the assessment. In the final test, several thousand rounds were put through each gun over 48 hours. The Army was pleased to discover that one of the six prototypes, the Colt, suffered no malfunctions over two days of intense use. In early spring 1911, the Army settled on Colt’s .45 caliber as the new sidearm of choice for the service. Nearly 3 million Colt 1911s were made. 

The Colt 1911 served soldiers well across two World Wars, Korea, and Vietnam, eventually being replaced in 1985. It was a procurement victory for the ages. And the result of the competitive process spoke for itself.

To say that the Army’s attempt to procure a new pistol in the 21st century has gone poorly would be a gross understatement. “The Army’s effort to buy a new handgun has already taken 10 years and produced nothing but more than 350 pages of requirements,” said the late Senator John McCain in 2015, “micromanaging extremely small unimportant details and Byzantine rules and processes the Army wants followed, many of which are unnecessary or anticompetitive.” 

Procurement is a mess, and given that the Pentagon purchases more goods, services, and software than all other federal agencies combined, this is a huge crisis. Waste is everywhere. In many ways, our defense establishment now resembles the Soviet system we defeated in the Cold War. The ideology of central planning took over the largest bureaucracy on the face of the Earth. 

But change is coming on Inauguration Day. Here’s how the new Trump administration can seize the moment, learn from what worked and didn’t work in his first administration, and make generational changes to our defense bureaucracy.

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The DoD bureaucracy, like all bureaucracies, seeks to sustain and grow itself. Each new inefficiency, like the service pistol mess, prompts shock from Congress. Then, to “fix” the inefficiency, the bureaucracy creates more inefficiency. New offices are created, new councils and “oversight bodies” formed, and even new branches of military service. In 2018, the Pentagon underwent a significant restructuring of its acquisition framework, and it resulted in the creation of nearly a dozen new offices! The creation of the Defense Innovation Unit (DIU) — a lean and nimble group based in Silicon Valley with the authority to fund new products is a bright spot; but the temptation to create new bureaucratic edifices is part of the problem.

In the defense world, the Pentagon is the only domestic customer, and so the defense industry is not subject to the same demand forces as the rest of the economy. Programs that wouldn’t survive an open competition can thrive if the Pentagon wants them to. Superior products can struggle to break through, and are at the mercy of opaque processes.

When the Army was searching for a new pistol a century ago, it simply told the best arms manufacturers in the world to build them a pistol, then tested them in a ruthless competition. Today, Pentagon officials write long lists of requirements — many of them strange and unnecessary – and take years to solicit and evaluate proposals. Even when the Pentagon does hold competitions, and there is a clear winner that is orders of magnitude better than the others, the tortuous and often impractical requirements often lead to a big, established company earning selection over a superior innovative entrant. To win on paper is to win the contract. 

My friend Shyam Sankar has bemoaned what he calls a government defense monopsony, where one buyer gets too comfortable and exercises illogical and inefficient decision-making. In his Martin Luther inspired Defense Reformation, Shyam brilliantly lays out a strategy to end the Pentagon monopsony and help the military be a better customer. One of my favorite proposals in this space is to stop identifying the Pentagon as a single entity. It is, rather, an umbrella for dozens of service branches, agencies, and sub-agencies. The thinking is that Congress and the President puts these smaller agencies into competition with each other for money and contracts. It would not work across the entire DoD, but putting just a few head-to-head would be a strong blow against the 1950's mandate of efficiency via consolidation and a single, difficult, top-down buyer. We live in a world where innovation is happening at the speed of light. The way you find the product that is exponentially better is to have at least two buyers, try different things, and incentivize players with rewards for the side that wins. Right now, the golden rule is risk aversion. That serves the bureaucrat, not the warfighter. 

Another promising proposal is to create “mission-based requirements.” The Pentagon has a term called “requirements creep,” where a simple, commercially available solution to a problem becomes infected by new design obligations imposed on industry by military officials. The U.S. Navy's Constellation-class frigate, for example, meant to be a fast and simple purchase of a proven and existing warship, the FREMM frigate made by Fincantieri. In what was a clear edict from Congress to buy quick and off-the-shelf, Navy bureaucrats have reduced the Constellation's design commonality with the original FREMM from approximately 85% to less than 15%. Requirement after requirement, some dating back decades, have resulted in massive cost overruns and delays to the program. As a result, the Navy still does not have a frigate in service. 

Mission based requirements would scrap this compulsive micromanagement by flag officers and risk-adverse administrators in favor of simple, 1–2 pages of a core military need. Instead of 350-page slide decks, the mission-based approach would allow the Pentagon to offer broad guidance and let industry respond in kind. Rigorous testing, refinement, more testing, and eventual selection in an open competition is where the military excels. That partnership with industry brought us engineering marvels like the U-2 spy plane and stealthy F-117 Nighthawk. Our warfighters know what they like and know what they don’t like much better than the bureaucrats writing the requirements.

When the Pentagon believes it can do acquisition via central planning more effectively than listening to soldiers or technologists, it fails our country.

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The incoming Trump national security bullpen has a tall order before it. Since the end of the Cold War, over 2500 US companies have been founded and reached a valuation of a billion dollars or more. Less than a dozen have been in defense. I personally founded a few and invested early in a few more of them. In many areas, these companies are outcompeting the Primes, if they’re allowed to. They represent thousands of manufacturing jobs in the US – and could have a multiple of that in the next decade. But they need allies in the government.

