Published in Aviation Week, August 4, 2016
Republished by permission of Aviation Week
The U.S. Department of Defense’s recent outreach to Silicon Valley for access to commercial innovation is understandable. We enthusiastically support Secretary Carter’s determination to access innovative technology. However, we believe the crux of the issue is not better access to innovation, but, rather, less burdensome acquisition of innovation.
The DoD has had access to the world’s leading commercial innovation since the mid-1990s, when Congress passed the Federal Acquisition Streamlining Act (FASA) of 1994. Subsequently, Federal Acquisition Regulation (FAR) Part 12 created a DoD acquisition framework that recognizes the value of commercial investment and technology for military application.
These reforms enabled Rockwell Collins to eliminate redundancies between our commercial and military business units. For example, by starting with commercially developed products, we saved the DoD more than $160M in the development of the Common Avionics Architecture System that was incorporated on the H-60 and Chinook helicopter fleets. And our state-of-the-art cockpit displays developed commercially for the Boeing 787 were subsequently modified for military use on the KC-46 Tanker.
This was good news. The problem, however, is that DoD acquisition of commercial innovation is increasingly challenging, and this is an industrywide issue. The 2014 Defense Business Board briefing, “Innovation–Attracting and Retaining the Best of the Private Sector,” confirmed that the entire industry’s ability to provide the DoD with leading-edge commercial technology is under increasing threat.
Here’s why. FAR Part 12 states that as long as a product is “of a type” that is currently commercial, then the DoD must classify the product as commercial. The military version of the commercial product can be designed a little differently, but if it is “of a type” — or similar to — then it is a commercial product under the FAR Part 12 regulations. This distinction is very important, because few commercial items can be used by the military “as is” with no modification for their specific needs.
Everything works well as long as the military item is classified as commercial “of a type.” But when products are classified as military items — and excluded from FAR Part 12 — the manufacturer is subject to overly burdensome cost-based accounting and the Government is responsible to pay for items such as obsolescence management and the addition of ongoing, commercially-developed innovation in that product.
The problem, however, is that DoD acquisition of commercial innovation is increasingly challenging, and this is an industrywide issue
In essence, this separates the military’s product from the commercial item and often requires the addition of a distinct, low-volume production line for a special customer. This limits the manufacturer’s ability to generate a return on R&D investments of tens- or hundreds of millions of dollars or more.
How many commercial companies would view this as an attractive business proposition? It would be a dispiriting and needless loss if the independent and entrepreneurial personalities that founded Silicon Valley startups were to conclude that working with the DoD comes with too narrow an interpretation of what is a commercial item.
To that point, the recent Senate Armed Services Committee report language for the National Defense Authorization Act for Fiscal Year 2017 clearly sums up the Committee’s unease regarding the DoD’s approach to commercial products:
“The committee is concerned about the Department of Defense’s increasingly narrow interpretation of the definition of commercial items … If there is a problem with the definition it appears to be the Department’s repeated attempts to narrow the definition to conform to an oversight strategy that will inadvertently lead to less competition [and] increased costs … ”
We believe that until these concerns are successfully addressed, the DoD will have ongoing challenges with acquiring commercial industry innovation in an efficient and cost-effective manner — whether that innovation comes from Silicon Valley or Cedar Rapids, Iowa.
However, there are steps that the DoD can take to ensure their outreach to commercial industry is a success:
- Regulations … Recognize the congressional intent of the broad definition of a commercial item — particularly commercial “of a type” products and the fact that prior commercial determinations should be allowed to carry forward.
- Training … Train the DoD acquisition workforce in the meaning, importance, and Congressional intent of the FASA and FAR Part 12.
- Intellectual Property … Protect intellectual property aggressively. The current acquisition environment is creating barriers to the acquisition of commercial technologies, as companies invest, take significant risk to develop products, and then are made to give away their valuable IP to competitors.
- Value … Shift the discussion away from restricting commercial profit and focus on the value received. When the DoD buys commercial items, it benefits from sunk R&D costs, ongoing obsolescence management, technology insertion, and further R&D expenditures, which are managed by the commercial company as a part of their business model. Companies and their shareowners deserve a return on this investment.
Despite the need for the DoD to do more, it’s important to recognize that we are all working toward the same national goals — to provide the best product at the best value for the taxpayer. This dedication helps to ensure that our uniformed men and women will always have the most innovative, leading-edge technology to defend the freedoms we cherish.