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Maggie 00:36

On this episode of the Techquisition Edition of the Mission Matters podcast, we’re back with another emergency pod. On September 30th, just last week, Secretary Pete Hegseth signed a memo titled Project Agincourt, Pathway to the Autonomous Warfare Command. It lays out a plan to stand up a brand-new functional combatant command built around autonomous warfare. This has not happened in a very long time, so David and I wanted to break it down quickly to explain what this means, what a combatant command is in the first place, and how all of this is going to be affecting startups.

David 01:13

Certainly a way to end the fiscal year with a bang, and the name is not so subtle. The Battle of Agincourt was in 1415, where outnumbered English longbowmen with cheap, massed ranged weapons cut down the heavily armored French knights, the exquisite platform of the day. And if you’re wondering what the department thinks about a swarm of attritable drones and what it can do to a hundred-million-dollar platform, well, there’s your answer.

Maggie 01:42

If you listened to our episode on the DRPM UXS — that is the Direct Reporting Portfolio Manager for Unmanned Systems — this should feel like a continuation of a familiar theme. In fact, it is the DRPM UXS who is leading Project Agincourt. Establishing the DRPM UXS centralized how the department buys unmanned systems, but Agincourt is really about how we’re going to fight with them.

David 02:07

Exactly. But before we get to the memo, we need to level set. What exactly is a combatant command, and how is it different from a service? Who does it report to? What kind of authorities and responsibilities do they have? And when was the last time the Pentagon actually created one?

Maggie 02:24

To help explain what it will take to stand up this new combatant command, and whether we should be standing one up in the first place, we’re joined by Bill Greenwalt.

David 02:33

Bill is a friend, but he’s also a senior fellow at the American Enterprise Institute. And if you’ve read anything about acquisition reform of the last twenty-plus years, you’ve definitely read some of Bill’s work. He served as a Deputy Under Secretary of Defense for Industrial Policy, and he spent years as a professional staff member on the United States Senate Armed Services Committee under John McCain, where he shaped much of the acquisition reform legislation that we enjoy today. And he’s also worked in industry on the other side of the table. And then finally, he co-authored Competing in Time with Dan Patt, which every founder in this space should read.

Maggie 03:13

But before we bring in Bill, let’s level set with a quick primer on combatant commands.

David 03:19

All right, Maggie. Combatant commands. The simplest way I can say it: the services raise the force and the combatant commands fight with the force.

Maggie 03:29

Right. So the Army, Navy, Air Force, Marine Corps, and Space Force organize, train, and equip. They recruit people, they run budgets, they buy most of the stuff that soldiers fight with, then they hand those forces to a combatant commander who actually employs them in combat. So if we look at the war in Iran, CENTCOM Commander Admiral Brad Cooper — he’s a four-star admiral — he’s in charge of actually directing troops in theater, telling them when, where, and how to fight. But CENTCOM did not hire the soldiers, train them, or buy any of the equipment that they’re fighting with. They did not buy the aircraft carriers, ships, fighter jets, munitions, et cetera. That is the responsibility of the services, the Navy, Air Force, Army. The combatant command structure as we know it today was established by the Goldwater-Nichols Act back in the 1980s to ensure that US forces fight as a single joint force under one commander, rather than as separate services all coordinating by committee. Congress passed this act after there were a string of failures in Vietnam, Iran, Beirut, Grenada, that showed that service rivalry and divided command were actually costing lives and missions. In some of these failure cases, different services weren’t even able to communicate with each other during the conflict, which led to some serious combat failures.

David 04:52

Absolutely. I feel like you’re bringing me back to my ROTC days where we learned about military history. But staying on theme, we have 11 combatant commands today, and there’s a difference between them. We have seven that are geographic, so they own a piece of the map. You know these as AFRICOM, CENTCOM, EUCOM, USPACOM, NORTHCOM, SOUTHCOM, and SPACECOM. So note SPACECOM is not a functional command, as space is considered a geographical area starting at 100 kilometers up, otherwise known as the Kármán Line. Also, SPACECOM should not be confused with Space Force. As Maggie already stated, Space Force is the service — the organize, train, and equip. It trains and hires the guardians, and they buy the satellites. But SPACECOM is the warfighting command in charge of actually directing an operation in space. So Maggie, why don’t you tell us about the functional commands, the non-geographic combatant commands?

Maggie 05:52

Yeah. So in addition to these geographic commands that control parts of the globe, we have four functional commands which each own some mission that cuts across every geography. So we have SOCOM for special operations, STRATCOM for nuclear deterrence, TRANSCOM for actually moving things all around the world, and then CYBERCOM, which is responsible for cyber operations.

David 06:16

And so what about the chain of command? Well, it’s really flat. You have the President, the Commander-in-Chief, and then you have the Secretary, and then you have the combatant commanders. And some might ask, well, what about the Chairman of the Joint Chiefs of Staff? Well, the Chairman advises, but they are not actually in the chain of command during an operation.

Maggie 06:37

And that’s the same with the service chiefs, right? The Secretary of the Army, Secretary of the Navy, they advise, but they do not actually command as part of a chain of command. Typically, a functional command — CYBERCOM, SOCOM, et cetera — will be supporting geographic commands during an operation. So there’s only ever one commander actually in charge. Again, if we think about what’s happening in Iran, CENTCOM is the commander in charge of the whole operation, but then we have functional commands in the chain of command providing operational support. So Cyber Command supporting cyber operations, TRANSCOM supporting mobility, and so forth.

David 07:14

And it should be noted that Space Command did employ some operations in the very early days of the conflict with Iran. And so for founders, there’s some additional nuance that not all functional commands are created equal. Some have special authorities. For example, United States Special Operations Command, or SOCOM, actually operates quasi as a service. Like the services, they have their own budget line, otherwise known as Major Force Program 11, or if you’re down in Tampa, they just call it MFP 11. They also have delegated acquisition authority, so you might be familiar with SOCOM Acquisition, Technology and Logistics, so SOF AT&L. They have their own program executive offices, not so dissimilar from the services. With TRANSCOM, it’s a little bit more of a contrast, but they kind of operate like a business. Congress does not appropriate a budget line to move things around. Instead, TRANSCOM runs off of what’s called a working capital fund, or in the case of TRANSCOM, TWCF, TRANSCOM Working Capital Fund. The services, when they need to move things around, or the other combatant commanders, they actually pay into this TWCCF fund, and then that’s how TRANSCOM pays for the gas and the people and the aircraft to move parts and people around. So when EUCOM asks for an armored brigade, the Army operations and maintenance account pays TRANSCOM to move it there. And finally, for CYBERCOM, they’ve slowly but surely been earning their own budget control. They have some acquisition authority, though they primarily rely on the services for that organize, train, and equip.

Maggie 09:03

So the last time we stood up a functional command from scratch was in 1987, where both SOCOM and TRANSCOM were stood up. Notably, STRATCOM and Cyber Command were created later, but they were basically rebranded earlier organizations that already existed, so they were not really created from scratch. It’s also important and interesting to point out Congress actually established SOCOM against the Pentagon’s wishes, and gave them that additional acquisition authority against the Pentagon’s wishes.

David 09:35

All right, so hopefully now everyone can take credit for some professional military education after this synopsis of combatant commands. Let’s get in with our subject matter expert. All right, with that, it’s a huge welcome to Bill Greenwalt. Welcome to the Techquisition Edition.

Bill 09:54

Well, thanks for having me, David and Maggie. I really appreciate being on, and hopefully we can have a great conversation here.

Maggie 10:02

Yeah. So Bill, first question. What was your reaction when you read this memo? What jumped out to you?

Bill 10:10

Well, my first reaction was I thought of Ukraine. And I thought of a recent Wall Street Journal interview with the commander of Magyar’s Birds, which was about a week ago, in the Wall Street Journal. And in that interview, Major Brovdi stated that something fundamental has changed about the threat that requires institutional changes to Western militaries. And he talked about creating an ecosystem for drones, and that the Western acquisition system is currently incapable of doing that. He criticized us as being too focused on building the best drone and putting it on the shelf, versus what is in essence serial, iterative, operational prototyping deployment that I’ve been trying to make the foundation of time-based acquisition now for over a decade. So when I saw this memo, I said, this is potentially a first step to really doing that. Maybe we’re actually going to get this right. And the Pentagon seems to be channeling and maybe trying to learn the right lessons from Ukraine, that the US needs an ecosystem for autonomy that is completely different from our current, sclerotic acquisition system. So there were a lot of positive thoughts I had when I first read it.

David 11:36

So Bill, with that, maybe walk us through what the memo actually directs. Are we establishing a command now, or how does that come to be?

Bill 11:47

Not yet. They’re establishing a pathway. So this is aspirational — the aspiration to create such an entity. And so the Direct Reporting Portfolio Manager for Unmanned Systems is tasked to lead the effort and to create this framework for a four-star command. Much of this will need legislation, but it’ll also need the department to think through how it wants to do this. And so I think this is the start of the thinking of what this entity is going to look like. They wanted to possess directive manpower, budget, acquisition authorities, and create dedicated career pathways for officers and enlisted personnel. So I think they’ve got the ideas, and frankly, Congress has actually already put some of this framework out there, so it’s also reacting to that. So we can talk about that a little bit later as we go.

Maggie 12:47

Yeah, in a previous episode a couple months ago, we did discuss the DRPM, Direct Reporting Portfolio Manager for Unmanned Systems, which was really designed to centralize the coordination of acquisition of unmanned systems under the Deputy Secretary of War. So how should we think about this autonomous warfare command compared to the DRPM? And similarly, how does it compare to some of these other initiatives like JIATF-401 — that’s the Joint Interagency Task Force 401, focused on counter-drone capabilities — the DAWG, the Defense Autonomous Working Group, each of which has tens of billions of dollars requested in the President’s budget request?

Bill 13:24

Yeah. I think I’m looking at this more akin to DRPM and such being the Space Development Agency, and the creation of Space Command in 2019, and a lot of what Will Roper was trying to do from the Air Force at the time. So there was the beginning of trying to figure out how to change acquisition to take advantage of these acquisition authorities in space, and they knew they needed someone outside of the bureaucracy to go faster, and a different culture needed to be established. And I think there’s an understanding that you need to marry up acquisition authority and budget, flexible budgeting, and then most importantly, the operators who are going to drive the requirements and provide the real-time testing and feedback to really make a serial, iterative, operational prototype system actually work, and that’s time-based. I kind of look at the Joint Interagency Task Force and the DAWG — they’re the money pieces that eventually have to pull in the concept. But the important part here is the operators and the acquisition side of the house, and I think that’s what they’re trying to do here. At least I hope that’s what they’re trying to do here.

David 14:46

Yeah, I think that’s right. And the way I have also been thinking about it as a functional combatant command interacting with the geographic commands: they’re submitting their capability gaps, right? Their integrated priority lists, the requirements. They’re clearly not satisfied with what they’re getting. I think Admiral Paparo is on the record for saying, I’m not getting any of this autonomous stuff out into the field. And so instead of submitting it directly back to the services, and then the services pick and choose amongst each other what activities they’re going to work on — ideally coordinated — what I’m sensing is that this will now be the combatant command that is testing, iterating, giving direction to the services on what to buy through the DRPM, and then getting it out there to each regional combatant commander based on prioritization of needs and efficacy of capability. So I’m almost seeing it as more of a centralizing force around this critical technology area that we know is necessary based on the results from Ukraine and some of the issues we’ve been experiencing in Iran.

Bill 16:11

This is a long-standing issue and problem, working the seams of the operators and the acquisition and budget system. And from my time on the Hill, we debated a lot on how much authority — how can we solve this? Can we bring in acquisition authority to the combatant commanders? And several decades ago, we gave it to the old Joint Forces Command, and that was the idea of how can we do experimentation and prototyping and actually get capability to the combatant commanders faster? Getting rid of Joint Forces Command got rid of the authority. Obviously, SOCOM and Cyber Command have gone forward on this model. But there’s this need to how do we get the requirements that are coming out of the geographic commands and get capability faster? JCID reform is designed to do just that. In other words, to bring in and start with experimentation in the geographical commands to drive new capabilities. And I see this as one functional way to do that, but there is a lot more that can be focused on to try to solve this disconnect between the urgent needs of the geographic combatant commanders and what is actually being produced in the acquisition system, which is frankly not meeting their needs.

David 17:46

Not fast enough, not enough of it.

Bill 17:49

Yeah, exactly.

David 17:51

So maybe, slightly switching gears. I’ve had the pleasure of being at Defense Innovation Unit and helping get it stood up. I’ve been in the Pentagon taking over a program that had a $5 billion budget and zero validated requirements, and working through the bureaucracy. But I’ve never had the pleasure of being boots on the ground at what would be the designs of the next combatant command. Bill, maybe from your storied history, both inside the department and as a professional staff member — what does it take to actually stand one of these up? Is it just a memo and a go-do and a POA&M, and now you’re off to the races?

Bill 18:33

Well, it’s got to start that way, but the reality is you need money, and of course you’re going to need Congress to pay for it, whatever it is you want to do. First you’ve got to figure out what you want to do, then you’ve got to figure out how you’re going to budget for it, and Congress needs to pay for it, and give really tacit approval and buy-in through the authorization and appropriations laws. So you’re talking time right there. And then when we start talking about acquisition authority, that’s not something that has been given freely to the geographic and functional commands. There was a huge debate on SOCOM decades ago. Cyber Command started off with a $75 million authority in 2015, 2016, when I was there, tried to bootstrap it and create this. So yeah, it takes a long time. You need staffing, you need personnel. All the problems you had at DIU at that level just magnify 100x.

Maggie 19:57

You brought up this piece around acquisition authority, and I know the memo stated, quote, “This command will possess directed manpower, budget, acquisition authorities, and create dedicated career pathways.” This seems reminiscent maybe of SOCOM’s acquisition authorities. SOCOM of course has its own money and acquisition authority under 10 USC 167. Does an autonomous warfare command need this kind of authority to matter?

Bill 20:23

Absolutely. I think this is going to be critical, because the services’ processes — budget, acquisition, and requirements — are just too slow to turn the cycles that are necessary for what we’re seeing in Ukraine. I think we really need to look at how the Ukrainians are doing what they’re doing. And that’s why I said that’s the first thing that hit me here, because they need to iterate and bring out new capability based on what the warfighter is seeing in days, perhaps in hours — not in decades or years. And not buy a bunch of capability, put it on the shelf, and wait for something to happen. They have to do it now. And we have to get into that mindset. And so what that mindset means is: here’s an operator doing something, here’s the requirement that’s not working. I need to turn to my contractor who’s sitting right next to me and make sure that that contract is getting paid to do this, to then put in the next iteration incredibly quickly. That’s not a model that we’re used to. We can do it, but it’s not a model we’re used to, and I think that’s what has to happen. And they have to have acquisition authority to do that, and put a lot of contractors on essentially speed dial, and various other transactions approaches and things like that to really make this work.

Maggie 21:58

And where do you expect these resources to come from? Of course, the budget has to come from somewhere. The people and billets and HQ all have to come from somewhere. Is this the services going to have to give this up, or are other combatant commands going to have to give something up?

Bill 22:12

In a static budget, that is absolutely right. It has to come from somewhere. And we can talk about whether we’re going to have a static budget or we’re actually going to have an increase, which you can then do more things with. But still, talent, while it may be fungible, there’s a limitation on it. And so you’re going to have to figure out how to bring the right kind of talent from wherever it is, and that’s obviously going to hurt someone who enjoys having that talent working for them. And so if we had an unlimited amount of personnel resources, that’d be great, but it’s not just billets. It’s like, who are the qualified people who can actually think this way and can work with the culture here? And they are probably in the current system few and far between. And so that’s going to be a real challenge when they set this up.

David 23:08

Yeah. When we talk about budget authority — so it seems like a lot of what the DRPM Unmanned Systems is planning on leveraging is the President’s budget request that the DAWG put forward, $54.6 billion. Most of that money is in reconciliation. It doesn’t look very promising for the — what, $350 billion reconciliation package to get through, especially with the midterms barreling down. So how is this gap going to be received on the Hill? Putting your professional staff member hat on, we’re all seeing the lessons learned of Ukraine and Iran. We know we need to move here, but shoot, now we’re in a continuing resolution, so we’re stuck to the spend from the previous year’s budget, and that was at $1 billion for the DAWG, and they’re trying to get to $54 billion. Something’s got to give. So how does this get resolved between the Pentagon and the Hill?

Bill 24:14

So the first thing I will say is that at least on the authorization side, in the Senate, because of Section 917 in this year’s bill — which essentially authorizes this type of command, this four-star command, or they call it, I think, Robotics and Autonomy Command — many of the principles from Secretary Hegseth’s speech are already in this year’s NDAA, at least on the Senate side. Now, we’ll see what the House thinks about it. And that to me will be an interesting thing in Congress, in conference on this year’s bill, if they get to an NDAA. Because there have been a lot of individuals who think that maybe this is the year the NDAA stops. I’m a little more optimistic, but it might take a while to get there, let’s put it that way. So that’s on the authorization side. So maybe we’ll see limited acquisition authority. In the bill, there’s a provision for limited acquisition authority at $20 million. That’s not sufficient, but it’s a start. And so the Pentagon and the Congress can actually work together to massage this particular provision. But none of this is going to work without flexible money to move within year of execution onto things that work, and move money away from things that don’t work. And the one benefit of the large pots of money in the reconciliation process is the flexibility inherent in those pots of money. And so a lot of this is going to kick back to the appropriators, and it’s going to kick back to whether the appropriators are willing to allow such a thing to happen. And if they don’t, they will essentially be subjecting the United States to technological inferiority and put us behind. And so this is a staff issue with the appropriators, and they have to get their arms around what they want to do in this particular area. And I don’t know yet, because they have not been forthcoming on where they really want to go and how they want to actually deal with the way technology is moving ahead.

Maggie 26:50

You’ve written for years about the importance of speed and competing in time. Do you see this new four-star command as a speed play, or is this just going to add more bureaucracy?

Bill 27:01

It can go either way. It really can go either way. I do think that the rationale for doing this is because the services have failed. This is an indictment of the services. This is an indictment of the acquisition system, the requirement system, the budgeting system, that we cannot do this. We cannot succeed in this without doing something different. And so I applaud the Pentagon for doing this, but I also applaud the US Senate for considering this as well, because this is something that is really needed. We need to focus on this area. Now, without agile requirements, without agile budgeting, without agile acquisition, this will be a bureaucratic nightmare, okay? And so they need all three of those. But having a central commander to do this, who’s working with the operators in the field to essentially bring this to fruition — it has a shot. And if they think through not in long-term, five-to-ten-year major systems acquisition, but in terms of near-term, rapid, serial, iterative, operational prototypes, minimal viable product that serially improves based on warfighter and operator input, they have a chance, because that’s what time-based acquisition is all about.

Maggie 28:38

So I want to turn to a question around the pros and cons of this, and let’s start with the cons. What are going to be the critiques of this kind of approach? Why might a geographic combatant commander or a service chief or someone on the Hill hate this idea?

Bill 28:51

Because it gores a lot of oxen. The traditional acquisition system — and budget system and requirement system — is the source of many, many jobs and many important positions of power. And this is designed to go completely around it. That’s what all acquisition, budget, and requirements reform is all about: going around those institutions that all they do is suck time and do not support the warfighter. But they live because they support the individuals’ jobs and self-esteem and power structure who are in them. And we have to change it. And so you’re going to hear all sorts of antibodies. Oh, this is going to — well, we’re not testing, we’re taking on too much risk. And risk is something that just scares everybody around here. Well, risk — we’ve got to throw at least five more years on time to make sure that we de-risk the whole thing. So I think you’re going to see that. But again, I have to applaud the Pentagon for trying something, just as they did with the Space Development Agency, which I think they then created problems in its implementation. Just as they tried in DIU, which I thought was a great operation, and they’ve still done things to slow that down and haven’t implemented it the way it should be. So yeah, this could end up in an implementation purgatory, but we need to try it, and we need to move forward. But yes, there’s going to be individuals in the command saying, oh, this is just another seam I have to deal with, another bureaucracy, just give me the money and I can do it. The services obviously, because this is an indictment of their inability to do something, are not going to like this. Congress, the appropriators, may not like it because it takes away from flexibility. They would rather essentially do something in ten years if they’ve had complete control over it than do something in the year of execution that actually helps the warfighter. That’s the indictment of the system we have to deal with, and we have to change it.

David 31:09

Yeah. One thing that always does bother me, though, when we stand up new organizations is we don’t actually apply the remedy. It’s an indictment of the status quo, but we don’t get rid of the entity that isn’t getting the job done, or we don’t call them out in the memo. So even with the standing up of a new four-star command — you’re elevating and shining a light on a systemic problem, which is we cannot get mass autonomous capability out to the operational warfighter, but we’re not getting rid of the thing that was inhibiting it in the first place. And whether that is the structures of the various commands, or a specific office, I don’t know. So Bill, you’ve been inside these discussions. Is it possible to get rid of legacy organizations that are in the way, and thus requiring us to work outside the system?

Bill 32:18

Perhaps we need an organizational BRAC. But no, it’s incredibly difficult. And the whole premise — and it may be the wrong premise — behind reformers is, if you stand up a new authority, if you stand up a way to go around the system, the reformers will move to that system, and the other part will atrophy and die. The problem is, that other part does not atrophy and die. It actually sees itself as existentially in jeopardy, and therefore does whatever it can to kill the new authority and to kill the new way of doing business. And this is a leadership problem. Leadership has to essentially DOGE it, okay? And the Pentagon is not ready to essentially bring in DOGE, or something like it, and start trimming away at the fat. And the fat is actually very productive, in a sense that they can justify they’re doing something. But they’re doing something that is not achieving the effects that we need. It’s not at speed. It’s not supporting the operator. We should be looking at everything as: is this supporting the operator today and in the future? And if it doesn’t, we should probably get rid of it. But that’s something that the Secretary and Congress need to really try to address. And it’s going to be hard, because these are all about jobs, money, and current power over the system.

