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US Intel Community Turning to Commercial Companies for R&D

Jun. 3, 2013 - 03:45AM   |  
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WASHINGTON — With pressure on US defense contractors to cut costs and government research-and-development (R&D) spending facing new budget realities, the intelligence community is increasingly leaning on commercial companies to provide needed R&D, moving away from past reliance on traditional defense contractors.

Proof of the renewed interest in commercial companies comes in the form of a trip to Silicon Valley last week led by Dawn Meyerriecks, deputy director of national intelligence for acquisition and technology, where senior intelligence officials met with companies to discuss innovation for the government.

Describing R&D plans during a recent roundtable with reporters, Meyerriecks said the agency is increasingly leaning on nontraditional defense contractors and that she anticipates the trend will continue.

“I think it will be more commercial,” Meyerriecks said. “Maybe I come in prejudiced; I’m happy with that. I wish we had done that sooner. But as the boss says, don’t let a good crisis go to waste.”

Meyerriecks, who previously spent seven years working for the Defense Information Systems Agency, worked for AOL before taking her current post at the Office of the Director of National Intelligence in 2009.

Experts said the shift reflects a larger issue in the defense contracting community: Companies are less willing to take risks, and the government doesn’t have the money to fund all the innovation it needs.

“I think there’s an acknowledgment that the system is broken,” a senior industry executive said. But the executive was skeptical that the commercial sector will or can make up for the R&D deficit.

“We’ve seen this before. For a period of time there’s been a big call on using commercial capabilities in the space area, and it just hasn’t worked. They haven’t achieved the kinds of engineering feats that are required in defense.”

That the federal government would turn toward commercial space makes sense given differing perceptions of risk, said Peter Singer, director of the Center for 21st Century Security and Intelligence at the Brookings Institution.

“One of the major shifts is how the civilian side is accelerating not just ahead, but in some case well past the innovation from the traditional firms,” he wrote in an email. “And a large part of that is due to a business model that looks at risk as not something to be pushed on the government, but part of the very act of being in business.”

There’s also a difference in how US contractors view R&D as opposed to their overseas brethren. While US companies typically spend as little as 1 percent of revenue on self-directed R&D, European contractors often top 10 percent.

“It’s a philosophical outlook, it’s very French,” said Peter Lengyel, CEO of Safran USA.

Safran, which typically spends between 11 and 12 percent on R&D, according to Lengyel, will only increase spending in the face of defense budget challenges in Europe and the US.

“It’s a responsibility of ours, it always has been, it’s how this company has evolved over the years, and so not doing that would be very alien to the group and to the engineers,” Lengyel said.

One of the reasons for the large difference in company-directed R&D spending is that European governments don’t spend nearly as much as the US on research and development. In that environment, companies have to invest heavily in order to stay competitive in the global defense marketplace.

The intelligence community also has a leg up on the Defense Department (DoD), experts said, because IC acquisition rules are not nearly as onerous and make it easier for smaller companies less experienced in government contracting to get involved.

Those DoD rules push away potential innovation collaborators, the senior industry executive said.

“The Defense Department has a problem that they’ve created; there are a lot of commercial companies that won’t do business with [them],” the executive said. “I think the more that government guys remove their hurdles and become an appealing customer, that there will be a magnetic draw with whoever has the cutting edge capabilities.”

Whether DoD will push for legislative assistance to make it easier to access innovation is a big unknown, Singer said.

“The question is whether the Pentagon is going to get disruptive to its own acquisitions systems to take advantage of these firms that are taking more risks and driving more innovation,” he said.

Working with commercial companies is not without its drawbacks, said Meyerriecks, who is leaving her job for a new post at the Central Intelligence Agency.

“They’re less constrained by, I’ll just say security, although they’re getting better about it,” Meyerriecks said.

Reaching outside for a new take she said.

“We’ve been very internally focused for reasons that should be obvious, and they don’t carry all of that baggage.”

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