WASHINGTON – The long-range research-and-development initiative recently touted by top Pentagon leadership to help counter advances being made by potential adversaries is still taking shape, but now there is at least a tentative timeline.
A team being run by Stephen Welby, deputy assistant secretary of defense for systems engineering, is leading the effort and will spend the next six months looking at proposals from the defense industry and commercial firms to determine which ideas deserve further scrutiny and, potentially, investment.
Still, some industry observers and officials caution that differences in business culture and practices will raise hurdles to this effort.
As part of a wider acquisition reform called the Defense Innovation Initiative, Welby told reporters on Dec. 3, "we recognize that all good ideas don't originate in this building."
During his comments, Welby introduced a new request for information (RFI) to push the project along. The RFI identifies five major subject areas in which the Pentagon is interested in identifying breakthrough technologies: space technology, undersea technology, air dominance and strike technology, air and missile defense technology, and what they call "other technology-driven concepts," which include everything from nanotechnologies to bio systems to cyber technologies.
The Pentagon will dedicate a team to each subject area for outreach and evaluation.
"We are inviting folks for a dialogue," he added, insisting that despite past difficulties in reaching out to commercial tech firms, the Pentagon is keen to find out "what is emerging across the private sector that might shape the future of military capabilities."
But don't expect contracts anytime soon. The initiative won't field any new technologies until about 2030, at the earliest.
"We are thinking about a decade out. We're not talking about the next opportunity, the next win," Welby cautioned. "There are no dollars associated with this" yet.
His group's recommendations will be sent to Frank Kendall, the building's top weapons buyer and one of the key drivers of what has been called the "offset" initiative. If all goes well, any investments will be included in the Pentagon's fiscal 2017 budget request.
But while the Pentagon may be eager to capitalize on commercial sector innovations in robotics, autonomy, computing and cyber capabilities, it may be difficult to attract the most creative minds in Silicon Valley to government work.
In a note to investors this month, analyst Byron Callan of Capital Alpha Partners wrote that most of the technologies identified by the initiative are "either driven by commercial firms or have commercial applications."
He identified autonomy as being the most clearly commercial, singling out Google's work with autonomous cars and its investment in robot maker Boston Dynamics this year.
"Defense-centric firms may be able to team with or even acquire some of these firms," he wrote, "but if DoD can change its business practices, there may be more direct competition for heritage defense firms."
Most critically, Callan wrote that if Pentagon continues to insist on owning the intellectual property of the technologies it purchases, "that could remain a powerful deterrent to commercial firms" from collaborating with the government, since higher commercial profit margins would likely keep them in the public sector as opposed to signing long-term deals with the government.
In a Dec. 8 market commentary, Guggenheim Securities analyst Roman Schweizer also sounded a note of caution on the initiative, writing that the categories in the RFI "are so large that we expect there will be plenty of bureaucratic food fights for funding. And it's doubtful that anything but a very large amount of funding would be needed to move the needle in any of those areas."
During an event at The Atlantic Council in Washington on Dec. 10, Mike Petters, president and CEO of shipbuilder Huntington Ingalls Industries, also sounded uncertain of the new thrust toward commercial technologies.
"My [shipbuilding] business for the last 30 years has been focused on process," he said. But "we're looking at a Pentagon that's going to move to a more competitive environment, and it's going to move to an environment where commercial standards are going to come more into play."
Petters warned that defense companies haven't always had happy experiences investing in commercial companies, but given the defense market today, it is becoming a necessity to both raise shareholder value in the short term, while keeping the company viable in the long run.
In making more commercial investments, "we will bring our shareholders along at an appropriate pace and continue to think through if there are those kinds of investments that create value that was not there otherwise.
"You can buy back shares, raise your dividend, you can do lots of stuff that will actually affect the perceived value of your company, but they're not investments that are creating new value inside your business," he said. "That's an environment that we're all struggling with now." ■
Email: pmcleary@defensenews.com.