David 34:03

Yeah. So Bill, we are a podcast that’s geared towards helping founders navigate this very complex system, trying to make it simple for them. Personally, I think that bringing in this new joint force command, aligning it to the unmanned systems DRPM — which is all about leveraging, in a lot of cases, venture-backed technology. If I’m a founder building autonomy software or systems, does this change who my customer is? Or what are the signals I ought to be looking for so I can plug into this?

Bill 34:44

I hope it does. I hope it’ll change who your customer is. And the reason for that is — the test of this is, are the founders, the entrepreneurs, the contractors being asked to come in and work side by side with the operators? Not the acquisition folks, not the prime contractor, not the FFRDC, not the systems integrator, but the operators, to essentially achieve what they need to do. I think when that happens, we will have success. But if we’re going through three or four chains to get to the operator to find out what it is they really need from Silicon Valley, or from autonomous drone companies, or from the commercial marketplace, we are failing. And that is what we do constantly on a daily basis, because we are not getting to the core of the problem. Again, that’s what JCIDS reform was about. The services haven’t even started to do that. We need flexible money to put to those problems that the operators are driving. We are not close to doing that. We need time-based acquisition that supports that. When your guys see that yes, we’re using other transactions in a commercial way, in a time-based way to essentially buy things and iterate the same way that the commercial marketplace does, then yes, we’re having success. But until that happens, we’re just going through the motions, and frankly, we’re wasting a lot of money, and putting ourselves in jeopardy, because we think we’re doing something, and we’re really not.

David 36:37

Amazing. I agree with you. And I think also, if I’m a founder, one thing when reading some of the documents — which I would assert as the tea leaves for where the department is going — if you read the DRPM UXS, which is all about autonomous capability, which is obviously aligned with this command: in it, it calls out Defense Innovation Unit as sort of the commercial liaison to industry. So they’re the ones that are expected to be engaging with the best in breed of what commercial technology can provide. And then you recognize that the former director of DIU, as of the other day, Owen West — who was critical in standing up the drone dominance program during his time leading the department’s DOGE efforts — he’s now been elevated specifically to the DERPM-UXS CEO-type role. And if you assume that the DERPM-UXS is going to be tightly aligned with this new autonomous warfare command, it feels like DIU is in a way getting elevated to be able to support this maturation of technology. So I feel as though if you’re a founder, yeah, you need to look into the budget line items, but I would be very keen to checking out the solicitations coming out of DIU or associated with DIU.

Bill 38:16

Agreed. And even more importantly, my criticism of DIU over the decade-long history is, we need to scale that. In other words, it can’t just be we’re doing a bunch of science projects and we’re getting some capability that’s not essentially getting out there. We need to use production OTs in the way that they’re supposed to be used, at high levels, and get the acquisition people to stop doing FAR 15, designing and managing these companies like they’re Lockheed Martin, but essentially treating them like the commercial companies that they truly are. And DIU needs to lead that charge, but understanding that they’ve had to go to the services before this. In this particular function, they can go to a different pot of money, and that might actually succeed, because the services are just not willing to scale up on these things. And we haven’t seen the success of DIU because the services — again, culture is broken. This is a bigger issue as far as where should acquisition authority go. Ten years ago, we tried to decentralize to the services, thinking that the centralized bureaucracy of OSD was just keeping innovation from happening, and they had their chance, and they blew it. They absolutely blew it. The service chiefs were given responsibility. Major acquisition authority was devolved to the services, and frankly, their culture just couldn’t deal with it. We’re seeing the same thing in requirements, and this department needs to reevaluate all that. We’re probably looking at another centralization trend. But the question is whether they can get centralization right. And I look at this as another centralization movement, and it’s all because the services have failed in their ability to manage and to take advantage of new technologies and the trends that are out there. And I hope that they can actually get their act together, but I’m not confident that they will.

David 40:30

Yeah. I agree with you. I would say that the standing up of all these DRPMs is essentially putting the services in receivership mode, where they no longer control the milestone decisions around the major programs of importance. You look at what General White from the Air Force leads under his DRPM, and he’s reporting directly to the Deputy Secretary of War, General Gutelein. When you think about some Space Force and Missile Defense Agency type activities, and then the DRPM for subs — the list goes on and on, and now we’ve got this new one with unmanned systems. I think you’re spot on. Of course, I remember coming into the services, into the Air Force as an acquisition officer way back when, and every major decision program was reporting up through what was then AT&L. And then it was divested. Maybe what’s old is new again. Well, Bill —

Bill 41:35

This was Senator McCain’s vision, to break up AT&L, to decentralize, to give the services — I mean, he trusted the Navy. He trusted that they were going to do the right thing, and they didn’t. And so what we’re seeing now is the split of AT&L into R&E and A&S, essentially our principal staff officers to the new AT&L, which is the Deputy Secretary of Defense. And so Congress doesn’t need to change it. They don’t need to resurrect AT&L. They have to understand that AT&L now exists at the Deputy Secretary’s office. It’s a different world, and it’s being centralized. And it’s a very interesting new phenomenon.

David 42:16

Yeah. Agreed. Well, Bill, we’ve definitely enjoyed having you on with us. It’s always a pleasure for me to get to talk to you. I don’t get to do it nearly enough, but I do get to read your awesome work. So for anybody who loves Bill’s verbal words, you’ll love his writing even more, so go check out his work at AEI, or just type in his name, Bill Greenwalt, and it’ll come right up. But we’re starting a new tradition here at the Mission Matters Techquisition Edition podcast. We want to have a bit of a sign-off question. So you’re our first guinea pig on this, but you won’t be our last. If you were king — had king authorities as the Secretary of the department — what is the one thing that you would want to do? And Maggie and I are going to keep a list of this and continue to publish it over time and see if these are truly the needed remedies.

Bill 43:15

So last year I would’ve told you kill JCIDS, because that’s what Dan Patt and I recommended, and the Secretary did. So this year I will say kill the PPBE process. It’s in the authority of the department to do that. They can formulate the way they want to do the budget in any way they want to. Congress can reject it or whatever — that’s up to them. But the process is driving so much bad behavior in the department. It’s a 50-, 60-year legacy of centralized planning. They should move off of it. And the first thing, if I had the ability to be king for the day, would essentially be to go to the Comptroller’s office and say, it’s over. And maybe put that level up to the Deputy Secretary, I don’t know, and start over with a new budget process.

David 44:09

Well, it was Secretary McNamara who gave us what was then PPBS, now PPBE. And his other major thing that he did was oversee the war in Vietnam. That wasn’t very successful. So are you saying the two might be related?

Bill 44:28

I’ll even say that this process came from the Ford Motor Company that Mr. McNamara had run into the ground after that. So yes, no one has a process like PPBE. Nowhere in the world — maybe the North Koreans do, I don’t know. I’m not an expert in North Korean budgeting. But it doesn’t exist anywhere, for a very good reason. And we should basically adopt a different process, and adopt the flexible authorities that the other agencies in the US government have that DoD does not. And that’s the one thing that came out of the PPB commission — how many flexibilities, many of them self-imposed, that the department puts on itself. And for those that are not self-imposed, it should go to Congress and say, why does the Department of Homeland Security have this? Why does the Department of Health and Human Services have this other authority? Why does NASA have this that we don’t have? And frankly, if the department was given the authorities that already exist out there to the rest of the government, it could essentially flexibly implement not just drone dominance, but a lot of other dominance as well.

David 45:46

Okay. I think we know exactly who the right man to implement that job is.

Bill 45:51

If only I could. It would be great.

Maggie 45:54

Well, Bill, thank you so much. This was fantastic. It sounds like there’s a lot more work to be done to stand up this new combatant command. There’s probably a fight ahead of us over people and money and authority. But it sounds like if this is successful, it could really push the needle on the adoption of autonomous weapons systems for our warfighters, and make us more competitive on the geopolitical stage. So thank you so much for your time, and hopefully we can get you on another Emergency Pod someday in the future.

Bill 46:26

I’d love to, and thank you very much for having me.

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Transcript

Maggie 00:36

On this episode of the Techquisition Edition of the Mission Matters podcast, we sit down with our next guest who’s spent the last several years at the Defense Innovation Unit bridging the military and Silicon Valley. Sarah Pearson is currently the director of strategy and recently launched DIU’s latest initiative called The Bridge out of stealth. The Bridge is built to tear down the barriers that keep commercial technology from ever reaching the warfighter, things like access to classified spaces, access to military networks, and access to military test ranges. Before her current role at DIU, Sarah spent the preceding five years as DIU’s commercial engagement lead, helping the organization source companies to participate on DIU solicitations.

David 01:21

Sarah represents a new model of government leadership. She started at the United States Naval Academy, and upon graduation, spent five years as a surface warfare officer. After separating, Sarah joined the private sector, first as a senior product manager at General Electric and then at Google, working on Google Assistant, before getting the itch once more for public service. Sarah, thank you so much for joining us on the Mission Matters podcast. Welcome.

Sarah 01:47

Thanks for having me. This is exactly where I wanted to sit down and share what we’re building within DIU. So I appreciate the time.

David 01:55

It is super exciting, and I think it cannot be understated some of the boogeymen that you are tackling with this Bridge initiative. but as we were sort of prepping a little bit ahead of this, like, actual recording, you know, you made it clear that this has been in the works for some time. But before we get into the exactly what’s happening, maybe just spend a little bit of time breaking down the three initiatives in your words for our listeners.

Sarah 02:27

Happy to. I think, I know you guys have an awesome pool of listeners, and I think a lot of them are the very people that frankly I wanna reach, DIU tries to reach, right? We try to find the builders, the operators that want to disrupt the system. They look at the modern battlefield, and they see their technology there, or at least they have the vision for where and how their technology can fit, but they’re facing this numerous walls, numerous barriers to try to drive those capabilities to scale. So yeah, I’m excited to be sharing this all with you. We, as Maggie shared, came out of stealth a couple weeks ago to share this new strategic pillar for DIU. Truthfully, we feel that this is akin to the CSO. When you go back a decade ago, 11 years. DIU just celebrated its, 11th birthday. It’s Owen reminded us all maybe the week before last When you go back and you look at the origin story and what you all were trying—I say you, I’m looking at David, what our early, our early folks who are leaders were doing at DIU, and then the evolution from connecting technologists to the government With investors in the mix, how do we contract? How do we prototype? And how do we wash, rinse and repeat that over and over? That took us about a decade, right? From when we had OT authority to running, I think we’ve now ran over 600 prototypes.

David 03:58

And Sarah, just to interject really quickly. So you’re talking about the CSO, the commercial solutions opening, the primary mechanism that DIU leverages to issue solicitations around projects and programs critical to various department customers, whether it be in the Army and Marine Corps, the combatant commanders. And then just to, for the audience, OTs other transaction, that’s the legislative authority for the contracting pathway that the CSO resides under. So just wanted to get our audience up to, up to date. But yes, I agree with you that what this portends to be, the Bridge, is probably just as revolutionary as what the CSO was to, you know, contracting pathways for the department.

Sarah 04:46

Thank you for defining this. David’s my go-to acquisition SME in so many ways. I appreciate that. Look, at the end of the day, I believe DIU has been engineered and is operated to break barriers. It is to look at a problem, whether it’s a problem that resides with a mission partner or a customer, in our, in our language, in commercial speak. With a customer who thinks they can only solve that problem the way that the machine, the institution has taught them to, right? DIU shows up and says, “Actually, hold on. There’s capability that exists that doesn’t leverage the resources, government-derived resources. It actually leverages private capital, and the technology matures at a rate that we don’t see within the department. Let’s go look there first and see if there’s something that we can tap into.” I mean, that culture of thinking differently and being comfortable in measuring risk, in taking on risk, that has informed what the Bridge is. So what is the Bridge? The Bridge is a platform to systemically bring down the barriers that are inhibiting our ability to scale commercial tech inside the department. Through 600 programs that DIU has run, we have had a front row seat to exactly where and why and how prototypes stop. Whether they stop at month nine because we’ve determined now we should clear the vendor, issue an FCL, a PCL clearances for the company and the people within it Or if it comes to a pause because we determined we should accredit, do some cybersecurity accreditation on the hardware or software stack, it’s inhibiting our ability to move quickly and get commercial technology validated in the hands of a war fighter and then ultimately scaled. So that is what Bridge wants to do. There’s one key thing I want to call out here, though. There’s a way to solve those problems with Band-Aid solutions There’s a way to throw money at a problem, to artificially juice a system. That’s not what we’re doing. What Bridge is driving is, yes, reducing barriers, and we’ll get into the areas, but how do we do that with institutionalization in mind? How do I ensure there is staying power to the approaches and the solutions that we bring online to reduce these barriers?

David 07:23

So Sarah, if I’m understanding, you know, after 10 years of operating, 10 years or more of operating a myriad of different projects, 600 plus, the systemic issues that are inhibiting companies from moving from the prototype phase to scaled wide adoption across the operational enterprise, you all have deduced it’s likely access to classified information, so fixation on the facility clearance process, FCL. And then the access to networks, whether they’re classified or unclassified through the authority to operate, procedures under risk management framework. And then also then the test ranges, or how do we test and evaluate technology to ensure that it meets whatever military standards that it has to. Is that correct, those three things?

Sarah 08:21

It’s correct, but I’m gonna elaborate even more.

David 08:24

Perfect.

Sarah 08:25

About a year, year and a half ago, when we were looking at this space and we said, “Hey, if we are serious about driving change and true adoption of commercial technology, it goes far beyond a success memo. It goes far beyond us validating that the commercial tech could solve a government problem. We have to test and clear and accredit.” As we were making this list of challenges, it’s long. I mean, I think our total list was around 30, 35 things were inhibiting dual use or defense tech founders from prototyping and ultimately transitioning their capability. Then as we began to quantify some of those things, like where does that really hit the pockets and the capabilities for the war fighter? And we rallied around three central themes. Theme number one, and therefore initiative number one, is not just how do we efficiently clear companies within the innovation base. Like thing one, we need to clear more companies. The bench has to be deeper. We have to have a bias to clear companies and the key personnel there sooner in the process. The second theme within the, this first bucket is then access to classified infrastructure. I mean, we’ve watched time and time again, we sign a prototype OT contract with two, three vendors for a specific program. We’ll attach DD 254s, forms that say there’s a need to know and we’re gonna take you through the clearance process We then walk the vendors through it. We’ve been giving them services, free services to help them navigate that. that, I mean, on the fast end, I think we’ve gotten one through around six weeks from when they were given 254 to when they had a full FCL TS level, I believe for that, this vendor I’m thinking of. But then we came across the challenge of, sorry, where do I, where do I actually put your engineers? Where do I have a SCIF available for you to pop in there and work? Spoiler alert, it’s not the DIU SCIF in a Conex container in Mountain View. So where and how do I put our portfolio companies to work? so a key element of this first category is changing the model for classified infrastructure, which we’ll get into more. But how do I physically put companies to work? How do I get them in the collateral, the SEI spaces, the SAP spaces, or unclass? Okay. Not overlook that. How do I get them in a space so they can be fingers on keyboard and actually deliver the capabilities that we’re buying instead of waiting 12 months to maybe slide into somebody else’s SCIF?

Maggie 11:15

Okay. So category one is really focused on helping companies get their facilities clearance or FCL faster, helping them get access to SCIFs, really just helping accelerate the process of getting access to some of this classified infrastructure that companies need to do business with the department. Next, can you turn and tell us a little bit more about category two, which with my understanding is really focused on reforming some of the key IT security processes the department has in place, like the Risk Management Framework, or RMF, and Authority to Operate, ATO processes.

Sarah 11:48

Category two, the ATO. There’s so many headlines. Google ATO. Gemini probably has a better perspective on how the, you know, we should fix the ATO process. it’s always—there’s always been a lot of talk. Hey, does it actually render cyber resilience? What is the value to the companies that are assessing and embedding mitigations to these controls that are outlined in the RMF Risk Management Framework process? But the piece that DIU is really interested in driving forward is looking at the instructions, of where and how we do that, and then how do I weave AI into that? It’s a very, very manpower-heavy process today. Can tell you, I just staffed a whole, a brand-new AO shop within DIU. It is hard to find these people, by the way. They’re brilliant cyber folks, but a lot of their time is spent in systems, maybe one in particular, the eMass system, and there’s a lot of manual entry, and there’s just you know, it reminds me of what software looked like in the early 2000s, early twenty—you know. You’re like, “Wow, we’re still doing this. Hold on. we’ve progressed past this.” So agentifying, if I can—I don’t know if that’s a word or not. David would know better than me. But like, how do I agentify RMF one through six in a way that in some ways is more robust than the manual way? And still deliver an opportunity to an AO or whoever they designate to assess risk on behalf of the government and certify it or not When you do that right, you can handle much greater throughput than we have available today. So that’s category two.

Maggie 13:33

Okay. So it really sounds like category two is focused on finding ways to speed up and automate the ATO and RMF processes to really help companies get their cybersecurity accreditations more quickly. Next, can you tell us a little bit more about category three, working to improve the department’s test and evaluation infrastructure for startups?

Sarah 13:54

Test is, first of all, a beast that I did not fully appreciate a few years ago. I think I appreciated it, or I know I appreciated it from industry, from kind of playing, you know, different product and program roles in AI world. But then you enter the test apparatus, which is the Department of War, and this is a very different, this is a very different game. You know, DIU, when we were prototype, we are. We prototype commercial capabilities, right? Typically, these are higher TRL capabilities. Something exists. Many founders that show up on DIU’s front step say, “Oh, my thing’s, you know, in production for Bank of America. I think it can solve these problems for you guys. I see you’re, you’ve got a solicitation out here. I think it’s in the same space,” right? This is technology in production. However, for the department to really field these capabilities, there’s a whole slew of developmental and operational tests that needs to happen. In pockets at DIU, our customers, the mission partners, would bring their test teams to the table, and they would help design the test and execute it and capture the data, so we had very clear performance artifacts that support how the capability delivered. So that was happening, but not enough. We did not have that approach really scaled, first of all, one. Two, it, in those instances, relied it on the mission partner, right? Relied on the Navy to come forward with those things, to tap into their test ranges, to tap into their, you know, all of their awesome capabilities in that space. However, we knew not every mission partner can come to the table with that. So that’s—So we began to assess where does DIU need to step up in this world of commercial tech, not tech derived inside the government or, you know, anywhere else. Where does DIU need to come up and at the very beginning start designing test plans? Because we know that drone is going to need to go through DT and, developmental tests and operational tests before it can get fielded with the Army. Got it. Let’s front-load. And by the way, let’s do that as effectively and as efficiently as it’s possible. Let’s leverage all of the capabilities that we have. Are those government ranges, commercial ranges, public lands, all of it? Yes. How do I book it? How do I book it easily? Great. I’m now shaving days, weeks off of someone’s many people’s jobs inside the department. So test, really the end state of what we’re trying to do is we’re trying to bring test left, make sure it is part of prototyping when we’re prototyping commercial capabilities, because at the end of the day, we will produce more buyable products. Also don’t know that this is a word, but actually give the PEOs and PAEs something they can buy and field immediately

Maggie 16:45

Sarah, that was great. I mean, it’s clear that you guys have thought extremely deeply about where some of these bottlenecks are for adopting this next generation of technology and have thought really hard about the best way to try and solve those bottlenecks. You know, one of the questions that comes to me, it sounds like you’ve already done a lot of really hard and great work. You know, will these concepts stay within DIU, or will the outcomes of what you learn and these processes move to some of these other legacy organizations traditionally responsible for things like RMF, FCL, test, et cetera?

Sarah 17:19

It’s funny you ask that, Maggie. look, all of these solutions, all the solutions that nest within the problems we just talked about, the way we’re devising the solutions are generally a blend of four inputs. There’s only four inputs, and I’m kind of toggling these up and down based on the scenario. Input number one, commercial tech. Where is there a tool I can use to fix part of this problem? Input number two, cultural. What is the cultural barrier that I have to overcome to drive change inside the department? Mostly that’s inside the department, but there’s some scenarios where it’s outside the department. Three, where do I need to lean on policy? Some of our efforts, we’re changing policy. We have to, right? or you need to clarify policy, or do you need an exception to policy, et cetera. And then the fourth lever that I lean on here is procedural. Where is there a process? You know, process engineering, where when we look at something like a SKIF accreditation workflow, okay? A lot of that’s pretty detailed and it’s clearly prescribed what that looks like. But what about the areas that I don’t? How do I kind of tweak the procedural aspects of these barriers or bottlenecks? because those are the key four inputs for all of them, the transition pathway, it varies. At the end of the day, DIU, again, I believe, DIU is meant to break barriers, think differently, have a bias for speed, and do everything with commercial cost in the center of our minds, right? We don’t own FCLs. That’s, that’s not my metric. That is, amazing leader, Joe Tonon, the director of DCSA, love what he’s doing over there. that’s his metric to own, though. But am I able to show up as a teammate, and partner with him and his organization to help get the best technology in? Yes, and that’s what we’re doing. So in some scenarios, nope, the owner resides with who owns the mission set. In other scenarios, as I mentioned, classified infrastructure is hard, right? It’s hard for us to get our companies... Any kind of dual use defense tech company, there is a bottleneck around getting into classified spaces. as part of that, DIU’s sponsoring a dozen plus, probably more, classified WeWorks, if you will. In fact, just use an easy term that folks understand. Will we own dozens of classified WeWorks? No. Are we the sponsor today? Yes, because that’s what was needed to go prototype a new model, a model where classified infrastructure doesn’t need to sit on the government’s balance sheet. Shift it. Let somebody else carry that asset. I just wanna pay for usage. I wanna help you get the thing operational as quick as possible so a company can get in, book a SIPR terminal, sit down and do their work on Mondays every week that they’re doing for the government. Great. The way we institutionalize the, institutionalize these different solutions that we’re trying will depend on the solution set, on where the mission sits today, and frankly, what will set us up for the greatest degree of success in the long term.

