In June 2021, the Congressional Research Service (CRS) published R45403, The Global Research and Development Landscape and Implications for the Department of Defense. In this comprehensive study, Congressional researchers cited a startling trend in R&D funding. According to the Report:
From 1960 to 2019, the federal government’s share of total US R&D fell from 65% to 21%, while businesses’ share more than doubled from 33% to 71%.
Acknowledging this shift in the global R&D landscape, the DoD has taken aggressive steps to adapt its business culture to embrace technologies developed outside the DoD and to find ways to adapt and leverage commercial technologies for defense applications.
Fast forward to the early months of 2022, and the release of the latest Annual Report of the Defense Innovation Unit (DIU). DIU is a DoD organization focused exclusively on accelerating the adoption of commercial technology through the services, as well as interagency partners, including NASA, the US Coast Guard, and CISA. DIU’s portfolio includes projects covering artificial intelligence, autonomous systems and human-machine interaction, cyber security, energy, human systems, and space technologies.
In recent years, DIU has enjoyed significant growth. In FY 2021, the number of proposals from commercial developers reached 1,116 – almost triple the 2019 total. Prototypes awarded by DIU have also increased at a rapid pace, rising from 12 in FY 2016 to 72 last year.
DIU’s progress to date engaging the commercial sector has been laudable. But the DoD would be well served to do much more to expand DIU’s efforts and other DoD organizations tasked with engaging private sector technologies, particularly in light of the strong trend toward commercial spending documented in last year’s CRS report.
Since its founding in 2016, DIU has issued $893 million in contracts and leveraged $20.1 billion in private investments. For context, the President’s FY 2022 budget request calls for DoD R&D spending of $62.8 billion.
Also concerning, DIU “transitioned awards” dropped from 13 to 8 YOY in 2021. A transition is when a commercial solution prototype is successfully completed and results in a production or service contract with a DoD or US Government entity. However, DIU leadership is taking encouraging steps toward streamlining the contracting process. These include using “Other Transaction Authority” (OTA) to sidestep the relatively sluggish, traditional DoD procurement process; employing modular contracts that limit intellectual property requirements, which can delay the transition of a capability from the private to the public sector; and reforming the DoD budgeting process to become more agile and flexible.
There are additional reasons to be optimistic as well. By all accounts, the DIU has punched above its weight, making inroads into Silicon Valley and other high-tech centers, as well as bringing in hundreds of potential new contractors to the DoD outside of the traditional defense infrastructure. In addition, Raj Shah, managing partner at Shield Capital and former DIU director, was named earlier this month to the Congressional Committee on the DoD Planning, Programming, Budgeting and Execution (PPBE) process. Shah was a strong proponent of DIU and famously called for a tenfold increase in spending on DoD innovation efforts, including the DIU. Adding his perspective and expertise to the Committee is a strong signal that Congress is taking commercial outreach initiatives more seriously.
The nature of the national security challenge, the pace of technological innovation, and the shifting threat environment means that bridging startup innovation with Federal adoption has never been more important. At BlueWing, we recognize the urgency of these efforts as they pertain to national security and continue to closely monitor DoD and other Federal contracting practices, particularly as they serve to expand and accelerate the involvement of innovative early-stage tech companies, specializing in artificial intelligence, machine learning, data analytics, and cybersecurity.