Will Better Buying Power 3.0 bring the Pentagon and Silicon Valley Closer?

Led by California’s Silicon Valley, America leads the global economy in technological innovation.  At the same time, official Washington seems to realize that the federal acquisition system is obsolete for the Information Age.  As such, the military is losing its technological margin with potential rivals.

In September 2014, the Defense Department released a concept draft of Better Buying Power 3.0.  It details changes in acquisition designed to spur and capture innovation for military purposes.  The acquisition process is guided by the Defense Federal Acquisition Regulations Supplement (DFARS), and most programs are implemented by a combination of government management and contract law.  Of course the entire system is ultimately governed by the Constitution which diffuses power, interests, and accountability among many.

Today much technical innovation comes from small companies, and indeed individuals.  In Silicon Valley’s ecosystem, most startups die, but more still get funded with some getting acquired and others growing into their own.  That process amounts to research and development in and of itself.  As Clay Christensen writes, ironically because some large companies are well managed with resources aligned for the present, they often cannot react to inventions from smaller companies.

Thomas P.M. Barnett says that the role of the Pentagon is to “predict the threat, buy the force.”  Much of that “force” consists of “programs” for goods and services.  The contracts for those programs begin with requirements.  A growing problem is that the “threat” to be predicted mutates a lot faster than during the Cold War.  In the twelve months prior to this writing, the Syrian government’s Syrian Electronic Army has quickly become a force hacking into Western media sites to get their narrative out.  Also, ISIS has taken control of territory with a speed that has destabilized the entire Middle East.

This amounts to making planning and programming for the Defense Department exceedingly difficult.  In other words, the threat is rapidly changing as are the technologies we need to buy for the force.  Writing requirements for contracts will become a dynamic process.  Changes to the DFARS and new contractual vehicles like awarding prizes can be expected.

An substantial growth in business between the Pentagon and Silicon Valley would be difficult for both.  There are some vast differences between Silicon Valley (a metonym for the ecosystem  and spirit of the Bay Area’s technology industry) and the community of defense related firms, many concentrated in the Washington, DC area.  For starters, many Defense software firms begin with a public policy goal in mind.  Over time their business models tend to become addicted to capturing the next government contract and focus all energy on the regulated bureaucracy that is the Pentagon.  Silicon Valley firms generally begin with an attractive idea that may or may not be immediately monetizable.  A company will be as innovative as its market is dynamic, so much value is to be derived out West.

Other differences will complicate the Better Buying Power 3.0 initiative. The tech business moves very quickly, the federal government does not.  Entrepreneurs may have difficulty understanding the role of government, even though they understand the product or service for delivery. 

There is also the issue with the federal government’s efforts with subcontracting to small and socio-economically disadvantaged businesses.   To integrate configuration control and intellectual property, commercial tech firms are generally more vertically integrated than defense contractors.  This would make subcontracting more difficult.  Interestingly, a lot of commercial tech firms that have little to no revenue may have very high market capitalizations in the private sector, since their products have so much potential.  An economic reality generally unknown to small businesses in the defense world, which are focused on getting the next contract extension.

It is clear that the Defense Department intends to buy more commercial products, spend more on research and development, and use incentive based contracts.  The latter not only includes structuring more profit for performance, but also prizes and “challenge” awards for technologists who make products most meeting specification.   Military acquisitions will become more of a science fair, and less of a business plan contest.

In the end, the government needs to focus on how to skim the cream of technology ideas, without spending a lot on trial and error.  To do that, it will need to become an attractive customer to do business with.  This includes simplifying registration for startups to be vendors, and make the requirements and solicitation process move quickly.