David 20:34

So Sarah, this is amazing work, and I agree, you know, institutionalizing, whether it’s a process change, an instruction change to help showcase that things can be done differently. You’re saying that these things are in motion, right? ‘Cause you’re coming out of stealth. So maybe just walk us back over the last year, 18 months. Like, what are the things that DIU has put in place today, and where can companies or people that are interested get access to these, I guess, call them services, if you will?

Sarah 21:10

So I’m actually gonna take the second part of that first, kinda who can utilize, right? So big picture up and out, I always tell the team, right? We’ve got a phenomenal team, by the way. Over and over, I keep telling them, “We will or we will succeed based on people,” 100%, and I believe we have a winning team. we’re really now just getting all the right folks in the right seats. That took a few months, which I understand in defense time, that’s actually rather quick. But, and to your, to your point, your question on what services, who can benefit. So the up and out piece, like I said, I wanna show the department there’s a new way to do ATOs, and there’s a way to do it on commercial timelines and at commercial price points. And when I say commercial price points, I’m talking about the burden we place on companies, right, that are maintaining infrastructure pending an ATO, and it’s costing them millions of dollars a year. That needs to come down, so that’s what I mean when I say commercial price points. look, us showing the department a new, there’s a new approach here, and working with all of the forward-leaning, brilliant AOs in the department, and they’re watching. “Okay, this is how DIU is gonna play with the model and see what they can do and how they can change it.” That type of up and out leadership, my hope is folks emulate, frankly, the way... Not my hope. We are sowing the seeds so folks then can follow the playbook the way they have with the CSO. To emulate that is that is a massive win, and that goes back to every single person that’s worked at DIU, every mission partner that has trusted us, every company that has signed up, taken money, and delivered to give you light. So that’s phenomenal. I think that can be akin to some of the work in the RMF space, for example. Let’s do that for RMF. Let’s show people there’s a different way, and maybe we blink one year from now, two years from now, people are all doing ATOs in weeks, and we’re not sacrificing any cyber resilience in the process. That’s the up and out piece, and just a silly, you know, one example with RMF. The down and in, ‘cause I get this question a lot since it came out of South a few weeks ago. A lot of folks are landing on our website. We do now have a capture mechanism there, by the way. So you can go there. If you have a cool technology that you think can help us solve some of these problems, ‘cause I mentioned commercial tech is one of the four inputs to the solutions. If you’ve got tech in that area, hit our website, go through it. It populates obviously on our side. We diligence those, and we’ll reach out. So, thank you for that. Quick side note. But for the companies that are reaching out saying, “Hold on, I need an FCL. can you get me an FCL in weeks? I need an ATO. My ATO’s been stalled with so and so for one and a half years My answer to them so far is we are bringing these services online for DIU portfolio companies to start. That is my test pool. DIU maintains about 100, 100-ish, let’s say, active portfolio companies at any given time. Portfolio companies, by the way, to us, just companies that are actively performing on a contract. Just, talked about classified infrastructure. the vendors we’ve—Some of our, performers have gone public, that they’ve won a segment of the business for this. They’re not creating those spots just for DIU portfolio companies. No, that’s for, that’s for anybody, right? So, as those sites come online, that’s a B2B play that luckily no need for government interference on that at all. Companies can go book spaces and utilize those classified WeWorks. so that would be maybe an exception to anybody can really leverage that, pool.

David 24:53

So maybe just to switch from the facilities and access to classified spaces, let’s move to the networking side. ‘cause I’ll be honest, I polled all of my, like, sweat equity participants, and asked them of these, like, three pillars under the bridge, which one do they think would resonate the most with, you know, the emerging non-traditional companies? Yeah. And about 70%, ranked the kind of networking side of it as number one and then facilities number two, test ranges number three. But maybe they’re all just a bunch of software developers and they’re super biased. But for my sweaties out there, can you maybe highlight what are the things you have in motion going on with the networks today?

Sarah 25:42

Yeah. Isn’t that funny? I wouldn’t have anticipated that actually. Do you know... Hold on. Question to your question. Do we know which areas? Like, are they looking for more, you know, government networks and environments to drop their code in to leverage to tap into operational data sooner for validation? Like, do we know, when they talk about the networking piece, which elements of that they’re really trying to get after?

David 26:11

So for some of them it’s, “Hey, my technology can perform a function for you at the open source level.”

Sarah 26:20

Yep.

David 26:21

And because I can do that, the government is less likely to give me an ATO for fear that they’ll no longer get access to publicly available information on, like, potentially dirty networks or, non-NIPR, non-SIPR.” Others have just highlighted a real challenge in getting access to data to train their models absent of going through the RMF process, and it taking a really long time to get sponsorship and some authorizing official to approve it. And then I’d say there’s a third bucket who’ve maybe been successful in receiving an authority to operate from one entity, but then not getting the reciprocity to join a different program and getting on their network, without having to go through the whole process. So, you know, I would say at the end it’s this, there’s just a huge schism in getting commercially developed software or commercially developed models access to information and insights, or getting operators to use it, as part of their workflow.

Sarah 27:31

To me, there’s a few things. I think, maybe I ought to break this up into, The RMF piece we’ve, we’ve dwelled on for a second here on... The DOD is really clear on what needs to happen when. eMASS of all the controls, you know, the assessment of which ones apply to this specific technology, you can automate a lot of that, and we’re gonna do that. So I think that gets after at least the pieces of we don’t have enough manpower. There’s a manpower problem inside the department for the people that work within kind of the RMF framework. That’s a true thing. There’s a reason everyone’s beg, borrowing, and stealing access to AOs. Since we, DIU, brought in, a second AO. So there’s a, there’s a shortage of people, first of all, across all the levels, the ISMS, the ISOs, the SKAs, the A... Like all the way up. so fixing that process and automating it, that’s gonna help with some of the throughput problems that the department’s seeing for the people that choose to adopt these different approaches. And of course, we’re designing the contracts with the vendors that are helping us do this in a way that’s highly scalable. The reciprocity piece, my hunch, and I totally could be wrong, I’m not a cyber person, but as we drive a degree of standardization in how we assess for risk and therefore mitigate risk against the controls that apply, if we’re automating that to a really large degree, and then these eMASS records start to look a bit more similar, I actually think that’s going to drive trust across the AO community in a way that I don’t know is there today. I’m not an AO, I’m not an AO by background. but here’s an example. If I hop into eMASS and I look at an ATO package for, I look at someone’s record for a comp—you know, some, doesn’t matter, defense tech company, and you see that it was initially accredited at the Air Force. And say I’m the new AO looking at that, and maybe the ask is for the DIU AO to take on that. You look through and there’s a lot of gaps, right? There’s a lot of just differences across the two different AOs of, “Hmm, why is this empty and this empty?” And that answer doesn’t address that. What... You know. So there’s variation, and I think it’s, it’s some of that variation that leads to a degree of the lack of reciprocity. Now, to the point on networks, how do I get access to operational data sooner? Here’s something I witnessed firsthand. when I first joined—When I first left Google, I came to DIU, was leading commercial for AI. So, you know, three, four thousand companies a year met over. We curated probably a dozen we were generally curating a dozen projects a year. Our bias at that point, this is early COVID days, our bias was to do everything unclass, right? We would even take a classified use case, obfuscate it with an unclassified narrative, and our bias was to then buy unclass data, make dummy data if we needed to, but like prove the thing works without ever having to touch government data. One of the things we learned in that process, though, was by kicking the can down the road, it didn’t actually make our products any more buyable, because at the end of the day, when you go back to the DoD or IC and say, “Hey, look, I have this knowledge graph. It can do all the things for you.” One of the first things they say is, “Sorry, is it ATO’d?” Like, “Can I use this now?” And we’d say, “No, no, but we validated it unclass.” And they’d be like, “I don’t have time. That’s 18 months, 24 months. Not interested. Thank you, bye.” So part of our hypothesis and what we’ve put into practice is, no, no, we’re gonna credit the software sooner because we can do it faster. Let’s do that sooner so the company can see how their system performs in a true operational environment or with operational data at least, with government data, and now we have something to really iterate and improve upon. giving access to DIU portfolio companies to networks to be able to do that, maybe spots they inherit some controls, to condense that timeline even further or not, right? but creating those environments for DIU portcos to be able to move quickly and implement their tech in is another key aspect of our second, a second team around accreditation.

Maggie 32:00

Yeah, Sarah, I also wanted to dive just a little bit more into how you all are thinking about the physical testing of systems as well. I mean, I have friends who work at drone companies or otherwise, they’re constantly, you know, dragging all their kit out to the middle of the desert in order to, you know, do testing in a place where they’re allowed to do it. Obviously, even, when you’re in the middle of the desert, in the middle of nowhere, but not on a military base, there’s still certain kinds of testing you’re not able to do anywhere but on a military base. So just would love to hear a little bit more of the details of how you all are thinking about accelerating the testing process for a lot of these vendors.

Sarah 32:37

So some of this, I’m gonna sound a little like a broken record because frankly, some of these changes that you implement in pillar one for classified infrastructure, they translate to the other ones because at the end of the day, these are systems, these are processes that have been developed decades ago in some instances. first I think it’s moving test and test planning left. Thing number one, I already made this point, so I’m not gonna get into it a ton, but how do I ensure that I have test engineers, test planners, and test managers here at DIU from the moment we curate a program? It’s that the Air Force comes to us and says, “We wanna do X, Y, Z. What do you think, DIU? Is there commercial tech available? Is it on commercial timelines and commercial price points, and does it drive lethality, i.e. align to DIU’s mission?” Those are yeses, and we’re gonna be taking on this program jointly. I need a, I need a test expert in the loop right away to be looking at that program plan that we’re developing before we ever even go to market to solicit and look for capabilities. I need to have a test plan for developmental and operational tests right alongside. so I think that’s, that’s number one, just a process change. That’s in category of kind of process changes. there’s some work in there too that bumps into the authorities that we have at DIU or authorities we can lean on to do that. So that’s a, let’s call that a paperwork exercise with, memorandums, with agreements and understandings and all these things. So making sure we can tackle the, authority piece to be able to do things in a legitimate manner. Another element, when we look at the infrastructure around test, to the example you just shared, Maggie, of like people go out in the middle of the desert. it’s astounding how manual the tooling is and process. but there’s some really awesome companies in the venture-backed space that have reimagined what test can look like, for digital and physical environments and are helping us really bring that infrastructure into the 21st century. I think that’s a very important piece. How can I design a test plan, in, you know, minutes, in a very short period of time relative to the months, nine, 12 months that historically for some types of capabilities and technologies it takes to develop a test plan? How do I, how do I condense that and bring the goodness of AI and other things to the table? I think that’s a key piece. And then another theme, we’ve got a lot of test ranges. We’ve got a lot of test environments open. You know, I was just down in Austin, Texas for Fed Supernova and had the privilege of going out to a ranch private citizen, who’s been a key, an avid supporter of the DoW and other, other services or branches as well, departments as well, You know, the authorities that we bring, the authorities, we bring the capabilities, and they’re—and the environment is there. We’ve done everything in accordance with FCC, FAA, all the, you know, all the other branches or departments that are important. great. There’s another example of kind of private lands that we can lean it, lean on.

Maggie 35:55

In a year or two from now, what do you want success to look like for The Bridge? You know, what kinds of success stories do you want people to be telling right here on the Mission Matters podcast?

Sarah 36:06

you guys, again, have such an awesome collection of founders, builders. I would love for those people to have access, to have had one of these things fixed for them. And like, you know what? Before, I could have never dreamed of getting my company and my people cleared so we can apply for classified solicitations. I’d love for them to be able to do that. I’d love for them to be able to book, space within a classified facility to deliver on a contract they’re already on. I’d love for them to be actual practitioners and users of the solutions that we’re implementing right now in the department. In some of these ways, I think I shared earlier, the timeline to build a SCIF, that timeline is still, like, over four years from A contract being let to full operational capability. The, I’m trying to bring that to a year. But I think, yeah, make your listeners practitioners. That’s, that’s, probably the win within 12 months.

David 37:10

Well, Sarah, you’ve been super generous with our time. I’m sure your email inbox is probably just nonstop with different requests, but maybe just to build off of that last call to action, what else can we be doing here in the community? You know, the, all the listeners of the “Mission Matters” podcasts and our friends and allies across the venture ecosystem. You know, how do we help you at The Bridge be successful in implementing these much-needed and much-appreciated changes?

Sarah 37:41

You know, the solution will always, like success will always reside right at the intersection of the builders, you know, the operators, the people, those of you building companies and capability, the policymakers, the investors that are making that building feasible, and then the buyers, the government utilizing it all. Each of us, and many of us, have worn hats and we kinda rotate, right? We’re all obsessed. We have the North Star. We wanna see democracy persevere, so we hop, and wear different hats at different times in this ecosystem. but it really will take all of those working in concert to overcome even one of these barriers. I would say if you’re, if you’re on the builder side of that and you’re working with a PM within government, you’re on contract, and you listen to this on your commute, ask your PM. You know, “Hey, we’re, we haven’t talked at all about ATOs, but I’m building software. When...” Like, applies to both software, hardware, but like, “When are, when are we gonna go through the cyber things? What do I need to be baking into my system now so that I can satisfy those controls? Do you have an AO? Do we not? what’s my test plan? What about a clearance? I hear some cool kids at DIU are trying to, you know, change the way we do these things. Can I connect you with them? Can I...” Like, it really, I think, will be a little bit of a foot soldier exercise to start with, and it needs to come from all sides. That’s for the operator side. The policymakers, man, they were out ahead, right? It was Congress that first put Section 874 and the ‘25 NDAA, forcing the department to think about what classified infrastructure as a service would look like. So hats off to them. They continue to be phenomenal supporters, I just, I couldn’t ask for better partners on that side, so I would say we stay the course there. The investors, it’s you guys that are taking a chance on these things. You guys, it, and it’ll be even more critical. Talk about FCLs, as we bring investors to the table, and we start to clear them in a concerted way, which I’m really excited. Stand by for some news in that area in the next week or two. you guys are critical. You need to know what the demand signal is. What are the things the department needs to solve now, so you can efficiently direct capital, do what you guys do best. And then on the buy side, on the government side, do what our leaders have said. Have a bias for commercial tech. Have a bias to move quickly. Use flexible contracting mechanisms. and just be as impatient as we are, because we don’t have the time. We don’t have 10 years to show everyone how to use an OTA and actually adopt it. We have, far less time, you know, to really drive these commercial capabilities into adoption, so.

David 40:33

Well, Sarah, thank you so much for coming onto the podcast. We’re excited for The Bridge coming out of stealth, and look forward to its success in slaying these bureaucratic dragons, right? And unleashing American innovation across the operational, workforce.

Earlier this week, SECWAR Pete Hegseth announced a major shakeup for how DoW will procure, test, and field unmanned and autonomous systems, establishing a new Direct Reporting Portfolio Manager (DRPM) for UxS (see full memo here). So, as always, David Rothzeid and I have a new episode of the Techquisition Edition of the Mission Matters Podcast to break down what exactly this change means for startups.

We cover:
🇺🇸 What exactly is a DRPM?
🇺🇸 How does this DRPM compare to others like Golden Dome, Submarines, and Critical Major Weapon Systems?
🇺🇸 What falls under the new DRPM's portfolio and what doesn't (mUSV + CCA are not included)?
🇺🇸 The history of U.S. military drone programs from GWOT to Replicator to DAWG to Drone Dominance to JIATF-401

As always, please let us know what you think. And please reach out if you or anyone you know is building at the intersection of technology and national security.

You can listen to the podcast on Spotify, Apple, the Shield Capital website, or right here on Substack.

Subscribe now

Transcript

Maggie 00:36

In this episode of the Techquisition Edition of the Mission Matters podcast, we discuss the Pentagon’s new memo establishing a Direct Reporting Portfolio Manager, DRPM, for unmanned and autonomous systems, UXS. This is a major shakeup in the way the Department of Defense will procure, test, and field unmanned and autonomous systems. So of course, David and I are here with an emergency pod to break down the memo and what it means for startups. Just as a disclaimer, we’re going to use the term Department of Defense in this podcast. We recognize the department is doing business as the Department of War, but statutorily it’s still referred to as the Department of Defense, so that’s the nomenclature we’ll be using. David, thanks so much for getting this put together on such short notice. I know we were all scrambling to figure out exactly what this memo meant last night and this morning as we were preparing for this podcast. Let’s start with a basic question: can you explain what exactly a Direct Reporting Portfolio Manager is, and why create this new DRPM UXS in the first place?

David 01:46

Yeah. Awesome. Thank you, Maggie. It’s great to be here on an emergency podcast, and I guess I’ll save talking about the US versus Bosnia and Herzegovina matchup for somebody else as we dive into what’s happening in our world. But a DRPM is basically a high-level Pentagon official with extremely wide authority across all the services and other programs that might be doing similar activities. I think the term people like to throw around in the media is a “czar” for a broad acquisition area. This memo from Secretary Hegseth establishes a DRPM for unmanned systems, or as you said, UXS. And it calls this person the single joint integrator for all unmanned and autonomous system programs across the department. In practice, this means this person officially reports to the deputy secretary and oversees every drone or robot program, from micro unmanned aerial vehicles, or UAVs, to large autonomy projects. Though, notably, it did carve out the Collaborative Combat Aircraft, which will still retain ownership inside the United States Air Force, and then the Medium Unmanned Surface Vehicle, MUSV, will still reside, I believe, in the portfolio acquisition executive, or... remote autonomous systems, robotic —

Maggie 03:21

Autonomous systems.

David 03:22

— DAE/RAS, in the Navy.

Maggie 03:26

So how exactly is a DRPM different from, say, a normal PEO, portfolio executive office, which have now been rebranded portfolio acquisition executives, or PAEs, or something like a joint program office?

David 03:41

Sure, yeah. Lots of changes in the acquisition world, and at times like this, things might feel like they remain the same, but certainly the terminology and lexicon is changing all around us. Normally, each service will have its own PEOs. Now, as you identified, PAEs, or across the Fourth Estate you see these joint offices focused on one weapon or platform, and now we’re taking this more portfolio approach. The most famous example of a joint program office would be the F-35, or in the Pentagon we call it the JPO. And they report directly to the Under Secretary of Acquisition and Sustainment. So the DRPM is actually even higher up in the food chain, as they report directly to the Deputy Secretary of Defense. On the PAE side, each service has lots of these, and they’re now organized around these larger buckets of portfolios, whether that’s fighter vehicles on the Air Force side or different sets of technologies grouped together. And they report through their service secretary. On the Air Force side, they’d report through the Assistant Secretary for Acquisition, or as I know it, SAF/AQ. And then, as kind of alluded to, these DRPMs are across all the service chains and can downward-direct on priorities and standards, and even reprogram funding within certain limits as designated by Congress. So in the example of the DRPM UXS, they’ll take precedence on all acquisition matters related to unmanned system programs, and report directly to the Secretary of Defense and the deputy. So effectively, they’re becoming their own milestone decision authorities — almost above your traditional program acquisition and portfolio acquisition executives, who are also milestone decision authorities for their respective programs. So there’s a lot of crosscutting and matrices across these different reporting chains.

Maggie 05:53

So are the DRPMs going to be the organizations in charge of the budgets for these different programs? Are they the ones making decisions on who actually wins these contracts?

David 06:03

So in the short term, yes. They’re going to be working in concert with a lot of these program offices, or PAEs, that are already underway. I recall listening to General Guetlein — that was the first DRPM stood up, for Golden Dome, around our missile defense architecture — and he has highlighted the fact that he can reach into Space Force or into the Missile Defense Agency and redirect a lot of their initiatives and activities to make sure it’s tracking towards a holistic architecture. And in the case of these unmanned systems, whether it’s aerial, ground, or maritime, making sure that we are leading up to certain standards — data links, not allowing the services to have as much autonomy, which then might lead to a situation where certain assets are unable to communicate with each other because those platforms or programs were developed in isolation from the other services. And as we know, in a joint force, if our systems and platforms aren’t able to communicate with each other, then the whole is less than the sum of our parts. And so for this DRPM, the intent is they can downward-direct certain things to occur that maybe otherwise wouldn’t, or would have to be reworked after they’re already fielded, which is a huge problem across the department.

Maggie 07:39

Is there any precedent for this kind of setup?

David 07:42

I like the example of JIEDDO — the Joint Improvised Explosive Device Defeat Organization — which was established in 2006. So go back to 2006, and we’re at the height of the wars in Iraq and Afghanistan, and our adversaries are using a lot of IEDs, improvised explosive devices, and causing havoc across our ground forces. And so JIEDDO was stood up to figure out a solution, and came up with the Mine-Resistant Ambush Protected vehicle, the MRAP. Now JIEDDO no longer exists — eventually it was turned into JIDA, which then got folded into DTRA, the Defense Threat Reduction Agency. I recall at the end with JIDA that they were doing a lot of counter unmanned aerial systems work, counter-UAS. So it’s kind of ironic that now we’re skipping forward, and the department is once again putting forward a joint organization — now what we’re calling a DRPM — to tackle some of these same issues we’ve been dealing with all the way back to the mid-2010s.

