The Pentagon has a competition problem.
That’s what a new report released yesterday by the Defense Department says. The report acknowledges that there’s not enough competition among defense industry companies and to fix it, it wants to push for more small business partnerships while keeping an eye on mergers and acquisitions.
The problem, as the report outlines it, is this: While the U.S. spends more on national defense than the next seven countries combined, there are only five major defense contractors in America who have captured 90% of the market share for weapons contracts.
That means less choice for the Pentagon when it comes to buying equipment and services. And less choice means higher costs for taxpayers who foot the bill for all of that government spending.
On one hand, the Defense Department says it is seeing benefits from having fewer prime contractors — companies that bid directly on federal contracts. Fewer “primes” means there are fewer costs and a faster pace when it comes to purchasing new weapons systems and services, according to the report. Plus, many of those primes have been acquiring smaller businesses as subcontractors to help them compete better for new business and boost their capabilities.
However, the lack of competition is also creating questions about whether these big firms can actually carry out big projects in a timely, cost effective manner. Perhaps no example is more glaring than Lockheed Martin’s F-35 Lightning II joint strike fighter aircraft program that has had severe delays and cost overruns since its inception.
The report identified three areas where the department could take action: push for more small business partnerships; encourage more communication among large companies and their smaller counterparts; and keep an eye on mergers and acquisitions so companies don’t become too powerful or too big to compete.
Ultimately, their goal is to really look at what they can do within the DoD portfolio to create more competition. They are looking at potentially creating divisions within some of their larger contracts that would allow for new entrants.
“The report recommends that DoD should promote increased use of small businesses, particularly small disadvantaged businesses and women-owned small businesses, through better outreach and streamlining processes,” according to a news release about the report. “The report addresses areas where lack of competition may have resulted in higher costs or inferior products, such as electronics and engines.”
The department also said it would keep an eye on mergers and acquisitions — something that continues to dominate headlines in defense contracting as big companies buy up smaller ones. The Pentagon said it will pay close attention to how consolidations affect competition throughout the acquisition process, but it is clear that the department needs to make some changes if it wants to get more bang for its buck.
Small business partnerships are critical for the Department of Defense (DoD) and Pentagon because they provide innovative and cost-effective solutions to mission requirements. They are crucial to the DoD’s mission to innovate and become more efficient because they are nimble, innovative and less risk-averse than large corporations. By collaborating with small businesses, the DoD can launch innovative solutions faster — and save taxpayer dollars in the process.
Small businesses provide services and products that are unique and often offer capabilities not found in the large contractor community. The small business industry is thriving with new innovative ideas that the DoD and Pentagon need to help enhance their mission.
The Pentagon’s Small Business Innovation Research (SBIR) program has helped create technologies like micro-robots, long-range drones and life-saving changes to military body armor.
The Defense Department’s Small Business Technology Transfer (STTR) program has helped develop everything from software that allows real-time, face-to-face communications between soldiers on the battlefield and autonomous vehicles for off-road maneuvering.
These partnerships are important to national security. They keep the United States at the leading edge of innovation by giving small businesses a chance to commercialize their ideas and bring them to market. The DoD needs to ensure that it is making programs such as SBIR and STTR accessible for small businesses if they want to invest in those partnerships. Despite a large increase in spending on small business contracts in the past year, the DoD’s small business base is shrinking. They will need to establish an effective strategy to boost this base if they want to continue to tap in to the critical solutions that small businesses provide.
