Consolidation of Defense Industrial Base Poses National Security Risks

The US Department of Defense recently released a report that reveals a consolidation of the defense industrial base, posing national security risks.

The report outlines a range of efforts proposed by the department – ​​including more closely monitoring mergers between defense contractors – to help mitigate this risk.

U.S. Soldiers assigned to Delta Company, 91st Brigade Engineer Battalion begin movement in an OshKosh M-ATV during Combined Resolve XV at the Hohenfels Training Area in Hohenfels, Germany, Feb. 21, 2021. Combined Resolve XV is a Headquarters Department of the Army directed multinational exercise designed to build the 1st Armored Brigade Combat Team, readiness the 1st Cavalry Division and improve interoperability with allied forces to fight and win against any adversary (U.S. Army photo by Spc Esmeralda Cervantes)

The “defense industrial base” refers to all of the companies, large and small, that the DOD relies on to supply the materials, equipment, and weapon systems needed to defend the nation.

In recent years, the report shows that the number of companies within the defense industrial base has declined significantly. Declining participation decreases supplier diversity and at the same time decreases the kind of competition that drives innovation and lowers the prices paid for defense materials by the taxpayer, the report says.

“Since the 1990s, the defense sector has consolidated significantly, from 51 to 5 aerospace and defense contractors,” the report states. “As a result, the DOD is increasingly dependent on a small number of contractors for critical defense capabilities.”

Over the past 30 years, the report continues, the number of suppliers of items such as tactical missiles, fixed-wing aircraft and satellites have all declined significantly. For example, 90% of missiles now come from just three sources, the report says.

In a briefing ahead of the report’s release, senior administration officials discussed steps the department will take to increase competition within a declining defense industrial base and why those efforts are important. .

“Competition within the [defense industrial base] is vital to the department as it improves cost and performance and drives greater innovation for products and services needed to support national defense,” an official said. “Competition is also an indicator of the industrial capacity needed to provide the systems, key technologies, materials, services, and products that DOD needs to support its mission.”

The DOD report contains five recommendations on how to increase participation in the existing defense industrial base and boost completion there as well.

“The department’s specific actions will address the systematic challenges of expanding competition and ensuring sufficient domestic capacity and capacity in priority industrial base sectors while fostering greater competition,” said the manager.

First, the ministry plans to tighten control over corporate mergers within the defense industrial base. The report states that when new mergers between existing defense contractors are proposed and the department identifies those mergers as posing a risk to DOD interests, the department will support the Federal Trade Commission and the Department of Justice in antitrust investigations and recommendations.

The bank of two F-35 Lightning IIs after receiving fuel over the Midwest on Sept. 19, 2019. Both aircraft were en route to the 158th Fighter Wing out of Vermont Air National Guard Base South Burlington , Vermont, the first Air National Guard unit to receive the aircraft. (US Air Force Photo/Master Sgt. Ben Mota)

The report highlights the challenges of planning for and securing the intellectual property rights and data needed to promote competition over the long term.

“We will … address the challenges of acquiring intellectual property and associated technical data rights to sustain greater competition throughout a system’s lifecycle,” the official said.

The number of current players in the defense industrial base is insufficient, the report says, and the department would like to see more companies involved competing to support defense priorities.

One way to achieve this is through acquisition permissions such as “other transaction authority”, as well as business solution openings that will give the department more flexibility to operate better in the business space and make it easier for contractors who have not worked with the DOD to get involved.

Small businesses also play an important role in DOD plans.

“Specifically for smaller companies, I would say we’ve seen a decline in our primary contractors, and we think increasing that, reversing that downward trend will help us and help the mission and the warfighter,” said the manager. .

Finally, the ministry hopes to increase supply chain resilience in five areas identified as priorities. These areas include foundry and forgings, missiles and munitions, energy storage and batteries, strategic and critical materials, and microelectronics.