Maggie 09:05

And are there any more recent examples of these DRPMs being used?

David 09:10

So I alluded to General Guetlein, who is leading Golden Dome, and that was the first DRPM stood up last year. And then there were a few others. We had the submarine acquisition DRPM, and then in the Air Force, General Dale White — he’s in charge of strategic air systems, which includes the B-21, the F-47, Sentinel, and maybe a few other programs. But essentially, what we’re seeing is a prioritization of certain programs that the deputy secretary has decided to put their thumb on the scale for, taking it out of the services themselves. So with the B-21 and the F-47, you’d expect the Department of the Air Force to have senior control and just report to the deputy and the secretary. But in this case, it’s like: “Not so fast — actually, we’re going to pull it out.” The funding still resides in the budget line of the Air Force in the case of the B-21 and F-47, but OSW, or OSD, has decided we’re going to take a hard, fast look at this alongside you.

Maggie 10:23

What are some of the other changed authorities with this new DRPM?

David 10:27

Yeah, so the memo grants pretty broad planning and oversight powers. The DRPM, for example, will provide oversight and authoritative direction for programming, planning, and budgeting for all unmanned system programs. It gets direct input related to all the different program elements, or PEs, across the president’s budget, and can direct changes to the service budget submissions in coordination with DCAPE and the comptroller. So it certainly gives them a lot of latitude across existing budgets and funding. You might recall that the Defense Autonomous Warfare Group, otherwise known as the DAWG — the president’s budget requested, I think, fifty-four billion for fiscal year ‘27, starting October 1st. We’ll see how that ends up shaking out in the appropriations bill. I know HAC-D came out with a mark, and we’ve seen some marks from HASC and SASC, and it’s not nearly to the level of fifty-four billion. So whether or not the unmanned systems DRPM has the ability to execute across these different lines of effort really depends on whether Congress is putting funding into these program elements that the DRPM is taking oversight and control over.

Maggie 11:52

Let’s back up here for a minute. I feel like every six months or so, there seems to be a new initiative coming out related to how the Pentagon is going to acquire and field drones and other autonomous systems. During the Biden administration, we had Replicator, that ultimately turned into the Defense Autonomous Warfare Group, or DAWG, under Special Operations Command. We had the Drone Dominance Initiative. We had JIATF-401 — that’s the Joint Interagency Task Force 401 — which is specifically focused on counter-unmanned systems. How does this DRPM fit into all those other initiatives, and why is the Pentagon so focused right now on unmanned systems in the first place?

David 12:34

Maybe I’ll answer the second part first. Realistically, drones have gone from fairly niche to ubiquitous, and I think we’re seeing a lot of that because of the war in Ukraine. Certainly on the counter side, we’re experiencing that firsthand with Iran and across the Strait of Hormuz. And so I think this memo is sort of a reflection of that speed — it even calls that out in the memo — to start fielding these systems even faster. Now, whether the problem is organizational or not, I think it just shows the importance the department is putting on getting these unmanned systems out there faster. And as the memo highlights, the DAWG, JIATF 401, and Drone Dominance — given that its focus is on group one, group two UASs — are all going to now fall directly inside the purview of this DRPM. So the Army is going to have a major role, specifically on Drone Dominance, which was also being co-led with the Defense Innovation Unit. Same thing goes for JIATF 401. And then a lot of these unmanned surface vehicles for the maritime dominance domain, which was spearheaded by Replicator and now, I think, falls under the DAWG and Task Force Able — that’s all going to come under the oversight of this DRPM, which I think just gives it more emphasis across the secretary.

Maggie 14:11

One of the things I find so interesting about drones and unmanned systems is this is not a new technology. We’ve been using these unmanned systems in warfare for several decades now, at least since the War on Terror, if not before that, in Vietnam and elsewhere. But the way we’ve used these systems has not really changed, despite there being huge leaps in the underlying technology — the cost of robotics hardware like motors, cameras, actuators. They’re much cheaper, much better than ever before. We have meaningfully better edge compute than ever before. We’ve seen huge improvements in computer vision, in AI, in controls software — and yet we still seem to be treating these systems like the old Reaper and Predator drones we had in Afghanistan, Iraq, and elsewhere.

David 15:02

Yeah, I think you bring up a good point. It feels like we just took a hard paper copy and digitized it — you fill it out the exact same way, just on your computer instead of by pencil — not really taking advantage of the underlying opportunities that being digitally native would provide. And trust me, I’ve been on programs where the MQ-9, the Reaper drone, has certainly gotten better. But it’s a far cry from where we’re seeing commercial technology advancing. And a lot of this comes down to the tactics, techniques, and procedures, and the concept of operations, and how we think about employing these systems. So my hope is that one piece of this unmanned systems DRPM is really thinking through how we exercise and operationalize this technology, and ultimately change the nature of how we train and think about fighting. It’s certainly changed the battlefield in Ukraine, and I’ve got a lot of friends who have just come back from there not too long ago — and certainly we have an investment that was born out of Ukraine in the company called UFORCE. The drones have changed the character of war in a major way, and I’d say this DRPM is maybe getting after that in a more emphatic manner.

Maggie 16:33

What exactly is the Defense Innovation Unit’s, or DIU’s, role in this new DRPM’s initiatives? And more broadly, how is DIU’s role changing in terms of managing autonomous systems and unmanned systems for the department?

David 16:48

Yeah, so going back to one of our earlier Techquisition Edition episodes, we talked about the acquisition transformation memo that had come out, I think, in the November timeframe. Emil Michael, the Under Secretary for Research and Engineering, has been very fixated on consolidating some of the innovation organizations. The Defense Innovation Unit was made a field activity, reporting directly to the CTO, or Emil Michael himself. But for the purposes of this program, the memo actually explicitly calls out DIU at least twice, and the main piece is that DIU will serve as the primary industry engagement interface between the Department of War and the commercial industry for all unmanned and autonomous system programs within the DRPM unmanned systems portfolio. So I think what you’re going to see is DIU playing a front-and-center role — the front door for industry — engaging across a lot of these different contract opportunities, solicitations, and prize challenges — the things DIU does best — as a means to, one day, show off your capabilities to the department, and ideally that results in prototype contracts, production contracts, and maybe, at some point, programs of record.

Maggie 18:15

Let’s talk about the budget. What has Congress actually funded for Replicator, DAWG, JIATF 401, and the other programs that are now going to be under this DRPM?

David 18:27

Sure. Yeah, I think we’ve got to go back to the beginning with Replicator, when it was announced by then-Deputy Secretary of Defense Kathleen Hicks. They had to repurpose fiscal year ‘24 RDT&E funding, and then they tried to reprogram significant other pots of funding. It wasn’t until fiscal year ‘26 that the budget for the Pentagon added $225 million for the DAWG, and now FY27 is coming around. We already mentioned the president’s budget, which tried to ramp it up to over $54 billion — with a B — for the DAWG. At the same time, the JIATF 401 program is getting hundreds of millions of dollars to execute its counter-UAS program. And whether or not programs like the Medium Unmanned Surface Vehicle are tied to any of these is a little challenging to understand and figure out. But needless to say, I think what we’re going to see is significantly more funding going after these projects and programs, and that aligns with the $1.5 trillion top line — the base budget of $1.15 trillion plus the $350 billion in reconciliation. Of course, it’s still yet to be seen how that plays out for FY27. But needless to say, if you’re a company, this is definitely a space to look out for, where I think greenfield activities are going to thrive, assuming your technology works and is poised to scale.

Maggie 20:11

And of course, this all relies on Congress actually passing a budget this year.

David 20:15

Indeed. With the midterms — I’m no prognosticator — but we’ve had a continuing resolution most years, unfortunately a few years with a government shutdown, and very few budgets passed on time. So a betting man would likely say the continuing resolution. I put it to my sweat-equity counterparts a few weeks ago, and most people thought we wouldn’t get a budget until after Thanksgiving.

Maggie 20:46

What should startup founders and investors make of all of this? Any immediate advice?

David 20:53

Yeah, at the end of the day, if you’re a company, ideally you’ve found a champion or a stakeholder somewhere in the department who is aligned to the mission of your unmanned system. Keep them close. But recognize that there are going to be more stakeholders engaged in some of the decision-making. With that burden, I think comes additional opportunity, because these stakeholders are now probably going to get faster-aligned around the meritocratic solutions that are poised to scale. So it might be more work, and things might be a little bumpy in the near term, and it wouldn’t surprise me if certain contracts that were deep into an RFP cycle, and maybe out for negotiations, potentially get held up. At the same time, for those ongoing competitions, seeing additional oversight from OSW and other stakeholders tied to this DRPM probably means that moving to production is going to be of significantly more value. At the same time, we’re in July, so we’re headed towards the end of the fiscal year. The two-year fiscal year ‘25 RDT&E funding is poised to expire, and the FY26 operations and maintenance funding is set to expire. So maybe contracts being negotiated right now will still get awarded because of all these parameters around fiscal law. But come next fiscal year, I’d expect to see some larger programs being announced, and with it, a large, sizable slate of stakeholders. So make sure your program office or your user advocate is engaged in this new DRPM. And if the Defense Innovation Unit isn’t part of your engagement outreach, and you’ve got a capability that’s ready to be demonstrated, you should definitely be engaging.

Maggie 23:07

Great. Well, David, thank you so much for sharing all these insights. As we always end these podcast episodes — what do you think will be the next Techquisition Edition of the Mission Matters podcast?

David 23:19

Well, truth be told, Maggie, I think we’re maybe a little delinquent on behalf of our listeners — we probably should have done one on some of the NDAA bills that came out of HASC and SASC, and then there was a HAC-D bill as well. What I will tell our listeners is Maggie and I are planning something special, which is maybe why it’s taking a little longer. So maybe not an emergency podcast, but it should be fairly informative. That’s what I think our next one will be.

Maggie 23:52

Great. Thanks so much, David.

David 23:54

Thank you.

In this episode, we break down the $1.5T FY27 President’s Budget Request, the Pentagon’s infamous “J-books,” appropriations vs. reconciliation vs. supplemental funding, and what all of it means for startups, investors, and the broader defense innovation ecosystem.

We cover:

• How the PBR and J-Books relate to Congressional budget bills (appropriations, reconciliation, Iran supplemental)

• Why the J-books are one of the most important tools for founders building in defense

• Where the DoW is requesting for AI, autonomy, space, and other commercial technologies relevant to startups

As always, please let us know what you think. And please reach out if you or anyone you know is building at the intersection of technology and national security.

You can listen to the podcast on Spotify, Apple, the Shield Capital website, or right here on Substack.

Some obligatory PBR charts courtesy of Obviant:

And of course, if you aren’t already doing so, you should subscribe to Matt’s newsletter Defense Tech and Acquisition:

Defense Tech and Acquisition

Enabling defense and industry professionals deftly navigate the world's biggest bureaucracy to deliver better solutions faster.

By Pete Modigliani

Transcript

Maggie 00:36

In this episode of the Techquisition Edition of the Mission Matters podcast, we’re diving into an important ritual in the defense innovation ecosystem. That is the president’s budget request, the Pentagon’s program objective memorandum process, AKA the POM, and the release of the infamous J-books, or justification books.

David 01:11

And unlike a lot of defense acquisition conversations that happen behind closed doors, this is one of the few times the government essentially publishes a roadmap of priorities, programs, spending assumptions, and capability needs in plain sight. Though publicly available and well understood are two different things. These budget docs are strewn across multiple websites and dozens of PDFs. Until recently, it took real insiders to understand what was going on and how to make sense of this Byzantine process.

Maggie 01:41

To be clear, the president’s budget request is not the appropriations bill or reconciliation bill. It’s not a law that requires that money is allocated in a particular way. It’s simply what the executive branch is requesting that Congress fund in the ensuing fiscal year. But ultimately, it’s still up to Congress to actually write and pass a budget bill officially appropriating the funds to the executive branch. And while the president’s budget request is a guide to Congress, Congress often does not actually follow the exact numbers written into the request. If you wanna learn more about the congressional appropriations process, check out our past Techquisition Edition episode, that is episode number 17, that we did with Johnny Kaberle, where we really break down how the congressional appropriations process works. But to help us decode the president’s budget request, we’re joined by Matt McGregor, who spends quite a lot of time living inside these budget documents. Matt McGregor and his co-conspirator, Pete Modigliani, are the founders of Creative Defense, and they happen to publish one of the best defense acquisition newsletters out there called Defense Tech and Acquisition News. I personally read it every single week and am a huge fan, have learned quite a lot by reading their newsletters.

David 02:56

Indeed, it is required Saturday morning reading over a cup of coffee. Now, the reason why we are just getting to talking about the president’s budget request is that the timing matters. And while the president’s budget request, or the PBR, has been out for a while, we intentionally wanted to wait until the justification books, or as Maggie alluded to, the J books, dropped, because that is where the budget finally starts to become operationally useful for companies trying to understand where the money may actually flow to. The president’s budget request really talks about a top-line number across the various agencies, not just the Department of Defense, but also including other federal agencies. The J books really start to get into the individual programs to help identify over the next five years or the future year defense plan exactly how much funding is gonna be going and whether or not that budget is intended to increase or decrease.

Maggie 03:53

So today we’re gonna break down how the federal budget process actually works, why the president’s budget matters, what the J books are and how to use them, what stood out to us most in this year’s defense budget, and what all this means for startups trying to navigate the defense market.

David 04:10

And because this is a Techquistion Edition, we’re also gonna talk about where the hype is real and where programs may actually have money behind them, and where founders should be careful not to confuse PowerPoint strategy with executable budget authority.

Maggie 04:23

All right. Well, with that setup, let’s bring in Matt.

David 04:27

Well, Matt McGregor is a co-founder of Creative Defense and a co-author of the Defense Tech and Acquisition newsletter, which has become required reading for a lot of people trying to understand how defense budgeting, acquisition, and modernization actually works.

Maggie 04:42

Defense Tech and Acquisition news, it’s not just a weekly headline roundup. They actually spend an enormous amount of time digging into the underlying budget materials like the J books other, documents that are coming out to really identify where priorities are actually translating into real dollars.

David 05:02

Okay. So with that it’s an honor to welcome my longtime friend, Matt. Welcome to Techquistion Edition.

Matt 05:09

Yeah. Thanks for having me, you guys. Appreciate it.

Maggie 05:11

So Matt, let’s just start out with a basic question. At a high level, how should people be thinking about this $1.5 trillion defense-related spending package? What exactly is the president’s budget request? And then how does this relate to the emerging reconciliation package as well as the annual appropriations bill? What are all these different documents?

Matt 05:37

Yeah. We used to live in a simpler world where there was one budget and we got to track that. And then this year is even a little crazier because there’s gonna be three pieces, I think, that potentially play into what the total ‘27 budget’s gonna be The base budget of course, is 1.1 trillion, so even, by itself that’s still big. If we got that, I think that’d be, a huge win. Definitely getting in the right direction for all the challenges that we have. They added 350 billion on top of that for reconciliation, and then the other piece of that is there’s a supplemental, right? The Iran war. So there will be money in there that will impact the investment accounts for sure on the procurement of munitions. But also some other things in there. I think there is some debate on the Hill. I’m not the expert on all that, but there is some debate on the Hill about is a second reconciliation even possible? ‘Cause they just got the DHS one they’re working now, and there’s a lot of thought that the second one’s gonna be too hard. So there’s some push of well, do we try to cram some of the defense stuff into this first reconciliation bill this year and make that the big package, or do they do a second one and push it, or they push more on the supplemental? So still a lot of moving parts, but the only thing we officially know right now is there, there is a 1.5 trillion, a big part of it, the 1.1 is discretionary. The rest is up for debate on one of these other mandatory accounts.

Maggie 07:12

So just to make sure I’m understanding this right, so we have the president’s budget request, which is out, and this is just a request to Congress. It’s not actually the budget. Then we have the $1.1 trillion appropriations bill, or what we expect would come out in the appropriations bill, which is just the normal spending bill, and then another 3 to 400 billion that would come through some combination of this reconciliation bill, which is not a normal funding process, and then potentially a special bill just for the Iran war.

Matt 07:41

Yeah, the really only difference is that the, for the reconciliation, is that in the Senate you typically need 60 votes to, to pass a bill. With reconciliation you just need a majority. So that’s the difference is the 60 votes in the Senate primarily is the difference.

Maggie 07:57

And so when we look at the president’s budget request, I know one of the big topics of conversation is there’s different colors of money, right? So you have procurement money, RDT&E money, and O&M, which is operations and maintenance money. So maybe could you talk about what are those three different kinds of budget, and what is the breakdown between those categories in this budget request?

Matt 08:20

Yeah. So yeah, the big difference O&M is a big pot of very flexible money. Some of that can be used for, capability for sure especially as we move into an age with buying services, capabilities of services. But generally the O&M, and it does fund a lot of modifications to legacy platforms and things like that, but generally a lot of that goes to sustaining, right? Just keeping the existing things alive maintained, ready, all the readiness stuff, all the, you know- Just general housekeeping kind of things that, that DoD needs to do. But where we really focus, for the founder groups and for all these defense tech companies that are coming out, they’re generally more focused on the investment accounts because that’s where you’re gonna see your RDT&E dollars. This is all your prototyping, moving into a program of record, all the development test is funded on that. There is some big modification money too in there that sometimes, will be maybe become available for founders as they mature a capability that can be fielded on an existing platform. So RDT&E has a lot of potential for people that are entering the defense space. Procurement, of course, is more of those m- mature things where there’s we’re actually fielding them. So that’s the one where it gets down to there’s actually a production line or there are some software kind of things in there too, but generally it’s the big stuff that you see flying around tanks and missiles and all those ships and all those kind of things in there that that are there. But just going back to the overall breakdown, so within the base budget, and that’s the discretionary, there is $1.1 trillion. 218 of that is RDT&E, 257 is procurement, and then a big chunk in O&M, 382, and then some of these other accounts like military personnel and military construction. So of the base budget, you have, basically, 470 billion of the 1 point trillion. But in the reconciliation package, there’s a much bigger chunk. A lot of that is investment.

Maggie 10:37

And then Matt, I also wanted to ask, how do we think about the ratio between procurement to O&M to RDT&E funding? I know this is something that you’ve written about before. What can we read into the ratio of the current budget request?

Matt 10:51

Yeah, no, this one is a really exciting thing because we, we wanna see more in procurement. I know it’s not always the right thing for some of the smaller companies coming through ‘cause they, they really want that RDT&E money to seed some of their products. But as a military force, right, we definitely wanna see procurement to get the joint force up and ready for the future fight. We know in the China fight that there’s, we’re gonna, we’re gonna go through a lot of stuff really fast if that happened, and so we wanna be prepared to be able to stay in the game. So yeah, this year there was a big push towards increasing procurement 80 per, 82%. Now this is combined, combining like we talked about discretionary, mandatory. It’s combining both of those. But when you look at the combined piece, 82% increase in procurement from last year and 62% increase in RDT&E. While the percentages are not totally different from past years, like we always measure that- And they’re still in that roughly 57% procurement, 43% RDT&E. A lit- 1% bump up in procurement. So the ratio is not totally off, but because the numbers are so substantial it’s promising to see that much went into procurement. But a lot of those big procurement dollars were in reconciliation were basically driven by a lot of the missile stuff, a lot of the Golden Dome stuff, a lot of the space stuff, and things like that, that were in those accounts. We definitely need reconciliation for some of these big items.

David 12:18

Yeah, I think that is an interesting indicator. For a long time it seemed like the R&D spending, outpacing procurement not necessarily what, a venture-backed startup is looking for. And there’s almost a recognition that some of the R&D costs can be underwritten by the private capital markets, right? Especially when you introduce OSC that’s de-risking some of these loans, allows more money to pile in. And then really what the signals that are needed from the commercial innovation ecosystem are just buy the thing, operationalize it, use it, right? And that’s where you get the procurement and then O&M funding on the follow-on. But Matt, that was awesome. Thank you for helping us understand the top line, right? I think we call that the TOA, ... inside in, in building parlance. Maybe let’s dive into the actual nitty-gritty of the J books or justification books, which are essentially, the government or the executive branch saying, “This is why I am requesting this amount of money.” Right? What else can you see inside of these J books, and how are they broken down, and what’s useful information to extract from them?

Matt 13:41

Yeah, that’s a really good question because we were talking offline about, if you’re an AI company, for instance it can be a little bit confusing because you could look across all the J books, and I just did a quick search, and there’s 431 lines, right, across artificial intelligence. So clearly if you’re an AI company, there’s... That shows there’s a lot of potential but you do have to do the hunting for where is your particular thing going to fit into one of the broader efforts. So there is some detective work, if you wanna call that here that you have to do. But one of the helpful things with the J books that I would encourage, companies that are trying to figure out where their piece might fit in- Is if you go into the JBook, they can be a little daunting because there’s kind of these PDF files that’s hundreds of pages. But you can, do some keyword searches. Aviant is a company that y- also has a great tool that you can do searching and it’s a little much easier to m- navigate. But if you wanna do it the hard way, go in that PDF file and find s- a line that looks y- like something that you could support. So you’ll have to, you’ll have to flip through and you’ll see things like artificial intelligent reinforcements autonomy AI-enabled tools, AI-enabled DW. Like I said, there’s a little bit of detective work, but when you click in that line that maybe has some applicability, you think, to, to what you’re doing one of the helpful things is that there are m- things called major thrusts. And what that essentially just means is in that bigger budget line that maybe is like $100 million, you can actually go down and see more discrete projects under there, and you can say maybe this project has $10 million against it, this project has $20 million against it, and there’s a little bit more detail about what that’s about. And then sometimes they even have a helpful schedule with some milestones. Their schedules are weak generally, but you can at least see generally the flow of what they’re trying to do. And then I think the next step is if that’s something that really looks like, hey, I could really help here, is go figure out is that something that’s already been awarded? So you can start to tie that information, do some other searching and find out if there’s, already contracts against that. And what’s their period of performance? Maybe they’re coming up for a re-compete, or maybe it was just a prototype and there’s still, there’s still money in the FY DIP that, that you could potentially get after. So I think those the J-books are good signals for companies to be able to filter down and find their target areas for where they can see potential for contracts or maybe target customers. “Hey, I should really talk to this customer a little bit more because they’re planning this big thing that has exactly what I’m working on.” So they won’t tell you everything, but I see them as a signal to direct your attention. But yeah.