New officials can start by trimming down an encyclopedia of regulations that was first written and consolidated in the Reagan Administration. The Federal Acquisition Regulation (FAR), first issued on April 1, 1984, has almost doubled in length, and with it the complexity of the overall federal procurement processes – not just the Defense Department. The FAR was written to level the playing for all companies, big and small, who sought government contracts. But as with many federal regulations, the cure was worse than the symptoms, and it favored the biggest companies with the highest proportion of lawyers.

Title 10 of the U.S. Code, which governs the armed forces, has also become swollen with obsolete and choking legal requirements. This creates fertile grounds for long and contentious lawfare when bids don’t go a company’s way, dragging out deployment of new weapons by years. And because it is so difficult for little companies and startups to bring on the lawyers and lobbyists and staff to contend with this dizzying array of red tape, the government must set aside billions in small business contracts just to give them a shot. Small business is the backbone of our country, but welfare does not get the taxpayer the best value for his money. 

Just like the Title 10 and the Federal Acquisition Regulation, the suffocating Foreign Military Sales approval, associated contracting hierarchy, and ITAR regimes all favor the big defense giants. These regulatory frameworks help the giants elbow out new top innovative defense companies and prevent them from growing. They are staffed to the teeth with compliance experts and legal departments, both here and overseas with allied customer, so even if the new solutions are better the best doesn’t always win. It is simply a matter of wielding an exasperating regulatory structure with tens of thousands of risk-averse federal employees enforcing it to their advantage. It is a scam to starve the bold new players of sales and inevitably force them to sell. It also rips off the taxpayer. The sale usually means the innovation at the exciting new company slows once inside the bellies of the giant bureaucratic beasts.

The United States was once the arsenal of democracy. Today it is the arsenal of bureaucracy, with an army of federal civilians making it difficult for American companies to sell to willing buyers. To wit, it took the State Department and the Pentagon nearly 30 months to finalize a sale of Harpoon anti-ship missiles to Taiwan. Though upgraded in recent years, the Harpoon has been in service since the 1980s. It is not a new system, and Taiwan is the nexus of our Pacific deterrence. We have a unique opportunity for American workers and innovation to be fueled by investment from our friends, strengthening both our economy and national security. This process should be simple. It isn’t. The haft of the arrow in America’s side was feathered from our plume. 

Moreover, the past three decades of obsessive consolidating and regulating and subsidizing has undercut the core element of the new Administration’s foreign policy and national security. Trump has rightly emphasized deterrence, a concept that escaped the outgoing president and his team. Deterrence is a simple framework and does not require a mountain of PhDs to grasp. It means, in plain terms, terrifying adversaries with a combination of iron forged national will and fearsome weapons to lend that patriotic resolve credibility. During the Cold War, a world-leading missile and rocketry sector scared the Soviets stiff when they produced weapons like the Peacekeeper Missile, the Pershing II, and the Ground Launched Cruise Missile. President Reagan’s mere mention of Star Wars, the space based strategic defense initiative that was still in its conceptual phase, sent the Kremlin in a panic. After some of the tensest years of the Cold War, Reagan scared the Russians into negotiating and signing a whirlwind of arms control agreements. Military technology can change the course of history on America’s terms. 

Senator Roger Wicker of Mississippi, the new Chairman of the Armed Services Committee, has unveiled a plan to cut red tape across the entire Pentagon. Such an effort is promising. Still, there have been no fewer than 15 Congressional efforts over the last nine sessions of Congress to address procurement alone. What makes Wicker’s effort fresh and special is its attention on reducing the regulatory load, not compounding it. 

The objective is to grow the arsenal for our actual Army and shrink the army of Washington bureaucrats. More Americans turning wrenches on critical munitions, fewer Americans sucking up taxpayer resources with fake laptop work. Simple requirements, fast lanes for foreign sales, more practical testing and less paper obligations would rekindle the entrepreneurial spirit that saw the U.S. become the greatest national security innovator in human history. 

The good news is that President Trump has put in place a terrific team to do just that. Pete Hegseth said during his confirmation hearing: “Competition… it’s important, critically important,” he said. “Silicon Valley, for the first time in generations, has shown a willingness, desire, and capability to bring its best technologies to bear at the Pentagon, a Pentagon that has become too insular and tries to block new technologies from coming in.” Stephen Feinberg, the nominee to be the #2 at the Pentagon, is a patriot who leveraged his vast business experience on behalf of American interests at home and abroad. My friend Emil Michael is a genius straight out of the Silicon Valley startup culture that has to be leveraged in Washington, he will be incredible in his new role heading up Pentagon research and engineering. 

During the Persian Gulf War and the stunning American military victory over the Iraqis, then the fourth largest Army in the world, military experts estimated that U.S. military technology was a decade ahead of the Soviets and two decades ahead of the Chinese. The world was shocked at the might of then-futuristic weapons and state-of-the-art tactics. The new Trump team has a strong wind in its sail. The woke tech giants of the last decade have given way to a new crop of patriotic leaders and innovators. Silicon Valley is poised and ready to join the fight. With a few bold moves, President Trump’s promised Golden Age and a second century of American dominance are within reach.