Private funding scales up DoD’s dual-use development projects

A new pilot paves the way for speeding up supply chain manufacturing for both Department of Defense and industry.

High speed production has never been easy for the Department of Defense, but a new manufacturing pilot program could pave the way for private investment to help DoD make products with both commercial and defense applications on a faster timeline.

DoD started the pilot program along with Department of Energy in August to partner private equity and defense funding for dual-use production. Austin Center for Manufacturing and Innovation (ACMI) in Austin, Texas will fund manufacturing for the 24-month pilot program and will focus on companies that make inert chemicals for energetic applications used by the military for weapons and by the agricultural industry.

ACMI is both a fund that invests in scaling commercial hardware companies and a property development group that supports DoD projects. DoD said the project will receive about $10 from private investment for every $1 from the government for the pilot, with a ratio of $25 in private funding for every dollar from DoD when the program matures to full production.

The government portion of the money comes from the Defense Production Act Title III Program to create a fast track toward producing non-fossil fuel energy. The ACMI pilot is the first effort to use this funding to rapidly scale production for commercial and military-use supply chain manufacturing.

“So once the pilot is complete, as far as the grouping of new products that come from that, and if they’re identical to their legacy critical chemical material, then we can try to scale that to other manufacturing sectors,” said Halimah Najieb-Locke, the deputy assistant secretary of defense for industrial base resilience.

Najieb-Locke told an online audience hosted by George Mason University’s Baroni Center for Government Contracting on Dec. 14 that if the program goes well, it should see more commercial investment to scale production for future manufacturing both commercially and for DoD.

“If we are successful, that entire area will attract more funding, which will give us more bidders for other programs that we were trying,” Najieb-Locke said.

The pilot represents one approach bringing in new partners and ameliorate the effects of less competition from consolidation of DoD’s commercial partners. A few big contractors getting most of the department’s business means fewer new ideas and less resources.

“Since the early 1990s, the defense sector consolidated substantially; we know we transitioned from 51 aerospace and defense prime contractors down to five. But as a result, DoD is increasingly reliant on a smaller number of prime contractors for these critical defense capabilities,” Najieb-Locke said.

That number is echoed across the broader industry as consolidation whittled down the number of companies competing for defense contracts.

“We went from 129,000 prime contractors 10 years ago, to roughly about 80,000 now,” said David Berteau, president of the Professional Services Council, an industry association.

Najieb-Locke said while DoD is working with partners and allies to guard against further consolidations, those mergers continue to be a problem, and DoD relies on the benefits of competition to maintain a competitive edge.

“The vast majority of attention focuses on those contracts for major weapon systems, the large items, the multibillion dollar programs, and only a handful of companies are around to actually produce and deliver such major end items,” said Berteau.

He said part of the reason for consolidation stems from smaller companies needing a source for funding. The push for bigger companies to merge with smaller ones happens, in part, because those companies have to fund their own products from research and development to production. The change over time has been away from government funding and toward private funding as companies sought commercial markets for their products and independence from DoD.

“Thirty years ago, we talked about innovation and dual-use technology from the point of view of it was developed by the government and DoD and we were trying to spin it out to the commercial world. Now it’s much more of the reverse of that,” Berteau said.

Even as big companies consolidate production in the weapons industry, Berteau said the move toward purchasing more products as services will help create a more competitive environment. In those contracts, the company owns the hardware, maintains it and provides it to the government as a service.

“It’s a very different competitive situation in the services industry than it is in major weapon systems and they are in fact even more competitive even though in reality, the boundary between products and services is much fuzzier than it used to be,” Berteau said.


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