David 16:28

Yeah. And as a former author of my own RDocs for specific program elements, PEs, which are associated with these wonky, string numbers and letters, they’re not all, RDocs or R2s, which get down to the specific program elements, are made the same. Some have a lot better detail than others. Oftentimes you can see which other program elements one is related to, and so you can go check out them. And when you’re talking about, looking at the schedules or potential contract structures, it’s in there. I would say, maybe you brought up Aviant. I think a really nice thing about some of these tools that are helping aggregate all this publicly available information Is it’s now also creating the relationships between the budget, the program office, and the contracts. Because in these justification books, it’ll tell you, “This is the money we intend to spend against these priorities,” but it doesn’t necessarily tell you who or where, like what program office. Now, in certain cases it’ll say, Defense Innovation Unit, and Defense Innovation Unit has a program element ascribed to this, like this amount of money. Okay, DIU is expected to execute it. Of course, in those instances it doesn’t necessarily tell you exactly what projects or programs or who the end customers are that are going to be receiving it. This is one piece of the puzzle, but I think if you’re looking for market demand signal from the department about whether or not the technology you’re building is important, you will see that laid out over the future year defense plan if, in fact, it’s expected to grow over years. Well, that was awesome. Thank you, Matt. Maybe we just start talking a little bit about w- where and different line items that we thought were interesting and stood out. And Maggie, maybe if you wanted to start us off here and anything that you found that was interesting, we can go around the table.

Maggie 18:39

Yeah, of course sitting in San Francisco I always have to look for, do my keyword search for artificial intelligence. Where is the department looking to fund that? It’s something the administration has, of course, made a priority. The top line, it says there’s $53 billion for AI broadly. A lot of this was actually going to sovereign AI. They did not specify exactly what sovereign AI here means, but said something like 50, $46 billion for multi-year mandatory investment in a sovereign AI arsenal prioritizing enterprise-scale AI infrastructure investment to build an enduring strategic advantage. They actually have not released the J-books yet for the Chief Data and AI Office, at least as of the time of this recording. So there’s not more details on what exactly that means, but definitely will be interesting to see. Of course, a lot of these big AI data center build-outs, AI training runs are extremely expensive, so it would be interesting to see if there’s a way for the US government to play into some of the investment in American AI development. I also saw AlphaOne, which is one of the platforms that Chief Data and AI Office, CDAO, runs, got a big increase in funding. But then at the same time it appeared that CDAO itself actually got a decrease in funding. So I’m not entirely sure what to make of that. Matt, I don’t know if this is something that you’ve tracked at all or have more insight into.

Matt 20:07

Yeah, I do think with CDAO getting pulled under R&E I think and DIU for that matter- I think both of them are being recalibrated and having a little bit more targeted portfolio. So yeah. So I think, for CDAO, I think you’re gonna see, the OpenDagger stuff continue the guide experiments and the, data integration layer sort of efforts. And then I think AlphaOne, I think that- that’s probably something they’re gonna own as well ‘cause this could have some frontier AI and some theater cloud sort of efforts. So yeah, I still think CDAO is gonna be highly relevant. I wouldn’t take too much signal that they’re losing too much, but I think you’re right that there’s the department, as part of its whole requirements revamp, they definitely have refocused some efforts and so yeah, I think there’s a lot more lot more of that focused on the multi-domain joint operations stuff and long-range kill chains and different things like that, that maybe took a little energy away from CDAO but I think they’re still quite strong. One other interesting thing on the AI front, though since you brought that up, that I noticed is I didn’t see-- I looked at the J-books. The J-books did not-- were... When they when they first released the budget without the J-books, I saw this OSD equipment account, which historically has been ATFWIT money, been the predominant piece of it, and it got this huge plus-up, and I was really excited because I was like, “Oh, yeah, ATFWIT’s finally gonna get its huge bump,” because it’s been in the $100, $200 million range, and I was like, “Oh, maybe that’s gonna go to a billion.” Anyway, I finally saw the details on that, and there’s $29.5 billion that’s going to this effort called Next Generation Technology and Autonomy. And the way it’s described there is that it’s basically to trans- transition from funding scattered clusters of GPUs to more organized AI infrastructure for strategic to tactical AI compute, so in- it’s gonna include SCIFs and data centers and all this stuff. So anyway, that’s something interesting to watch on the AI side is that OSD equipment account which this was buried under.

Maggie 22:17

Yeah, and then maybe something similar I also saw this is actually under the Cyber Command J-books. They have a large line item for AI for offensive and defensive cyber operations. I think it’s $140 million, so maybe not a lot for the DoD, but a lot for some of these early-stage startups. And part of that for them was also building out GPU capability and other compute capability to actually run some of these AI models. I know to date when working with some of these more classified customers, I’ve heard startups talk about literally bringing GPUs in suitcases or in Pelican cases loaded with open-source models to the customer ‘cause they know they can’t rely on the customer having the right infrastructure to run these models. So I think it will be interesting to see just more of the infrastructure build-out for DoD to actually take advantage of a lot of these AI models. And then one more AI related item I’ll call out. I saw Maven’s smart system has $2.3 billion budgeted. This is, of course, one of the big AI initiatives. They have played a large role in Iran in targeting and battle space management. I think there’s also talk that it played a role in Venezuela. This is a Palantir effort, although it also has some Anthropic Claude models built in, and it was announced last month that it’s officially becoming a program of record and now has $2.3 billion going towards it.

Matt 23:42

Yeah, no, I think that’s a good rundown.

David 23:44

Maybe one that I’ll call out right from my alma mater at Defense Innovation Unit. So I think this is a good example of where the president will submit a budget to Congress, but, Congress, as we know, has power of the purse, and they get to then ultimately decide how much funding is going to go into these specific accounts, and then the department is responsible for executing it as authorized, right? We don’t want any Misappropriation Act violations, right, Matt? But if you look at the DIU account, and of course, they haven’t released the specific J books, but we’re seeing the top line program element n- numbers for the OSD accounts. DIU, right, came in at five hundred and twenty-two million. Last year, DIU got one point eight billion, and so you would say, “Oh, well, that’s a far cry from what they got,” except the president’s budget request last year for fiscal year ‘26 was a hundred and forty million. So what we’re seeing is Congress has stated with congressional plus-ups that programs being executed under DIU are very important, and now we’re finally seeing the president’s budget start to catch up, though that is a huge delta between one point eight billion and five hundred and twenty-two. So it’ll be interesting to see if Congress for the third year in a row pluses up the DIU account, right? And that started to really occur I guess j- two years ago when DIU’s budget and program element really got congressional plus-up big time. Those are things that I think are interesting.

Matt 25:21

I was initially discouraged by that one too, David, but then my understanding is that a lot of the DAWG funding, they will be intimately involved with executing. If that passes, they will have more work than they can handle. So maybe taking a little cut to, a little cut in relative terms to the DAWG request maybe it’s not such a big deal ‘cause we’ll have, fifty, fifty billion to possibly do some thing, things with over the next few years.

David 25:51

And that’s why I think seeing the J books is so interesting ‘cause you can start to see how are the different program elements interrelated with each other, right? So like another one that, I think is a closely watched item right now is Golden Dome And, it’s really-- There are definitely some explicit program elements tied to it. In fact, you saw a $1.3 billion request for space-based interceptors, specifically under a PE inside the Golden Dome apparatus. But if you look across a lot of other Space Force programs like Next Gen, Overhead Persistent, Infrared, e- and OPIR, or the, Matt, you referenced the Satellite Defense Network. They’re all talking about how these programs support initiatives within Golden Dome, and that’s a political crutch that you’ll see often within these budget documents, that you tie these programs intricately together so that if Congress wants to just cut one, you know that there’s a reciprocal effect to maybe a higher priority program that they don’t want to impact. And so you see those types of machinations. And again, you can extract that through the J books, where there is just a little bit of nuance across these, otherwise stovepipe program elements. But Matt, you highlighted the Defense Autonomous Working Group, the DAWG, right, which is all about mass and attritable capabilities. Was there anything else, like maybe on drone dominance or the JIATF, the counter-UAS programs that were worth highlighting?

Matt 27:31

Yeah, no, a lot of lot of stuff with the DAWG is definitely gonna be a lot of the autonomous systems, definitely drones, small UAS small USVs things like that. But yeah, if I go through, just if I do a quick run-through of the services maybe just call out a couple things here. One o- one overall is that and this is another one, David, you mentioned about how Congress sometimes steps in and helps, is the S&T accounts. Th- Congress is definitely known for giving more money back in the S&T account, but I do feel like there was definitely some slashing going on there across the Army and Navy. There was a 30% kind of reduction in some of those accounts. But on the Army side, while they slashed a bunch of other things across a bunch of different areas, they really went hard on counter-UAS, counter-small UAS. So I think you’re definitely gonna see more focus on that with all of the things we’ve seen in Iran. Long-range precision fires is definitely a priority, so for the Army and EW. So I think you can start to look at some of these accounts, and even when there’s big reductions overall, when you start to dig in, you start to see, okay, this is where the Army is probably heading. Their leadership is thinking is they need to get after and focus their efforts a little bit more on counter-UAS, long-range pr- precision fires, and EW and then when you look at like prototyping stuff, you can start to see where some of these accounts are starting to be a little bit maybe less prioritized because there’s other programs that are growing, and so maybe they need a little less prototyping money because they’re gonna be programs of record. But you can start to see that they actually do wanna get after some, new types of missiles and improve their ability to do more mobile stuff. So I think that’s one of the big things too, is like there’s a lot more focus now on being able to operate in a distributed manner. I think you guys nailed it with the AI thing about being able to get to the tactical edge and pushing things forward. So some of these things you start to see as they’re really starting to focus 100% on the INDOPACOM theater, and a lot of those things reflect it. And hypersonics is a theme throughout all of this that, if you have anything to do with hypersonics realm, there’s definitely a lot more money going in that direction. Yeah, some of the other cuts you do see, I think there are some opportunities here for some of the legacy programs. I I saw things like the Army Tactical Command and Control where, you know, some of these existing efforts just had money at year after year and there was some big pullback there. So that’s another thing to look for in the J books as an opportunity, is if you see a legacy program that’s maybe gotten a lot less money than it normally would that could be an opportunity for you to step in and maybe offer some solutions that, for that. So yeah. So that’s one I would call out. UAS Launched Effects got a huge plus-up from the Army so four, four hundred and forty-three million there. So if you’re in the loiter ammunition business that’s definitely, a signal that I would take as they’re definitely more serious about that. That’s like over two hundred percent increase from last year. And then yeah, going down to the Navy. Yeah, Navy took a big, real big cut to S&T as well. So Marine Corps, had a big cut on their advanced technology demonstrations, which I think you will see with this administration, and it’s something to expect maybe over the next couple years, is there is a really big focus, I think I think you saw this with the critical technology areas update, where we had sixteen amorphous tech areas, and they really winnowed those down to things that are applied, things that could be fielded, really focusing on getting things out in the field and not doing these sort of long science projects. So I think some of these cuts in the S&T world reflect that. But definitely on the Navy side, big push on shipbuilding. If there’s any contributions that you can have to the shipbuilding helping in the industrial base in any way whether it’s from workforce development, to new kind of materials and new manufacturing processes and things like that, there definitely seems to be a big push to make help in any way on that as part of the maritime industrial base. There was one point eight trillion that was added to this new line called Advanced Shipbuilding Industrial Base and Future Ship Experimental. So that’s something to keep an eye on. Big increases on Marine Corps ground combat support systems. So if there’s-- you have a system that’s more focused on supporting those Marine type, d- expeditionary type units, they’re definitely looking for new ideas. If that’s any indication in terms of how much more money they added there. Directed energy i- is getting a lot more money. You start to see that. There’s more programs coming online. Navy has some, Army has some, so that’s another area if you’re in that business. F-35 probably not a lot there out there for small funders. F-35 definitely got a lot of money this year. EW across multiple accounts got some big plus ups. So I think if you’re in the EW space, there’s probably... You could look across all the J-books, and you could probably find multiple places that you could start to have conversations at the right levels and start to play in that space. EW sup- readiness support was one line in the Navy, one that got a big increase, and then Marine Corps also got a big increase in that line, three hundred and fifty-seven percent.

Maggie 33:12

Yeah. I was gonna say, one thing I was curious about, I think we’ve seen a lot of talk in the last year or so about acquisition reform, moving from PEOs to PAEs, program acquisition executives, and I’m curious to what extent, if at all, that is showing up in the budget. I saw that PAE robotic autonomous systems in the Navy had its own call-out in the Navy budget overview. They had a couple hundred million each for unmanned underwater vessels, small unmanned surface vessels, unmanned aerial vehicles. So I’m curious how we’re seeing the PAEs show up in this budget.

Matt 33:49

Yeah David mentioned the Golden Dome stuff. That was one of the big ones. But yeah, for the so I didn’t see a lot of it at the like the Army and Air Force because i-i-it, there’s a lot of nuance there with those services. The Navy, because they stood up a brand new robotic autonomous system, was a little bit more clear. I think on the Space Force, on some of the new PEs that have been stood up there, like the space-based interceptors going to combat power and then the all the space data transport and AMTI and GMTI going to the SB, space-based targeting PAE. You could start to see some correlations there but I do think you’re right. I think the PAE RAS was the most clear and explicit and they actually laid out the specific programs under that and the amount of money across the FYDP, which was which was really helpful to see, small USVs, medium USVs- the one sad thing about this is that we’re still not seeing the amount of money go. While they called it out and it’s very well organized, we’re still not seeing the increases that we wanna see, so they do have 2.2 billion across all the unmanned accounts, but it’s a lot less than we would’ve liked to see given the focus on building a hedge force. But yeah.

Maggie 35:09

And David, how’s the Air Force looking?

David 35:13

Yeah. So Matt, you talked about all the other services and components except for your alma mater, right? The Air Force- Oh yeah, I was about to-

Matt 35:19

I know. I was about to. I was getting there…

David 35:21

I, well, I have some opinions here, right? So collaborative combat aircraft, which seems to be the Air Force’s big push-

Matt 35:29

Ah. I know. Where’s the money? Where’s the money?

David 35:32

I mean, 1.3 billion in the fiscal year ‘27 request, but that’s less than what the B-52- Yep ... is getting in budget activity seven, I think for their engine upgrades, which is 1.4 billion in RDT&E. So we are spending more money to maintain an aircraft that’s been around for multiple generations, and then when you contrast it to the F-47 right, which is, went from 2.3 billion in FY25, now is up to five billion in ‘27. To me, these are, like, the specific trade-offs between incorporating autonomy versus relying on manned fighter aircraft, and it’s so much more expensive, and we don’t really get to invest the budgets that we need to get to a force structure where we have more mass. And so I don’t know what’s your kind of take on the Air Force overall? I also saw AFWERX got completely decimated. Yes. They’re basically just a SBIR shop at this point, which is really sad to see though there have been some announcements coming out of AFRL that they’re reorganizing and there’s a big meeting happening in a couple weeks to help engage industry. But yeah, curious on your takes with our beloved Air Force.

Matt 36:48

Yeah no, you’re right. I was gonna say that about the AFWERX is I am hopeful that the reorg that General Bartholomew has will hopefully keep the AFWERX mission alive if it’s, if not the organization. No, yeah, I think overall I think there was disappointment that there wasn’t more of a focus on autonomy, but I think you do have to look at where this administration’s focus has been, and it, it has been on mainly building on the, getting the big ships fielded, getting some of these big new aircraft programs going, like the F-47 and accelerating the B-21. And then on the Army side there, there’s, there, there is a shift there at least from the big tanks to moving to- towards more distributed kind of things, but still not fully leaning into the autonomous vehicle space. So I think overall with autonomy, it is a little disappointing. The Air Force put a little bit of down payment there on the CCA, but would’ve liked to see that be triple that. I would’ve liked to seen the Navy go, at least triple to really get after the MUSV, which they just announced a new marketplace. A better demand signal there would’ve been a lot more money next time. And then, yeah, for the Air Force overall, they’re retaining a lot of the same aircraft. They’re gonna extend the B-1. They’re gonna, extend the F-15 EX they’re buying a lot more of. And there’s one other aircraft. Yeah, they’re gonna keep the A-10 till 2033 or something. So yeah, there’s a, there’s definitely a more higher prioritization on the big platforms that historically we thought would be maybe less relevant in the Pacific Theater, but I think they are leaning into that, and hopefully we’ll see in ‘28 that’s the one gonna be the one to watch. If these programs, maybe they were not mature enough to make the case in the building, people could say, “Well, the MUSVs are still haven’t fielded that many of them. We haven’t matured the CONOPs.” Same with CCA, right? The experimental operations unit’s still playing around with the CONOPs piece. So maybe this is the year, ‘26, ‘27 is the year they see data as maturing all that, and then they’ll go hard in ‘28. So I have high hopes for the ‘28 budget on those fronts.

David 39:04

At least they did try to zero out Wedgetail the E-7. But we’ll see.

Matt 39:09

Oh yeah they did kill the E-7. Yeah.

David 39:11

We’ll see. I’m sure Congress is gonna plus that back up, so of course that’s a trade-off, and we’ll see where that goes. But yeah, okay. So I think we, we hit a lot of areas. Of course, for our founders out there, this is certainly far from everything, that’s in this defense tech innovation ecosystem. But again, this is a huge marker to help identify is the thing that you’re building an emerging or an already solved pain point, right? And whether or not there are active programs of record with specific vendors that you would need to break into. This is a good data point to, to bring into your marketing materials, whether you’re trying to raise from investors or talk to customers or differentiate your technology versus what’s currently available. So yeah, this is a big step in the process, but, where do we go, where do we go next? So we’ve got the president’s budget. We’re already seeing senior leaders testifying on Capitol Hill, to defend the budget, and so you’re seeing a parade of generals and senior executive civil servants and appointees articulating the merits of this budget. And then what? Congress goes into a black box, and they start figuring things out. What happens next, Matt?

Matt 40:37

Yeah, I think you’ll see some of the initial markups on the approps bill in the June timeframe. So hopefully we’ll get to see... Yeah, your point on the E7s a great one because, yeah, we know some of these things they will add back in. I think by June we’ll also have a little bit better sense of where reconciliation is going. So one thing that you could see the Hill do is really have to make that balance of if they can’t get that 350 billion, they’re gonna have to fit all of their priorities in with all of the other budget requests. DAWG, maybe DAWG if the reconciliation bill doesn’t look like it’s gonna happen, maybe they take a piece of that. It’s not 43 billion, but maybe they, support five billion or something like that. So you could see some of these accounts shrink, but hopefully move from reconciliation into the base budget. And then, yeah, they’ll pr- they’ll bump up all their priorities, but we’ll probably get a first look at that sometime later in June. And then yeah, we’ll see how things go with the supplemental, which will help, also help inform do they have to move more money to missile accounts to, to compensate if the supplemental hits a snag? Will they try to push maybe some of these really big priorities they know for the President? I don’t know if you picked up on that, but when you looked at the one of the things that I’d never seen before in the budget overview from OSD, they actually had the table, the pi- the pie chart, and they had a slice of it that was, like, presidential priorities, and I think that was, like, maybe a little signal that if you don’t fund these things you’re gonna get a call from the White House. So it will be interesting to see as they’re moving through there what things, what are the, what part of the presidential, President’s priorities move from reconciliation possibly into the base budget, and then what things get decremented. So yeah, I would say June and then there’ll be there’ll be some defense of that, and we’ll see the we’ll see the final hopefully before October. But time will tell.

Maggie 42:30

Great. Well Matt, thank you so much. This was incredibly informative. I know the federal budget process can feel very opaque and archaic to those of us on the outside. I was feeling a little bit of despair last night downloading the J books, trying to figure out what all the different acronyms mean, trying to figure out which of the 900-page PDFs, each item that I was interested in fell into. So it’s always great to talk to an expert like you. And of course I read Defense Tech Acquisition news like the Bible to really help me figure out everything that is happening in this space.

Matt 43:08

Thank you. Appreciate it. Thanks for having me.

David 43:10

Yeah. No better way to start your Saturday. Though I would be remiss not to highlight, right? This, the President’s budget, and we still haven’t seen all the J books come out, very late to Congress, right? Yes. This is something that’s supposed to happen in February traditionally. And so we’ve squeezed Congress who already seems to be-

Matt 43:29

Actually by law.

