Over the last five years, the Pentagon organized a charm offensive to attract new entrants into its technology base. With the lure of quick contracts and follow-on potential, thousands of entrepreneurs have been enticed into seeking defense work. This enthusiasm risks being short-lived without more examples of small contracts leading to larger procurements.
The oft-cited problem is the multiyear process for lining up funds, first for a more substantial prototype and then for a program of record. The Pentagon’s prototyping guide clearly diagnosed the problem: “When the initiation of a prototyping project is stymied or the developed prototype never makes it past the ‘valley of death’ due to inappropriate or unavailable funds, the transformative effect of prototyping can be lost.”
The Department of Defense is at great risk of losing its competitive edge due to funding issues.
One solution proposed recently by several authoritative figures is to use a “bridge fund” where defense leaders could allocate short-term funds to innovative projects while long-term funding is hammered out. For example, the Silicon Valley Defense Group recommended establishing a “stand-alone innovation fund that is designed to help critical innovation companies bridge the ‘valley of death.’ ”
There are good reasons, however, to doubt the effectiveness of a bridge fund.
First, bridge funds have come and gone in the past. An early example goes back to the 1950s, when an “emergency” research and development fund allocated billions of dollars to support tech transition. There have been many since. Two recently defunct funds are the rapid prototyping fund and the rapid innovation fund. While the latter boasted some success, the Pentagon did not request continued funding for it in the fiscal 2021 budget.
Second, a bridge fund itself does not solve the root problem of program planning. Program sponsors still need to firm up requirements and request follow-on funds for fielding. A bridge fund might support a next-level prototype but will do little to ensure that long-term procurement funding is in place to scale the solution. In FY21, the DoD requested more than $28 billion in relatively flexible prototyping accounts, yet still fails to solve this problem.
Third, a centrally managed fund is unlikely to be timely. The selection process will likely take months as proposals are routed through multiple levels to reach decision-makers. As an example, the signoff authority for the rapid prototyping fund was the secretary of defense. During that period, programs are unable to appropriately plan, given the uncertainty of being selected. This lag may inadvertently drive the “valley of death” to the right rather than bridging it.
Fourth, a project may need to rely on the bridge fund for multiple years if the selection cycle does not align well to annual budget-planning timelines. Recall that the planning, programming, budget and execution, or PPBE, process drives a two- or three-year lag. Until the funding cycle catches up, some projects might become bridge fund “addicts” while others receive no funding at all. This could result in a diffusion of the funds that minimizes its overall impact.
Most importantly, Congress has historically been suspicious of large funds without a clear plan and predicted outcomes. The bridge fund, as many envision it, would need to be quite large, making it even more unpalatable to congressional appropriators.
To mitigate these problems, a bridge fund should:
- Target a few high-potential efforts.
- Exist for an extended period.
- Be directly allocated to an acquisition organization, such as the Defense Innovation Unit, Army Futures Command, the Joint Artificial Intelligence Center or a program executive office.
- Measure success using context-specific metrics.
Even then, the fund fails to address the real transformation obstacles. The Pentagon needs a more holistic answer to the technology transition problem, rather than another bridge fund. It needs to adopt portfolio accounts for prototype projects and acquisition programs. This would involve consolidating platform-focused budget line items into logical portfolios where promising commercial technologies could be identified and more easily transitioned without the bureaucracy, uncertainty and time penalties of a bridge fund.
This is possible because acquisition executives would have improved trade space flexibility and the ability to shift funds from lower-performing activities to ones with greater promise. If a promising commercial solution could quickly meet an operational need driven by new threats, a portfolio approach would allow development activities to commence without having to request bridge funds or await the PPBE process. A key enabler includes abandoning strict program baselines that discourage adaptation, providing greater new start authority and encouraging more flexible requirements.
Two logical methods for organizing portfolio accounts are by responsible organization or by mission area. Advocates are correct to identify funding as a key issue in technology transition; but rather than return to legacy practices, which have proved unsustainable, it’s time to address the root cause of the problem.
Let’s envision a new innovation environment where the DoD has many “bridge funds” in the form of portfolio accounts, poised to onboard the most promising solutions to the DoD’s toughest challenges.
Eric Lofgren is a senior fellow with the Center for Government Contracting at George Mason University. He previously served as a senior analyst at Technomics, supporting the Pentagon’s Cost Assessment and Program Evaluation office. Matt MacGregor is an acquisition specialist at the Mitre Corporation and a space operations mission engineer in the Air Force Reserves. He previously worked for the Pentagon in a number of roles.