High-wire act: How to unify research and procurement with a tight budget

Olivia Letts & Stephen Rodriguez

Former Google CEO Eric Schmidt told Congress: “The [D-efense Department’s] pr-oblem is not innovation, but innovation adoption. Its outdated, industrial a-ge budgeting process creates a valley of death for new technology, allowing basic research and also procurement of weapons systems, but preventing the flexible investment needed in prototypes, concepts, and experimentation of new concepts and technologies like [artificial intelligence].”
In his statement, he succinctly addressed the tension that appropriators face: To address American natio-nal security priorities, sho-uld more funding be directed toward research or procurement?
The Biden administration appears to be actively grappling with this reality. On March 3, it released the 24-page Interim National Security Strategic Guid-ance, which emphasizes the “responsible” use of US military forces — which could be read as an intent to reduce the defense budget.
However, harsh geopolitical realities may make this difficult. This is borne out by the fact that the Biden administration has not signaled that it intends to kill the Pentagon’s “slush fund,” known as the overseas contingency operations account, which has over the years added up to some $760 billion to baseline defense budgets.
One of the most important priorities for the Biden administration should be to counter threats through significant investment in Dep-artment of Defense procurement and research, wh-ich are said to comprise the “modernization” accounts. This holy trinity of defense is itself a balancing act between modernization, re-adiness and force structure.
Procurement funding has historically been higher than research funding, but recent years have seen funding declines in procurement, while the budget for DoD research has increased. This makes logical sense from the confluence of both fiscal and national security standpoints. US adversaries, aware that they cannot match the strength and size of the US military, have themselves turned to aggr-essive modernization programs to challenge Americ-an military supremacy. The dilemma policymakers face is what to procure and w-hen to capitalize on the successes of long-lead research programs to head off serious national security threats. Following a letter to President Joe Biden from House Republicans urging a 3-5 percent increase in the defense budget to strengthen modernization efforts, Chairman of the House Armed Services Committee Adam Smith has stressed the importance of how — rather than how much — money is spent.
Trimming procurement funds could actually be a reasonable strategy, so long as the administration makes the most of the budget, ultimately buying more for less money. This could be accomplished by cutting excessive legislation and bureaucracy, contracting using commercial terms and conditions, and streamlining duplicative audits and compliance requirements. Such steps would save billions of dollars, increase competition and speed up acquisition time.
Whatever funds are saved in these efforts will gradually free up more funds to invest in research accounts. It will help the United States to stay on top of cutting-edge innovation trends in the defense world.
If the first defense budget request of the Biden administration indeed prioritizes the Pentagon’s modernization accounts, with a particular focus on the research appropriations budget lines, it should also be strategic about how it chooses to fund each of the eight research budget activities. Several of these activities are in need of revitalization to better align with the Biden administration’s proclaimed national security priorities.
The first three activities, which are considered the science and technology part of the budget, have seen relatively stable funding in the past few years. But funding for systems development and demonstration has dropped significantly, which is an ineffective strategy for a productive defense modernization strategy. In effect, it means that new programs will take longer to move into and through the stage at which existing technical knowledge is levied to meet near-term operational needs.
This creates a yawning gap as more mature programs are rushed to the later stages of the defense acquisition system and into operating units. Such a lack of prototype testing and development is often due to efforts to mollify impatient congressional stakeholders who would like to field major capability programs before they are ready.
The results can likely lead to cost overruns due to rework requirements, safety issues and products that are insufficiently suited for their purpose. The net effect of these delays and gaps is that the future success of the heralded “Third Offset Strategy,” designed to counter many emerging threats, is in doubt.
Should the Biden administration pursue major defense budget cuts, budget austerity does not have to connote a collapse in defense technology innovation. Despite major defense budget cuts in a post-Vie-tnam War era, 1970s res-earch investments laid the groundwork for technologies that underwrote the further acceleration of Am-erican military superiority, from smart precision munitions to networked capabilities. This later became known as the vaunted “Second Offset Strategy.”
Whatever direction national discussions take regarding the prioritization of procurement versus research, success in the face of new national security threats hinges on how the Department of Defense spends its money. This me-ans making decision cycles more streamlined and efficient as well as pruning numerous, poorly performing legacy procurement programs. The extra funding resources that would be freed up as well as the careful balancing of funding research budget lines is the best “bang for the buck” for countering threats to US national security.
Olivia Letts is an associate at One Defense, wh-ere Stephen Rodriguez is managing partner. Rod-riguez is also a senior adv-iser at the Atlantic Coun-cil.