David 43:31

Okay, by law. So we’ve already squeezed Congress on their timelines- to get out the NDAA and the appropriations bill to do all of their horse trading and back and forth with the department. So all but I can say this is an interesting time for people at the Pentagon as they now have what’s called staffer days, where they start to defend the budgets that they’ve been putting together for the better part of 18 months encapsulating this entire POM process. So yeah. Well, Matt, thank you so much for joining us. It’s a pleasure to have a real subject matter expert like you. We missed having Pete on the podcast as well, but we’ll try to maybe we’ll get him next time for a different topic.

Matt 44:16

You bet. Nice to be here. Thanks for having me.

Maggie 44:19

Wow, Matt was really great. He definitely knows his stuff. The federal budget process can feel incredibly opaque, but conversations like these really help translate what’s happening inside government into actionable insights for the broader defense innovation ecosystem.

David 44:36

And for the founders listening, the key takeaway here is simple: The budget is strategy translated into resource allocation, and if you wanna understand where defense markets may emerge over the next several years, you need to understand where the government is placing its money, not just where officials are giving speeches.

Maggie 44:53

And of course, if you aren’t already reading Defense Tech and Acquisition, you definitely should be. Again, Matt and Pete are seriously consistently doing some of the best work breaking down what these budget documents actually mean. So David, I have to ask the question that we end every Techquistion episode with. What do you think the next Techquistion Edition episode is going to be about?

David 45:14

Well, I think we alluded to it a little bit given that we’ve got three budgets in one that are being bandied about, right? Between the president’s budget or the base budget or the discretionary budget, then you’ve got the mandatory budget or what they’re calling the reconciliation bill, and then this extra funding, geared towards specifically the actions in Iran. And I would imagine that we may be talking about one of the latter two, either the reconciliation budget and what was in it and what does that mean for startup founders and the programs that money’s tied to, or for any supplemental funding that’s tied to the Iran war.

Maggie 45:53

So sounds like there will be no shortage of content for future Techquistion episodes here. Well, David, thank you again, as always, for helping break down some complex issues, and looking forward to the next one of these.

David 46:05

Always a pleasure, Maggie. Thank you.

In this episode of the Mission Matters podcast, we sit down with Chris Benson, the CTO of Istari Digital and an Air Force acquisition pioneer who was one of the architects behind the modernization of the Small Business Innovation Research (SBIR) program during his time at AFWERX.

We discuss:

• How SBIR evolved from a slow, lab-driven R&D program into a real commercialization pathway

• Why Open Topic and TACFI/STRATFI changed the game for venture-backed defense startups

• What the new Strategic Breakthrough Awards mean for scaling to production

• Why founders need to think about Phase III and production contracts from day one

• How proposal caps, foreign due diligence, and other new rules could reshape the program going forward

As always, please let us know what you think. And please reach out if you or anyone you know is building at the intersection of technology and national security.

You can listen to the podcast on Spotify, Apple, the Shield Capital website, or right here on Substack.

Subscribe now

Transcript

Maggie 00:19

On this episode of the Techquisition Edition of the Mission Matters podcast, we’re breaking down something that really sits at the center of the defense innovation ecosystem — that is the reauthorization of the Small Business Innovation Research and Small Business Technology Transfer Program, better known as the SBIR/STTR program. Although, for the purposes of this podcast, we’re just going to truncate it down to SBIR, which is how it’s commonly referred to. Additionally, while SBIR is a government-wide program administered by the Small Business Administration and executed at every government agency, we are primarily going to focus on the Department of Defense, which we will just refer to as DoD. And to help us do that, we are joined by someone who has a front row seat to the evolution of the program — Chris Benson, the CTO of Istari Digital. Before joining Istari, Chris served as an Air Force acquisition pioneer and was one of the architects behind the modernization of SBIR during his time at AFWERX, including initiatives like creating the concept of open topic and the extremely popular TACFI/STRATFI program that many startups and investors today see as the best on-ramp into defense.

David 01:51

All right, Maggie, but before we bring Chris on, I think we should level set for our founders listening, because SBIR is one of those programs everyone in defense Tech has heard of but very few people fully understand exactly.

Maggie 02:05

You know, depending on who you talk to, SBIR is either the single most important funding source for early stage defense technology, or it’s this useless bureaucratic maze like program buried somewhere deep inside the federal government. You know, I even heard somebody refer to it once as welfare for PhD students.

David 02:24

Well, that’s some pretty good ramen. But I guess historically, you could say that both of those things have been true. But at its core, SBIR is the federal government’s venture capital program for small businesses. Since its creation in 1982 it has invested more than 77 billion in research and development funding across over 33,000 startups or small businesses supporting everything from defense technologies to medical breakthroughs and importantly for founders, this isn’t just grant money floating around Washington. SBIR is one of the primary mechanisms that the government actually uses to discover, test and transition emerging technologies into real programs of record.

David 03:06

But as you’ll find out later in the podcast, the program has gone through some pretty dramatic changes over the past decade. For a long time, the SBIR program was mostly run out of government labs, places like Air Force Research Lab, Office of Naval Research, Army Research Lab, and until recently, not super conducive to venture backed startups, and candidly, has had a pretty poor track record in transitioning into meaningful war fighter capability. For years, most small businesses that received SBIR funding never meaningfully productized or deployed the technology that the SBIR program funded.

Maggie 03:43

But then things started to change,

David 03:45

So around the late 2000 10s, let’s say 2016 2017 a group of acquisition leaders inside the Air Force, who I am proud to call my friends, including our guests today, began experimenting with new ways to use SBIR to attract these venture backed companies and start to transition the technology. They started with a simple idea like open topic, and upon success, opened up the aperture of funding and established the TACFI/STRATFI program,

Maggie 04:13

if you’re a founder or investor in defense tech. Today, those programs probably sound pretty familiar.

David 04:20

So like those initiatives, essentially turned SBIR from a science project funding mechanism into something much closer to a commercialization pipeline, and now we’re seeing Congress codify a lot of that evolution.

Maggie 04:33

So that brings us to the big news of today, after more than a year of debate and uncertainty, including a multi month lapse in the program when authorization lapsed back in September, Congress has finally passed the Small Business Innovation and Economic Security Act, which reauthorizes SBIR and STTR for five years through 2031

David 04:54

and in addition to extending the program, the bill also introduces several structural changes. Founders. Should understand, and we’ll get into that a little bit later.

Maggie 05:04

All right, let’s bring on our guest for today.

David 05:08

Well, it gives me great pleasure and pride to bring Chris Benson on, who is one of the key figures in modernizing the SBIR program during his time at AFWERX, which is the innovation arm of the Department of the Air Force, and he’s helped shape reshape how the program engages startups

Maggie 05:24

today, he’s on the other side of the table as CTO of Istari Digital, a fast growing dual use defense technology company that’s also leveraged SBIR as part of its growth.

David 05:36

Chris, welcome to the Mission Matters Techquisition Edition podcast. We’re so fortunate to have you on here. It’s definitely great to have a friend and a colleague, and I guess, an Air Force veteran, maybe a quitter as well, join us here. Now that you’re on the private sector side, I guess to start off when you were working inside AFWERX, helping evolve the SBIR program. What problem were you trying to solve then? And what wasn’t working about SBIR at that time? Yeah.

Chris 06:09

Well, first off, thank you so much for having me, and I will second my excitement about the bill that was just passed by the Senate on Tuesday, and then we were just talking about what the House is about to do with that. So I think there’s a lot of really interesting things that are getting pushed forward. And I guess I’m very, very encouraged by Congress continuing to try to improve on the SBIR program. After, I guess, 40 plus years, there’s been a lot of improvements on it since we started working on it back in the 2016, ‘17, and ‘18 timeframe. So going back to your original question — what were we actually trying to do there? If you remember, during that timeframe, that was in the early days of, I would say, a wellspring or Cambrian explosion of many types of innovation organizations, right? So DIU, the original, which you were at, David, as well as a number of other folks. And then we had AFWERX, and then we had NavalX, and there were a few other organizations that were around there as well. And so at AFWERX, when we were working on this, we got brought in and were originally tasked with the idea of trying to encourage innovation within the Air Force. And so we tried to do a number of different things by focusing on individuals and empowering the airmen and the folks inside the organization. But then they also brought us some folks who were working on acquisition — who were acquisition officers — that would include myself and some others, to try to think about, well, what are some of the acquisition tools we have in our tool chest to be able to figure it out? And we — one of the first ones we looked at was the SBIR program. So at the time, that was several hundred million dollars a year of funding that was taken from a large number of different accounts and was spent through kind of a central process, through Air Force Research Lab. And the thing that we noticed with that, that was interesting, was the fact that the number of dollars that we had in that SBIR bucket every year was increasing, which is good, right? Okay, so this is more money for innovation, trying new things within the department. The thing that was concerning was that at the same time, with the dollars increasing, the number of unique companies that were being awarded was actually decreasing. And then so we dug a little bit deeper, and we realized that, oh, actually, not only was the number of companies being awarded decreasing, but the number of unique companies even applying for these ever-increasing number of dollars was decreasing. And so we saw this as a demand problem, or kind of a problem with the solution that we were offering to attract the best companies to work with us. The number one thing we were trying to solve is: if we are getting more dollars, how can we also get that to be given out to more unique types of companies and have more competition for those dollars? And so we went after a couple different things, and we saw really kind of two of the biggest challenges that we heard when we were talking with companies about why they were not coming and working with the SBIR program. The first one being that the process for how they were applying was rather opaque, and so they weren’t exactly sure what they were supposed to be doing with this. It wasn’t clear — there was a whole bunch of “you have to apply for a DUNS number, and you had to go get a SAM account” and all these different kinds of things. And so we tried to spend a lot of time making that process as transparent and as straightforward as possible. The other thing that I think is actually probably the most important one was it was just slow, right? So you would submit an application, you would wait. You would wait maybe three months, and then you would hear something back. Sometimes you would be selected; other times, we would wait six months, and then you might be hearing, “Hey, you’re selected” or “not selected.” And then you might wait another three months to start. And now it’s been nine months, and you’re starting a $150,000 phase one contract, and for a lot of these companies, the timeframe just didn’t work. The two big underlying problems we were trying to solve behind that were the clarity about how companies could engage with the government, and also the speed at which they could engage with the government through that process.

David 10:36

Yeah, that’s great. And I think time to execution is often overlooked and maybe taken somewhat for granted with some of the more recent language and then sort of just the vigor with which AFWERX started to actually work with these companies, which has probably then increased the volume of participants. But you know, to me, I think when the SBIR program really came onto the scene was with this unique concept that you all came up with. And I think you highlighted, you know, the fact that the industry base was shrinking, right? We had less performers, despite the fact that there are more entrepreneurs in the United States than ever before, and yet somehow less are choosing not to participate in the national security environment. Of course, that was a big part of the reason why Defense Innovation Unit was stood up. But you guys kind of took it a step further, and you created this idea called open topic. Seemed pretty radical when it launched, yeah, and I can imagine that there was some pushback. So maybe you can talk a little bit about how you came up with the idea of the open topic. What were some of the reservations behind it? And then how have you seen that maybe proliferate across other parts of government?

Chris 11:52

It’s interesting that you mentioned that the open topic was novel, right? So actually, both the original things we were trying to do — moving fast and trying to have clarified instructions — we leveraged a lot of lessons learned from you all out of DIU to do that for the kind of overarching SBIR reform. And the open topic we actually leveraged from the British. So there was this organization called DASA — which I wish I could remember the full acronym for — in the UK, and they did these open calls for innovation. And so the original open call solicitation for AFWERX was modeled almost exactly off of the open call from the British. Now, you’re right. There was some pushback from folks saying, “Hey, you know, we’ve tried this before.” In the past, there actually had been a topic within AFWERX called a blue sky topic, and it had actually received zero applications in the past because people didn’t know what to apply to it. And that was, I think, in the early-to-mid 2000s or something like that. And so people were saying, “You know what? Fine, go ahead and try it. Last time we did this, we got zero applications.” And so it was actually interesting to see how they let us do it. But the real reason why we did the open topic was really, once again, trying to solve a particular need for the warfighter at the time, right? So we were seeing a bunch of companies — they were starting to apply, it was faster. There were a bunch of companies saying, “Okay, I have this capability. It doesn’t fit in any of the buckets that you guys have, any of the topics that are currently out there.” And I was like, “Okay, well, you’ve got to get to talk to somebody who’s writing these topics — a warfighter, if you will.” And they’d go, “Yeah, no, I have a warfighter. He really wants it.” And they would find an actual operator, right? Who really wanted the solution. But then we realized there was actually a timeline problem, not just post submission of the application, but beforehand. So there was this process where, in order to get into a specific topic we had at the time, you would submit an idea for what an SBIR topic would be, and you could wait — I don’t know, I think between when you submitted the idea, it would go through several gates and checks, which made some sense. But between when I submitted it as a warfighter, or usually as an acquisition person, and when it actually hit the streets for companies to see it, that was between six and 12 months, right? So now add it up. I’ve got an idea as a warfighter, a need as a warfighter or an acquisition person. Now I’ve got to wait, let’s say, 12 months until it actually hits the street. It’s going to be open for one to three months. So now we’re at 15 months. And now between when somebody submits their proposal and they’re actually starting a contract, that’s another nine months. So now we’re at 24 months from when the warfighter has a need. And that is completely outside of the realm of what we were being asked to do by our leadership — which was to move fast. And so we said, “Well, look. If you’ve got somebody who really wants it, then how about you just have them write a letter saying, ‘Hey, I could actually really use this.’ And what if we made a topic that said, ‘All right, if you’ve got somebody who really wants to use something, you’ve got a really interesting idea — then let’s just have an open topic for things that really need to move fast and have a really serious defense need, have some good technical backing, and have a real pathway to commercialization.’”

Maggie 15:23

So Chris, another initiative I know that you worked on at AFWERX was the TACFI/STRATFI programs, and now we see in this new reauthorization bill the Strategic Breakthrough Awards, which award up to $30 million for phase twos. They look very similar to STRATFI in that they have the idea of matching government funding with private capital. So I’m curious, can you talk a little bit about what you were trying to accomplish with TACFI/STRATFI at AFWERX, and now that we see the Strategicbreakthrough award, do you see this as Congress basically institutionalizing that model that you initially pioneered?

Chris 16:01

But, yeah, I think the Strategic Breakthrough Awards are definitely, I think, the spiritual successor of what we started in the beginning with TACFI and STRATFI. And I’ll go back to why we did that originally. It was because we had warfighters, we had acquisition folks who had a demand, right? They came in and said, “All right, well, look, I can write you a letter, and we can get on a phase one or a phase two. But really, in order to make something that’s truly useful at scale — that can cross that valley of death — $2 million is actually not going to cut it.” I mean, some of these programs that go into production — $2 million is a rounding error on some of these very large things. And so we had some folks from the acquisition community who would come and say, “Hey, look, I’ve got a warfighter. I’ve got some money, but $2 million is not enough.” And so we said, “Well, unfortunately, we can’t write that big of contracts.” And then, fortunately, in that case, I was wrong. We went back and looked at it, and it turns out you actually could write larger SBIR contracts if you were able to work with the Small Business Administration to prove to them that, “Hey, this is actually a good use of the SBIR funds, and you’re not concentrating it for no reason.” And so part of our discussion with the folks and a lot of different stakeholders working with the SBIR program and the STTR program at the time was saying, “Hey, look, we are okay with you guys trialing out writing larger awards for things that you think can make strategic impacts for the warfighter or for a particular acquisition. But we don’t feel like it’s right, and we don’t think it’s necessarily the right answer to have the SBIR program take on all of that risk. If there really is going to be a transition, then what you don’t want to do is say, ‘Okay, fine, SBIR program, you build the entire bridge across the valley of death, and we’ll just meet you on the other side — on acquisition land over here.’” Rather, what we said is, “Well, look, how about this? The SBIR program could build a little bridge from one side, and the acquisition folks can build a little bridge from the other side — we can kind of meet in the middle. That way, there’s some skin in the game as you go across.” And that kind of narrative, I think, made a lot of sense to all the stakeholders at the time. And they said yes. And then one thing that actually kind of ended up fitting in the middle is: what if there’s just not enough money? It’s a really hard thing. But actually, private capital can come in, and it ended up working quite well. I mean, I don’t know the transition rate for a lot of the STRATFIs, but I know personally, I think of the first 20 or so, we’re easily in the mid double digits in terms of percentages that are actually transitioning over to programs of record, and that’s what you want, right? You want to be able to place these big bets, to have actual significant changes to how we’re approaching the valley of death and bringing new capabilities to the warfighter.

David 18:55

Yeah, that’s great. So I guess real quick on that — was the leveraging of third-party capital or VC funding not necessarily part of the original recipe when thinking about building larger STRATFI awards?

Chris 19:11

So it was both. When we were talking with folks from the SBIR and STTR offices, they were very focused on commercialization, right? It’s a core commercialization program. They were saying, “Hey, look, we want — if we’re going to put X number of SBIR dollars in there, we want to see you commercialize.” Now, commercialization can happen either through selling to somebody else in the Department of Defense, or selling to somebody like a large defense prime or even a commercial company. And so the — it’s not a perfect measure, but a useful heuristic — is basically non-SBIR dollars to SBIR dollars. And so we found the addition of private capital from, you know, places like venture capital firms or other types of investment firms to be a very useful indicator of the probability of transition to commercialization, whether it’s within the DoD or elsewhere. And it also has the added benefit of saying, “Hey, if I can put in $1 of SBIR, I can actually get two or three or $4 worth of capability.” And what we found actually — if you go back and look at the numbers — I remember we had this chart where it’s like, we would put some money in for all the STRATFI companies, and then very quickly after that, the amount of money they would get from all other sources combined would dwarf the amount of SBIR dollars. And so it was really trying to crowd in that funding — for the political scientists out there, it’s like the idea of: you put a little money in there and it acts as a catalyst to crowd in the other funds. That’s what we were looking to do. And we saw — I mean, I was blown away by the first response to the first open call, and it really was a huge, overwhelming response, both from the private investment community and from the warfighters.

David 21:00

Yeah, no, that’s awesome. Well, so Chris, you know you’re now on the other side as CTO of Istari Digital, building a dual-use defense tech company. Have you been a user of the SBIR program, and what’s it like being on the other side of the table leveraging some of these programs that you helped institutionalize?

Chris 21:20

I mean, I think we like to practice what we preach, right? And so we think that starting with some of those early phase one, phase two pitch day-type SBIR awards, and then as soon as you’re getting on those awards, immediately start thinking about that transition — both to where you’re going to get the non-SBIR dollars and getting over into the commercial sector as well. And I mean, I remember our very first — when our first SBIR phase two started, my first conversation with our program manager was like, “Hey, look, this is only meant to get you in the door. We want to be focusing right now on how to cross the valley of death.” And so we went through the exact same pathway. We kind of mapped out where we started with a couple of those doing this STRATFI, and we have now kind of transitioned out of leveraging heavily SBIR dollars, certainly the last couple of years, but it was very helpful in the first couple to get us off the ground. So the focus now — I always tell startups: “Hey, look, there’s kind of two different go-to-market motions when you’re working in the federal areas. The first is getting in and getting your initial foot in the door, and the second one is going and getting your production contracts.” So the initial ones are phase ones and phase twos; the ones further out are going to be production contracts, and hopefully you’re leveraging the SBIR phase three rights. I will say that I don’t think I’ve seen a lot of people talking about all the stuff the Senate passed — and the Strategic Breakthrough Awards are really, really cool. Love all these things. I think that’s certainly one of the things I’m most excited about.But a sneakily important aspect, I think, of the bill that was passed yesterday was the fact that there’s a requirement for agencies to have templates for the phase three contracts. One of the biggest challenges we still see today in 2026 is the fact that a lot of contracting officers are still not comfortable writing contracts or transactions using SBIR phase three authorities. And the more folks can get comfortable with that, I think the more you’ll see folks be able to transition those things across the valley of death. And so that’s a sneaky, kind of under-heralded part of the bill that came through, from my perspective as well.

Maggie 23:41

So Chris for founders listening, how should they think about SBIR today? What advice do you have for founders to best take advantage of this program?

Chris 23:51

Just know that as soon as you start that first go-to-market motion of getting your foot in the door, you need to start immediately building that muscle of moving to production. You need to start having those conversations right away — talking with the warfighter or program managers about this: “How are we transitioning this? Where’s the PEO line where the funding is coming from? Let’s start talking about SBIR phase three, or production follow-ons, or whatever else you may want to be going through.” And just know that’s a different set of skills than getting your foot in the door. But I will still say that, between what they’re doing with the SBIR program and what David was able to create at DIU, I don’t think there’s been a better time for startups in general to get their foot in the door. But once you get your foot in the door, you immediately need to change your mindset and start focusing on that transition to production.

David 24:43

Oh, absolutely. So I think, yes, production and scaling, that is how we all win. That is how the startups sort of showcase their value. It’s how the war fighters get access to compelling technology with economies of scale. And I mean the ultimately, I think, the taxpayer, you know. Gets better leverage on on what they’re paying in for government operations. So Chris, it’s always a treat to reconnect with you. You know, I should also shout out that Chris is part of the inspiration around sweat equity. So if you read my blog on that, you’ll have noticed his name being mentioned there as well. And you know, you are just kind of, you’re not going to beat me in the beep test this year. Fine. We can do the two-mile race then, I don’t know.

David 25:33

We’ll see — perfect, on reserve duty. Well, Chris, thanks again. Appreciate your time here. Appreciate everything that you’ve done for the SBIR program — taking it out of the doldrums of backwater lab work and into the forefront of innovative, cutting-edge technology. We salute you for that, and thanks for coming on this episode of the Techquisition Edition. Thanks, Chris. Awesome.

