Congress is withholding funding from the Defense Department’s controversial Silicon Valley-based guinea pig until the Pentagon can provide answers about its future plans.

The Defense Innovation Unit Experimental (DIUx) has been a source of contention since its conception last summer, especially after it stumbled out of the gate before picking up steam.

But despite awarding $36 million in contracts in 2016, Congress is still skeptical of DoD’s attempt to court small technologically savvy businesses.

The 2017 defense authorization bill fences off funds from DIUx until DoD can provide Congress with a detailed report on the hub.

The bill withholds 20 percent of DIUx’s total funds, 25 percent of DIUx’s operation and maintenance funds and 75 percent of its research and development funds until the report is filed.

DoD requested $45 million for DIUx in its 2017 budget.

Fencing off funds is “always used as a tool either to get information from the department or you are trying to get their attention that you have concerns that you think [DoD is] not fully satisfying and it’s a way to highlight it to senior leaders’ attention because presumably if there is a fence on money, the leadership of the department becomes aware of that … in the case of DIUx, it’s going to go to the [defense] secretary,” said Andrew Hunter, a senior fellow at the Center for Strategic and International Studies.

DoD’s homework for Congress in order to free the funds consists of a charter and mission statement for the unit. Congress wants to know staffing requirements and the number of military and civilian personnel provided to support DIUx.

The bill also asks DoD to provide policies and practices that show how DIUx best supports the Pentagon, that includes metrics for effectiveness, the treatment of intellectual property and justifications for expansions of the unit.

Congress’ request for a report stems more from concerns over DIUx’s organization than its progress so far.

Congress “expresses a significant hesitation and reservation about the impact of DIUx and whether it’s structured to actually affect what it says it’s going to effect. There has been a considerable strain of skepticism among members of Congress that DIUx is organized and structured and has the right plan that it promises can bring new entrants to the defense market to the table and then most importantly that it can actually deliver on bringing new technology where it matters, which is to the warfighter,” said Katherine Blakeley, a research fellow at the Center for Strategic and Budgetary Assessments.

The conference report stated the “conferees remain cautiously optimistic” about the structure of DIUx.

The conference report stated the signers of the bill are concerned that as DoD tries to do something new with DIUx, defense leaders have not taken the time to figure out the best organizational structure for the unit before expanding its resources. The report stated Congress doesn’t think DoD postured DIUx to be successful with partners across the department in “finding ways to multiply the effectiveness and networking potential of DIUx by leveraging the personnel, expertise, authorities, and resources of existing successful research, development, innovation, and tech transfer mechanisms.”

Hunter said Congress’ concerns are not about the idea of DIUx, but whether it has a well-thought-through long-term strategy for success.

“I think that’s a reasonable concern for Congress to have. Withholding 20 percent of [the total] money it shouldn’t be too challenging for the department, at least to write a report, whether they are going to be able to come up with a really fantastic long-term plan for success in that period of time is a little harder to tell … it will compel them to do some thinking about who is DIUx really serving and how and how does it fit into the bigger picture of trying to get innovation into the department,” Hunter said.

Raj Shah, the leader of DIUx, said in the past, he’s welcomed congressional criticism and thinks they have a right to make sure DIUx is a good steward of defense dollars.

Ben FitzGerald, a senior fellow at the Center for a New American Security, said Congress’ challenge could actually end up being a good thing for DIUx.

“It’s an effort by Congress to force DIUx and DoD leadership to rapidly move their formal planning efforts forward, which is not a bad thing,” FitzGerald said.

Continuing Resolution

Congress is trying to pass another continuing resolution by the end of the week. A continuing resolution keeps the government open, but it also prevents any budget increases from going into effect.

DIUx is currently funded at $30 million, but to get the $45 million DoD requested, Congress needs to pass the defense appropriations bill.

Whether that will have an effect on DIUx’s ability to build on itself remains unclear, but FitzGerald seems to think the unit can survive with scant funds.

“I’m less concerned about the money,” he said. “Often when we do this sort of analysis in Washington we look at dollars and cents and any sort of decrease in funding is seen as a lack of endorsement. DIUx’s budget is relatively humble anyway and we have seen that they have been successful in the past six months in terms of funding new starts. For every dollar DIUx spends on something they bring in $3 of additional DoD funding from one of their partners.”

That funding comes from DoD organizations like the Army or a combatant command. But under continuing resolutions, new programs cannot start as well.

“The bigger concern will be the impact of a continuing resolution on DIUx’s ability to execute new contracts and start new projects,” FitzGerald said. “If they don’t have the ability to do that, then they won’t be able to show what they can do and then there will be ongoing concerns about their ability to execute, which wouldn’t be a function of their management or their strategy or their potential, but simply a fact of life with a [continuing resolution].”

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