Maggie 26:01

now that we’ve heard a little bit about the history of the SBIR program from Chris and how the program came to be such an important part of the defense ecosystem today. Now let’s turn to discuss some of the major changes that were made to the program in the recent SBIR reauthorization bill. So first, one of the big changes made in this bill was that Congress created something called strategic Breakthrough Awards, which allow phase two SBIR projects to scale up to as much as $30 million over four years, provided the company can bring matching funds from another government agency or third party capital provider.

David 26:40

And as you learned, it seems that the origin definitely came from the TACFI/STRATFI model that AFWERX pioneered. So this is the government trying to pair funding from other sources and help accelerate transition, whether that’s with private capital or other government funding.

Maggie 27:00

So the idea there basically is, if I can go get another DoD agency to give me $10 million to fund some project, then I can get another 10 million from SBIR. Is that the right way to think about this?

David 27:14

I think so, yeah. It’s all about — and in certain cases, it’s also looking towards the future. So if you are addressing something that has future funding programmed, you can win a STRATFI now — that funding doesn’t come to you until you’ve exercised that milestone and the matching funding has also been released. But yes, it is all about big-time signaling and leveraging other pots of funding.

Maggie 27:42

Another major change that founders will notice is proposal limits. Agencies now have the authority to cap how many SBIR proposals a single company can submit in one year, which reads like an attempt to prevent what people sometimes call SBIR mills, right?

David 27:58

You are right, Maggie. I mean, it’ll be interesting to see how this one plays out. I certainly feel for the government SBIR evaluators, who are deluged with proposals, and you know, advances in AI mean larger volume proposals — a lot of it being AI slop — and that is a pretty big drain on your evaluators trying to separate the best solutions from the rest. My personal hope is that this will help curb the SBIR mill enthusiasm for submitting to every topic under the sun, even when they’re unqualified. But time will tell, and the agencies will exercise their own autonomy around this. I think it’s also worth noting — and Chris alluded to this in the interview — around improvements for phase three transitions, including some standardized procedures and better acquisition workforce training, so that contracting officers can understand how SBIR technologies can be fielded beyond R&D funding. And like anything, you know, education is absolutely key, and it is a great authority that the SBIR program provides to help companies transition from these R&D stages into something that looks more like production.

Maggie 29:11

And then there’s another area that’s recently gotten a lot of attention that is foreign due diligence.

David 29:20

Yeah, this is a big one. Congress has significantly expanded security screening requirements for companies participating in the SBIR program.

Maggie 29:29

So David, help founders understand what that actually means. You know, if I’m a startup applying for SBIR funding today, what kind of scrutiny should I expect?

David 29:39

Yeah, this is probably the biggest structural change for founders that they need to understand. Congress has essentially expanded the national security screening process for SBIR participants. Under the new rules, agencies now have to conduct due diligence on companies applying for SBIR funding to determine whether they pose a security risk. The government will evaluate things like financial, employment, or technological connections with foreign entities, and whether the company or its partners appear on a number of national security watch lists such as the Commerce Department’s Entity List and the Treasury Department’s Chinese military-industrial companies list. So for founders, the takeaway is pretty simple. SBIR is still very much open to venture-backed startups, including those with international investors, but transparency around ownership, capital sources, and foreign relationships is going to matter a lot more. And if there’s a questionable connection to entities in countries of concern, the agency now has the explicit prerogative to deny such awards.

Maggie 30:43

So we’ve covered what changes made it into this SBIR reauthorization bill, but I also want to discuss what didn’t make it in. There’s been a lot of debate over the last year about SBIR reform. I know David last year, you actually testified in front of the Senate Small Business Committee right as Senator Ernst unveiled the Innovate act to institute more substantial reform of the SBIR program. What were some of the key provisions in this bill that were not passed in the final bill, or what were you hoping might make it through that was ultimately left on the sidelines?

David 31:16

Yeah, good point. And you know, it probably doesn’t do any good to dwell in the past, but a couple elements that Senator Ernst included was this unique phase one, a program which was aimed at helping new entrants on ramp faster into the SBIR program. So it was almost like a carve out before a phase one, and it was only available to first time participants that did not make it into this final bill. Additionally innovate act, wanted to apply a lifetime cap for how much funding an individual company could win through the SBIR program that also did not make it in. And then, personally, I had hoped for some language promoting firm fixed price contract types over cost reimbursement, or at least giving a significant preference from Congress that isn’t in there either. Though I do feel good about a lot of different agencies across the DoD who seem keen on trying to promote firm fixed price, which is far more conducive to a venture backed startup, and you know, just more aligned with how the commercial world does buying in general.

Maggie 32:27

Well, regardless, I think we’re all happy that SBIR is officially reauthorized. The wait is over, and that just means there’s going to be more innovative small businesses getting funding to build the future of defense innovation, which I personally am excited about.

David 32:44

absolutely, and I can maybe stop fielding calls from founders and other investors about what’s going on with the latest with the SBIR at least for the next five years, we don’t have to think about that authority going away, though. I’m sure you know, in four years, we’ll start to re engage and and see how we can make this program even more conducive to just the way technology is developed and where the national security apparatus needs it. So I guess the battle is over for now, but modernization never sleeps.

Maggie 33:18

All right, David, as we wrap up, I want to ask you a closing question. What do you think the next Techquisition Edition episode will be about? If you had to guess?

David 33:28

Okay, great. I did think, I think we got this one correct.

Maggie 33:33

We did get this one correct. We correctly guessed SBIR reauthorization was next. So let’s see if we can keep the streak going.

David 33:39

Well, yeah, and the other one that I think I alluded to was around the President’s budget, so we’ll see if that one transpires, but that’s what I believe will be the next Techquisition Edition.

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We cover:

• How the Appropriations Bill, NDAA, President’s Budget Request, and the reconciliation (the “one big, beautiful bill”) fit together – and where the real funding signal lives

• How startups should engage Congress to advocate for their technology without burning credibility

• What next-generation technologies (AI, autonomy, space, maritime, digital infrastructure) are actually funded in the bill

• The importance of the Joint Explanatory Statement (JES) to understand appropriators’ intent behind the bill

• How to tell whether a budget line is real, available, and competitive, or already spoken for

• How appropriators think about risk, flexibility, and accountability with taxpayer dollars.

You can listen to the podcast on Spotify, YouTube, Apple, the Shield Capital website, or right here on Substack.

As always, please let us know what you think. And please reach out if you or anyone you know is building at the intersection of technology and national security.

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Transcript

Maggie 00:39
On this episode of the Techquisition Edition of the Mission Matters Podcast, we’re joined by Johnnie Kaberle to break down the fiscal year 26 appropriations bill and what it means for startups.

David 01:09
This podcast was originally recorded on January 26, prior to the brief government shutdown and the subsequent congressional compromise that removed the Department of Homeland Security funding bill from the broader appropriations package.

Maggie 01:22
Johnnie is an expert in the world of defense appropriations. She’s currently a senior vice president at West Exec, a well-established government relations firm. Prior to joining West Exec, she served for a number of years as the staff director for the House Appropriations Committee for Defense, also known as HAC-D.

David 01:41
All right, Maggie, before we bring Johnnie on, I think we should level set for our founders listening. Because anytime we say “appropriations bill,” eyes naturally glaze over immediately.

Maggie 01:54
Yeah, this is definitely one of those bills that everyone hears about in one form or another. Everybody knows it’s important. Everybody knows it can lead to things like government shutdowns. But almost no one is totally sure what it actually does, how it comes into being, and how it relates to all these other important documents like the President’s budget request, the National Defense Authorization Act, the reconciliation bill, et cetera. To be fair, it is a 1,000-plus-page document, so it really does quite a lot.

David 02:26
So at a basic level, the appropriations bill is how Congress actually gives the executive branch permission to spend money. Each department, of which there are 12, will receive its own funding bill. Examples include, in addition to the Department of Defense, the Department of Agriculture, Department of Transportation, Department of Labor, Veterans Affairs, as well as the legislative branch, which also depends on funding bills to operate. All the strategies, modernization priorities, and budget requests in the world don’t matter if the money isn’t appropriated.

Maggie 02:57
That’s right. As you might have learned from Schoolhouse Rock, or back in civics class, this is really Congress exercising its power of the purse. And for founders, this is more than just a policy document. It is one of the strongest demand signals the government puts out about what they are actually planning to buy. It tells you where Congress is comfortable putting real dollars behind a mission.

David 03:21
And context matters a lot this year, because last year we were operating under a full-year continuing resolution. Congress was not able to pass a new budget, which basically meant everything was frozen at the previous fiscal year’s funding levels.

Maggie 03:37
So that means that for the past two years, we’ve been operating with a budget tied to government priorities convened all the way back in 2023, which feels like a really long time ago. It seems like a lot has happened since then, right?

David 03:50
You are, Maggie. I think you might have still been in graduate school. But beyond the funding levels, which were tied to decisions made a long time ago, operating under a continuing resolution, or CR, means no new programs that were previously unanticipated in 2023 can begin without explicit approval. I would say this has wreaked havoc on the innovation ecosystem. So when we look at the fiscal year 26 appropriations bill, we’re not just asking what’s in it, but how it’s evolving and what that evolution tells founders about where the system is actually headed.

Maggie 04:23
We’re going to dig into things founders don’t usually hear explained clearly, like how lobbying actually shows up in bill language and why committees like HAC-D and SAC-D, the House and Senate Appropriations Committees for Defense, matter way more than most startups realize.

David 04:39
And we’ll talk about those big, headline-grabbing legislative packages, like the big, beautiful bill, how they fit into this whole process, and how much of that is real acquisition signal versus political noise.

Maggie 04:52
All right, let’s bring Johnnie in. Johnnie, thank you so much for agreeing to be on the Techquisition Edition of the Mission Matters Podcast. You are officially our first external subject matter expert. There’s probably no one better to help us demystify the appropriations bill and help us and our founders understand its value, as well as how they should be thinking about their own government relations strategy to influence and take advantage of the opportunities presented in these kinds of bills.

David 05:24
But first, please tell us a bit about yourself. We know you’re currently at West Exec, a well-established government relations firm, and we know that you were the staff director, as Maggie highlighted. What else should our listeners understand about your experience dealing with the appropriations bill?

Johnnie 05:40
First, David and Maggie, thank you so much for having me on. I have been really looking forward to this. In the year since I left Capitol Hill, my favorite thing has been explaining how appropriations works to people on the outside, because appropriations is really fun when you understand it. I retired after 30 years and 10 months last January, and I actually had a pretty unique background, even by Capitol Hill standards. I worked in personal offices for a variety of members of Congress. I also worked in the whip office in Republican leadership, and then served as the deputy staff director of the entire Appropriations Committee, covering all 12 bills. But my passion, and where I ended up at the end, was as staff director of the Defense Appropriations Subcommittee.

David 06:28
Well, I must say, you know, Johnnie, as we talked earlier before the recording, that this is kind of your first formal podcast out into the ether, and I’m just putting it out there for other podcast hosts: you should definitely bring Johnnie on to your episode. We’re going to focus on founders and the appropriations bill as it lies today, but man, your stories that we were talking about, just a little bit of them, they were incredible. Yeah.

Maggie 06:55
So, Johnnie, top level, what are some of the major highlights that you noticed in this year’s Defense Appropriations Bill? What are some maybe notable new initiatives and funding lines that weren’t present in past bills that people should be paying attention to? Well, I’ll—

Johnnie 07:11
Talk bigger picture. And I think that, again, my passion, and it comes from my previous boss, Chairman Calvert, is the innovation and the pushing of that. Many people get authorization and appropriations confused. And for the founders, what’s important to understand is authorizing without appropriating is just a policy statement. You could get authorized exactly everything you want, but if you don’t get any money for it, is that a win?

Maggie 07:39
And John, maybe could you talk to what even is authorizing?

Johnnie 07:43
So authorizing is giving the permission, giving permission for end strength, giving permission for, let’s say, F-35s or those type of things. However, and I always ask people I do a lot of speaking to, like graduate classes, if the authorizers authorize 90 F-35s and the appropriators fund 100, how many F-35s do you get? One hundred. If they fund two, how many do you get? Two. And so that’s why it’s really important. A lot of founders will relax when they see the authorization bill come out, where, again, if you’re only looking for permission, fantastic, but if money matters, you’ve got to wait for the appropriation.

David 08:26
Real quick, why then do the authorizers even put in a funding table, and how does that interact with the appropriators? Does it influence it in any form or fashion, or are they sort of operating in separate universes?

Johnnie 08:43
I would say, I’m trying to be politically correct, but I still gotta be me. They put a table in so that people can understand what the authorizers’ priorities are, but that doesn’t correspond with funding. Especially if you look at the timing of the bills, we don’t see their tables before other people see their tables. And by “we,” I’m sorry, I still go back into my defense role. The appropriators don’t see that. Staff will talk about priorities and bosses’ priorities and look at the funding levels, but no, the appropriators are not just taking the authorizers’ funding tables and funding them.

Maggie 09:25
Maybe it’d be helpful to actually talk through how the defense appropriations bill comes into being. How does Congress know what the military wants and needs, and how does the appropriations bill and that process relate to the President’s budget request and the J-books, which are supposed to come out earlier in the year to help the appropriators? And just to clarify for listeners, the President’s budget request is the administration’s annual proposal to Congress outlining the President’s funding priorities and plans for the upcoming fiscal year, but of course it’s just a request. Ultimately, Congress is in charge of actually funding those priorities. The President’s budget request is accompanied by the justification books, or J-books, which provide detailed, program-by-program explanations of how requested funds would be spent. They typically include budget rationale, performance metrics, prior year execution, and future plans, and they’re meant to be the primary documents that Congress and congressional staff use to evaluate, question, and modify DoD funding requests. So given all these documents and all these different stakeholders, what does it take to actually get the appropriations bill written and passed?

Johnnie 10:39
So one thing I want to put into context before I start this is the amount of staff. David had mentioned there are 12 subcommittees of the Appropriations Committee. When I was staff director of defense, I had the largest staff of any subcommittee, and that was only 14. And so the defense appropriations bill covers the Department of War, all the military services, and the entire intelligence community. If you were to compare that to our authorizing brothers and sisters, HASC has about 60 staff and the Intelligence Committee has about 60 staff. So we have 14 to 120, just to put that into context. When the President’s budget comes out, there are a lot of budget briefings. There are J-books, though this year, I don’t know how they did it, but the House appropriators had to write their bill without having any of those justifications, which is just amazing that they were even able to pull that off. They go through line by line. They go through the budget request. They have briefings. I know David was one who used to get to give those briefings to the Hill. They ask for specific data, and numbers matter. Numbers really matter to appropriators, because they don’t want to spend money on things that we’re not going to get. They don’t want to fund “hope so.” If they’re looking at how programs perform, and you got X amount of money last year for something and you underperformed, it’s unlikely you’re going to get that much money, or you might even get some money rescinded from the previous year.

David 12:12
Yeah, so those are all good points. And Johnnie, I’m getting a little bit of PTSD thinking about my time at the Pentagon briefing out my program, which I think you’ll appreciate, was $5 billion over the fiscal year. Defense planning, right, the five-year fight, with zero validated requirements. So you can imagine how well that went. Well, you had a lot of fun. You made a lot of friends. I made a lot of friends. Took a lot of cuts. But yeah, specific to fiscal year 26, what were some things that stood out to you? Was there anything in there of true note, and maybe somewhat related to some of the executive branch directives and memos that have been coming out, and whether or not the appropriators are picking up what the executive branch is putting down?

Johnnie 13:04
Well, I think that probably one of the most important areas to look at in the defense appropriations bill that most people skip over and just do a word search on is what we were talking with Maggie about earlier, which is the joint explanatory statement.

Maggie 13:18
And just to clarify for listeners, the joint explanatory statement, often referred to as the JESS, is a document issued by the House and Senate Appropriations Committees that essentially accompanies the final appropriations bill. You can basically think of it as a user manual for how Congress expects the executive branch, in this case the Department of Defense, to execute the appropriations bill, really explaining in plain English Congress’s intent behind the funding decisions written into the bill.

Johnnie 13:49
As we talked about, appropriators like numbers. We don’t use words unless we have to, and so if it’s written there, it really matters. And in one area, it talks about all of the items that were not funded out of the one big, beautiful bill that the department then came to the appropriators to get funded out of base funding. There are also always things that come up throughout the process, new emergent requirements that have to be funded. And I thought that was a really important section of the joint explanatory statement for people to read if they don’t understand, like, well, why didn’t they put more funding here, or why didn’t they put funding there, to understand the pressures that are there. I also think, you know, I hear, and I had a lot of questions, when the administration and the department came out with acquisition reform, which I was thrilled to see. And it’s not easy. It’s not easy when people have been doing something the same way for so many years. It’s uncomfortable, and you need leadership to say, no, it’s okay, we’re doing things differently. And everyone assumed that the appropriators would hate flexibility. Appropriators don’t hate flexibility. It means you have to have accountability. We want to know what you’re doing with it. You’re not getting walking-around money. And appropriators every morning wake up knowing one thing: this is taxpayer dollars. This is not our money. How do you justify spending this money? We want to be able to justify it in the same way that, you know, we push so hard for budgets, for audits. The department should be auditable. These are tax dollars, period.

David 15:25
Well, you’re, I think you’re asking for a few miracles there on the auditing, but maybe.

Johnnie 15:30
Again, this is, maybe it can be done, but it’s not easy, Johnnie.

David 15:35
One thing I wanted to follow up on was the one big, beautiful bill that was passed in July. To me, that was a bit odd, right? The reconciliation bill and its big emphasis and the amount of money that it provided to the department, and of course it was during a continuing resolution. So how should people understand the one big, beautiful bill and its relation to the FY 26 appropriation, and how might it also show up in the bill so that people can kind of see how those priorities are aligned?

Johnnie 16:19
So with the one big, beautiful bill, it was a one-time infusion, and that’s what’s so important. Appropriators will talk about base funding, and that’s the number every year that you look at as base funding. When I was there, it was $833 billion. This year it’s $839, so it’s up $6 billion. Now, when you throw in the one big, beautiful bill, that doesn’t get added to the base. So people that get the money now, in five years there’s not going to be base money to continue something, so it’s not something you can count on for the long term. And I think that is really important for people to understand, that you’re going to need to have other funding mechanisms, or other people within the department or the services that want to pick up the funding, because that money is a one-time shot. And, you know, again, appropriators, we don’t love that. We like to take things into account, to review, to be able to say this is working, this is not working, more money here, less money there. And also, as an appropriator, we don’t love it when authorizers get to write appropriations bills, which effectively happened with reconciliation. But, I mean, it was a great infusion and a needed infusion. It’s just important that people understand exactly what it is and what it isn’t, that it is not adding to the base, it is not long-term additional funds. And even in this situation, there were things that the authorizers did not include in reconciliation that the administration wanted and, as a result, came to the appropriators to fund out of the FY 26 base funding. And what that means to founders is that you have several billion that would have been available to other programs that now had to go into programs that the administration wanted to be funded out of the reconciliation bill, if that makes sense.

Maggie 18:19
So turning gears a little bit to understanding how founders and startups should be interacting with the Hill, with appropriators, and really understanding this bill, the word lobbying comes to mind. I know lobbying can be seen as a dirty word by many, or at best it is a misunderstood word, but a lot of the startups that we work with, and a lot of large companies, leverage lobbying firms to great effect. So how does lobbying show up in the appropriations bill, if at all, and how should startups be communicating with appropriators?

Johnnie 18:57
So I am not a lobbyist. I am a strategic advisor, so I do not go anywhere on behalf of companies. My job is to advise companies exactly on this. How do you communicate? And I think the number one thing is do not assume. Do not assume members of Congress are who you see them as on television shows or movies. They are not all the same. There are show horses, but there are also statesmen. Know who you are working with, and a lot of times that is where hiring somebody from the outside who has actually been in and knows these people can tell you, yes, this person says yes to everybody and does not do anything, or does not have the ability to get things done, or this is something that this member or senator is passionate about. Congress does not fund things because it is a nice thing to do. Again, it is not their money, it is taxpayer dollars. What problems are you solving for? Be very concise. Once you identify what the problem is, and especially with appropriators, does it make something more lethal? Does it mean you are going to produce faster? What does it do to jobs? Does it mean it is going to save money? Highlight that. I cannot tell you, 90 percent of the one pagers I got were just full of buzzwords. After reading it, I understood less than I did before, and it just frustrated me. Make sure you are able to convey exactly what you are doing and be honest. Most of the staff have done this a long time, and Dave and I were talking about how one of the challenges is that committee staff stay there for many, many years. In the department, people are there for two to three years. So you will have somebody from the department come and talk about a program that the committee staff has been working on for ten, fifteen years longer than that person. They really know their stuff.

David 20:54
So Johnnie, if what you are saying is that a startup should go talk to the staff of the Appropriations Committee, go talk to the members who make up the Appropriations Committee specific to your subcommittee, in this case defense. But if you are going to communicate, tell them what your capability is, why it could be good for a certain constituency. But maybe what I am also pulling out is how is it better than what is currently available? So you as a founder need to understand the state of play today and what the military services are employing from other vendors, and why this is a step function better. Because coming in with just your shiny technology, I guess what you are saying is the first thing they are going to ask is, is that being satisfied by something that is already in the base budget? And why should I actually care about this innovative solution, exactly?

Johnnie 21:58
And also, be honest. I cannot stress that enough. These people are used to people trying to work them, and it takes a while to build up credibility. It takes seconds to lose it. I have had members that I worked for see a technology they were just blown away by. It was not always even in their district. They were thinking big picture, national security. And then every meeting, it did not matter who we were talking to, the head of INDOPACOM, PACOM, CNO, whomever, they brought this up. So if you can get them passionate about what it is you do, that is why it is important to know who you are going to talk to and why you are going to talk to them. I see this with some of my clients who have lobbyists. They will send me a list of who they are going to meet with, and I look at the list thinking this is a waste of time. It is not going to help them. Know why you are going in. Are you asking for something? Are you just creating the relationship? What is the purpose? Make sure you understand that. And above all, be yourself. It always made me laugh when people would say they were nervous to come in and see me, because I thought I was the easiest one to talk to. I think you can even tell on this podcast, I will say whatever I think. Just be yourself. If you do not understand it, do not pretend you understand it. What you understand is the tech, so stick with what you know and let the committee and the other people do what they do.

David 23:32
So Johnnie, I mean this is incredible, and thank you. Very helpful, very validating to some of the things I have always thought but never maybe knew concretely. But I want to take a step back. People will always say, hey, I need to get a funding line inserted into the appropriations bill, I have got to get my mark. Maggie is maybe not old enough, but I remember the days of pork, right? And I am sure pork went into the appropriations bill. But we do not do that today, or do we? It is just a little bit different. So how should founders think about the terminology of getting a line item into the appropriations bill?

Johnnie 24:20
So neither the House nor the Senate Defense Appropriations Subcommittee includes earmarks. For this purpose, the definition of an earmark is directed funding for a specific entity. Actually, in the House rules, the definition that the House uses for earmarks is spelled out there. Everything we put in is supposed to be competitively bid if the department did not request it. So if it comes from the department, it is not an earmark. But if Congress adds something, it will be funding a line for a capability. Now, in many cases, you want to make sure you do not come to Congress and say, we have this great capability, make the department take it. You want to be doing your due diligence with the potential customer. You want them to say, we absolutely need this.

David 25:13
Well, what I am hearing you say is that you can talk to Congress and tell us how great your thing is. But if you do not have a customer representative inside the department who is going to advocate for the need for this type of capability that we are ultimately going to compete, whether by the Federal Acquisition Regulation statutes or other transaction agreements or some other contracting mechanism, it is almost like a wasted effort. If you do not have a demand signal coming from the department for this thing, talking to Congress is not really going to help you get a contract faster.

Johnnie 25:55
No, I absolutely agree with what you are saying. As a staff director, I was not going to say, oh, here is this great technology, Navy, you have to buy it. That is just not going to happen. Now, there are times when you talk to the right staff and they see a capability and think, oh my gosh, this would be fantastic for whatever service I am working with, or whomever, and they want to introduce you so that you can let them know what you have. That is something that can happen. But you really need a potential customer who, if they had the money, would want to spend it on that type of capability.

Maggie 26:37
So I noticed that in the bill that was released a few days ago, the word innovation is stated 34 times in the conference report. Following that word were capabilities, everything from solid rocket motors, which had $500 million attached, to DIU receiving $40 million for Pillar Two AUKUS-related fielding initiatives. What clues should startups be looking for in this bill to really understand the signal inside this appropriations bill with respect to emerging and commercial technology?

Johnnie 27:13
I will go back to what I said earlier, which is that appropriators do not like words. If they include a word, it is because it means something. To get into the joint explanatory statement, all four corners have to agree, meaning the House chair, the House ranking member, the Senate chair, and the Senate ranking member. That is a bipartisan, bicameral message on importance. So the fact that this makes it in is a signal to founders about where the priorities are. I was especially happy to see funding for solid rocket motors and those types of things, areas where many of us know there have been issues. That funding is being prioritized to fix those problems, and not just at the prime level. They specifically call out new entrants.

Maggie 28:02
And once a founder sees a budget line for something relevant to them, let us say I build a small UUV, an unmanned underwater vehicle, and I see there is $50 million for small UUVs, what is the next step a founder should be taking to actually tap into that budget line?

Johnnie 28:19
I think that is the point where a founder needs to talk to somebody who understands the process and has worked the process. In some cases, that money might already be spoken for. A line might have been moved. This is where the process does become more opaque. You need to make sure that the money is truly available, who is going to be managing it, and how they are going to get it. There is language in multiple places that says things need to be competitively awarded, except for certain exceptions. You want to make sure this is not one of the places where an exception is going to be provided, and that it really is available. This is very bespoke, and for each case you need someone who knows who to talk to or has the relationships to ask those questions.

David 29:13
So, Johnnie famously, I think the President put out a Truth Social post or a tweet or on X or one of those social media platforms stating that he would like to nearly double the defense budget to one and a half trillion dollars. You know, this is a little over half of the FY26 appropriation. So should we expect that the President’s budget request, when it gets submitted to Congress, will have a top line of one and a half trillion? And if you wouldn’t mind indulging us, what do you think sort of happens from there?

Johnnie 29:50
So I have been trying to track that down too. I don’t know the answer. I have many guesses. I think that it would be difficult to get a base budget at that level. I think there’s a possibility that that would include, but I do not know, another attempt at reconciliation, which I think would be very difficult in an election year, especially for the House. But one of the reasons that it makes me think of having that as the overall base budget is that several years ago, maybe six or eight years ago, we’d gone back to talking about how there are 12 appropriations bills. Historically, the Labor, Health and Human Services bill is, in general, a Democratic priority, and the defense bill has been the Republican priority. And so, as we’ve gone through and gotten close to shutdowns, they’ve started to travel together now. That’s why, for at least six years, you’ve seen them in packages together, and people will talk about parity. So if defense gets a certain amount of increase, then the Labor, Health and Human Services bill needs that increase. There is no scenario where Congress passes a bill with Labor HHS getting that much of an increase. So I often think in terms of three-dimensional chess, and I’m not sure how that would play out. And honestly, I’m not sure how, or if, it’s been decided exactly how that’s going to show up, because we’ve seen this administration get very creative.

David 31:35
Totally. Well, I mean, gosh, thank you so much for sharing your insights and obviously your well-deserved wisdom on the process. I know I definitely learned a lot, and we hope that our founders did as well. Thank you, Johnnie, for coming on. And for those of you that still want to stick with us, Maggie and I are going to highlight some of the winners and losers as we saw from the appropriations bill, based on whether or not Johnnie’s former colleagues decided to mark up or mark down a respective program. So stick with us. But Johnnie, thank you so much for coming on the Techquisition edition.

Johnnie 32:11
Thank you so much. Any time you have questions, let me know.

Maggie 32:14
Thank you so much, Johnnie. All right. Wow. Well, that was a great conversation with Johnnie, clearly a world-class subject matter expert on the world of appropriations. I don’t think I ever fully understood just how all of these different pieces work together, and I definitely learned a lot from that conversation. But I wanted to dive in a little bit here and get into some of the more specific details that came out in this bill that are going to be relevant for startups. Let’s talk through who some of the winners are and who some of the losers are in this appropriations bill that are going to matter for this ecosystem. So, David, maybe starting with some of the obvious ones, how did groups like the Defense Innovation Unit fare, or some of these other innovation organizations, in this bill?

David 33:06
Well, Maggie, yeah, I can never help myself but to do some control F when these types of documents come out and see how the Defense Innovation Unit does, and it looks like they did all right once again, right? They got a significant amount of money in the big, beautiful bill for fielding technology. They got an even larger plus-up from Congress relative to what the President’s budget request was, which was surprising to me. Once again, I think Congress is stating, especially on the appropriations side, that they like the way the Defense Innovation Unit does business. And I think for founders out there, DIU has been kind of a halcyon of an organization that awards contracts to venture-backed startups. So I would be on the lookout for more solicitations, or specifically, if you want a prototype project and you’re moving into production, it seems like there are a lot of line items that are explicitly focused on fielding these capabilities. They got some pretty large buckets of funding around some specific areas.

But I would now be a little bit remiss not to highlight that two sister organizations that are nested under the Defense Innovation Unit did not fare so well. I’m talking about the National Security Innovation Capital and the National Security Innovation Network, NSIC and NSIN, respectively. It looks like they both did get some money in the big, beautiful bill, but both were zeroed out in the President’s budget, and neither were plussed up by Congress. So in my mind, those organizations, as we know them today, are going away. Though I would be remiss not to state that NSIN appears to be morphing into a new entity known as these on-ramp hubs. I know that recently they just did a ribbon-cutting ceremony in Montana for what’s supposed to be an innovation hub out there, and there was a decent amount of money in the appropriations bill for that activity. But enough about the Defense Innovation Unit. Maggie, you write a blog that’s pretty dialed in on all things artificial intelligence as it relates to the department. What did you notice out of the appropriations bill?

Maggie 35:38
So one piece that caught my eye was the Chief Digital and AI Office. Specifically, their Alpha One programs seem to have been a big winner from this bill. This is essentially an AI infrastructure program that they manage to help spread artificial intelligence throughout the department. Last year, Alpha One had a $53 million budget. This year, that was bumped up to $401 million, plus an additional $140 million from reconciliation. So that’s almost, or maybe more than, a 10x increase there. We’ll definitely be seeing a lot more coming out of CDAO.

I’ll also just mention a few callouts. I saw that generative AI was mentioned three times in the joint explanatory statement. I don’t know if it’s ever been mentioned in past explanatory statements. I looked back a year or two and hadn’t seen it before. They’re looking at using generative AI for counter-UAS, looking at using it for mixed reality and immersive simulations, and then one other for real-time operational awareness. A couple of other smaller line items mentioned AI as well, including AI for night vision, multi-domain kill chain automation, cognitive decision aids, and autonomous battle management. Then there was a little bit of talk about using AI for warfighter health, specifically using it to optimize performance under acute stress. So definitely, we’ll be seeing more about artificial intelligence. This all seems to be feeding into the department’s AI strategy, which came out a month or so ago, so it’ll be interesting to see where we go from there.

David 37:27
I was going to say, it’s so good, because I think we talked a little bit in an earlier podcast about GenAI and its ability to help with a lot of different administrative tasks. But now, trying to apply this technology more broadly, I would imagine they’re taking a lot of lessons learned from both Ukraine and Israel on how this stuff could be implemented into the field. So it’ll be exciting to see how different companies implement these technologies, and then how we see it happening in exercises.

Maggie 38:02
Yeah, anything relevant in the world of space, or any of the services that we should be paying attention to?

David 38:08
Well, I’ll touch on space. You know, they were kind of flatlined, all things considered. And I know there are a lot of large initiatives. I guess I will say, Golden Dome aside, the Golden Dome seems like they need to hit the “I believe” button a little bit harder with Congress, because there were a lot of requests for information and understanding around how this is architecturally going to work. So, yeah, I mean, I was a little bit disappointed that space was not as big of a winner. It seems like other areas, like collaborative combat aircraft on the Air Force side, are doing pretty well. I saw on the Navy side a pretty big increase for their warfighting experiments and demonstrations, going from 82 million to 152 million. So you might think a lot about autonomous surface vehicles and underwater vehicles, right, and how they’re performing, and making sure that we’re building that into our concept of operations. Those were a couple other areas that stood out to me.

But I would recommend that founders, within different tech areas or services, look at some of the good materials out there written by outlets that are more professional than us, specifying exactly how things are playing out. Of course, this wouldn’t be a Techquisition Edition without me quickly highlighting the cyber stuff. As of right now, there was nothing in this appropriations bill for it, and in fact there was a section highlighting that if the cyber program isn’t authorized, then there’s money you don’t need to administer it. So the saga continues, yeah.

Maggie 40:00
Will remain to be seen what comes next. And David, just to close out the way that we’ve been closing out these other ones, what do you think our next Techquisition Edition podcast is going to be on, if you had to guess?

David 40:13
Well, I hope that it’s one of two things. It’s either the Small Business Innovation Research reauthorization, and we can talk about that in gory detail, or the President’s budget request, which traditionally is due to Congress in the February timeframe.

We discuss:

• What it means for DIU and SCO to be designated as “field activities”

• What new major AI projects the DoW is starting

• How DoW is investing in data and compute infrastructure to enable rapid AI adoption

• New initiatives in the services and PAEs designed to bring innovation into the hands of warfighters

• And more!

You can listen to the podcast on Spotify, Apple, the Shield Capital website, or right here on Substack.

As always, please let us know your thoughts, and please reach out if you or anyone you know is building at the intersection of commercial technology and national security.

And, we encourage anyone interested to read the AI strategy and innovation ecosystem memos for yourself to get all the details on these policy changes:

• DoW AI Strategy

• Transforming the Defense Innovation Ecosystem to Accelerate Warfighter Advantage Memo

• Transforming Advana to Accelerate Artificial Intelligence and Enhance Auditability Memo

Subscribe now

Transcript

Maggie 00:39
Welcome to the second ever episode of the Techquisition Edition of the Mission Matters podcast. In this episode, we’re going to be discussing some pretty big news that came out just yesterday about the Department of War’s new AI strategy and their new plans for the DoW innovation organizations. Just yesterday, Secretary of War Pete Hegseth announced a series of reforms for the DoW innovation ecosystem during a speech he gave at SpaceX headquarters in Starbase, Texas. He also announced the DoW’s new AI strategy. In conjunction with the speech, the department also released three new memos codifying these initiatives. So David, just to kick it off with the first question, can you cover what were some of the major themes highlighted in this speech and in these memos?

David 02:07
Well, Maggie, it’s a pleasure to be back on with you for this Techquisition Edition emergency podcast. Yes, we’re recording the day after Secretary Hegseth’s speech at SpaceX, which is a pretty cool venue to announce things at. But what did he talk about? He was re-emphasizing the desire for the Pentagon to go fast, find a way to be able to say yes, not be overly reliant on process, grow the industrial base by being creative and leveraging private capital markets. There was also a significant emphasis on leveraging artificial intelligence and on behavioral changes around data sharing, experimentation, and making the department AI-first. Secretary Hegseth also announced new leadership at the Chief Digital and Artificial Intelligence Office, as well as at my alma mater, the Defense Innovation Unit. He created lanes of understanding for how organizations like the aforementioned CDAO and DIU, as well as DARPA, the Mission Engineering and Integration Activity, and the Office of Strategic Capital, among others, are to work in tandem together to support the mission, which, quite candidly, can be confusing at times if you are unwitting to the variety of department organizations.

Maggie 03:32
I know I’ve had to have you explain to me multiple times how all these organizations actually differ from each other.

David 03:38
Yeah, well, you know, it certainly doesn’t help that the acronym soup is always expanding. But to that end, he emphasized some consolidation. We had these innovation organizations that were not tied directly to executing missions or acquiring capability. To that, he called out specifically the Defense Innovation Working Group and the Defense Innovation Steering Group. Gosh, I didn’t know that those were actually different, unique entities, and I’m an interested outsider. I couldn’t tell you what they did. He abolished those in favor of consolidating and then sort of putting the onus back on the services to consolidate as well and figure out how they’re going to engage with this series of memos. Overall, I’d say it’s a similar pattern to what we’ve seen. He is highlighting things that seemingly are working and trying to inculcate them into the system, versus allowing these things to continually operate on the periphery.

Maggie 04:42
So David, speaking of DIU and SCO, or SCO, Strategic Capabilities Office, can you tell us a little bit about what you think of those organizations being named field activities? I mean, what is a field activity? I know that was really one of the major reforms that people have kind of attached onto. Is this new? Is this substantial? Why does it matter?

David 05:04
Yeah, well, and I’m glad you mentioned the Strategic Capabilities Office, because I forgot to mention them as one of the organizations he referenced earlier. Okay, so field activity. Does it matter? Is it new? Field activities, there are lots of them. They are sort of an echelon lower than an agency. You have the departments, the Department of War, the Department of the Air Force, which is where the Space Force and Air Force as branches reside. Under the Department of the Navy, you have the Navy and the Marine Corps as branches, and then the Department of the Army. These are secretary-level organizations, and then you have these things called agencies. DARPA is an agency, DITRA is an agency, and then you’ve got the National Security Agency, which is also an agency and an intelligence community organization, so they are dual-hatted to the Office of the Director of National Intelligence and the Department of War. But what you might call less substantial, though still chartered to do a specific service on behalf of the entire department, are these things called field activities. I’ll actually give a commendation to my good friend Kevin McGinnis, who I worked with at Defense Innovation Unit back in the day. He wrote a paper stating that Defense Innovation Unit should be a field activity all the way back in 2017, and he was quick to remind me of that this morning over a message. We talked about it and asked, what does that mean, and why is it important? I would say for the most part things will stay the same. It does put the onus on Defense Innovation Unit and Strategic Capabilities Office to fulfill the mandate as articulated by Secretary Hegseth, and he’s going to submit that through the appropriate Title authority to Congress to ratify it. But now they are, lock, stock, and barrel, supposed to do exactly what these memos highlighted, and the department, or other organizations within the department, cannot or should not do that work. A good example of a field activity is Washington Headquarters Services. Most people don’t really know who they are or what they do. They support from a back-office perspective, contracting personnel among other things, and they provide that service for all of the Office of the Secretary of War’s needs. Whether you’re in Research and Engineering or Acquisition and Sustainment, and you’re one of those principals tied to doing something, if you need a contracting entity or contracting activity, you must use Washington Headquarters Services. That’s what they’re mandated to do, and that’s what a field activity is getting at. I would also say it will provide those of us interested in the financial machinations much better transparency into what Defense Innovation Unit and SCO are submitting through the President’s Budget. They’ll also now have to defend it. It won’t be locked in with all of the other Office of the Secretary of War activities where you have to figure out after the fact what DIU spent money on. That’s interesting. They’ll have to fight for it through the OSD Comptroller and the Office of Management and Budget, but it will help us understand what they’re spending to execute their mission. Hegseth mentioned that DIU will still have the ability to report to the Secretary, as codified in the Fiscal Year 24 National Defense Authorization Act, which was really important at the time. But their direction is going to come from the Under Secretary for Research and Engineering, Emil Michael, who now also appears to be dual-hatted as the department’s single Chief Technology Officer. For what it’s worth, a lot seems to be getting put on the plate of the freshly minted CTO, and I think we’ll get into that a bit more with the artificial intelligence transformation memo.

Maggie 09:19
Yeah. Yeah. That seems like a major point that Secretary Hegseth made, which was that all of these innovation organizations are now going to be reporting into this single CTO, Emil Michaels, who is really bringing all these organizations and their missions together. So according to Secretary Hegseth’s speech, one of the themes that I really took away is that innovation really can’t just be for innovation organizations like DIU. It needs to be part of warfighters and operators. It needs to become a core part of the way that the services departments and acquisition organizations, like the new program acquisition executives, do business. And there were maybe two major initiatives that he announced as part of that. The first one was this change to PAEs, this innovation insertion increment, or triple I requirement, that he mentioned. So could you tell us a little bit about what that actually means?

David 10:19
Yeah, well, I mean, I’ll say maybe to the first part about where is innovation supposed to happen. You certainly have these organizations where it’s expected to sort of be a front door for commercial entities. But I thought it was really cool that Secretary Hegseth sort of called out that innovation can happen at any echelon. He regaled an anecdote with a captain in the Army who was working on some AI transformation and saying, like, we need to be celebrating these activities and encouraging people who see problem sets in different ways and solutions to go out and do it and be encouraged, and then the command structure ought to support it. But specific to this innovation insertion and increment move, I’ll say off the bat, I think this is going to be really tricky to do, and a lot of that comes down to the budgeting process, known under the whole planning, programming, budgeting, and execution, PPBE. Maybe for the purposes of this conversation we’ll truncate it to how it’s colloquially known in the department, and that’s the POM process, Program Objective Memorandum. The POM process forces program managers to outline with extreme specificity exactly how the funding requested from Congress will be spent two years in advance, to include who the performers are going to be and what contract vehicles they’re going to exercise and leverage well in advance. And so how can the PAEs, across their portfolio, which we assume to be a grouping of related programs, be provided enough flexibility to incorporate innovation? This is going to be a challenge. Today, program offices can use programs like the Small Business Innovation Research, SBIR, or the AFWERX program. They also sometimes leverage the Defense Innovation Unit and some of their funding lines that are a bit more flexible, and then SCO, to do some of these innovative, non-programmed activities. So I think the department will need to negotiate with the appropriators off the bat what sort of a percentage, maybe five or ten percent of a program that is being POMed for, could be available for non-specified experimentation. And so I think it’ll be interesting to see how this plays out and how the services respond. But I do think that there’s an element of funding flexibility that is required in order to get after this mandate.

Maggie 12:55
So just to make sure I’m understanding this right, the way we should think about this triple I initiative is that it’s really trying to force the PAEs to spend a specific percentage of their budget on trying to integrate some innovative new technology into an existing program. So I need to spend some money to put AI on the F-35. But what you’re really getting at is that the way money is spent on a major program today has to be very detailed and submitted to Congress far in advance, and so we’re going to have to see how they’re actually able to get this kind of flexibility. Am I understanding what this initiative is the right way?

David 13:37
I mean, it’s almost as though you could ask me, you know, “David, here’s the NFL schedule. Predict every single team that’s going to win based on paper,” and not be able to take into account injuries or crazy random acts. And if you’re not right, there’s nothing you can do during the season in order to change the plan for how you thought it was going to play out. And I think what Secretary Hegseth is getting after is that the velocity and the pace of technological change are so fast that if we’re not taking advantage of it while the program is still in development, by the time it’s fielded, it’s already going to be outdated. And so if we don’t have these opportunities for innovation to occur, to then insert it and integrate and scale, because we’re not all-knowing, you know, we’re setting ourselves up for failure.

Maggie 14:40
So next, I want to turn to another one of his initiatives that he outlined, both in his speech and in these memos relating to the services. That is, he has mandated that the services need to brief plans for innovation within the next 30 days. So what should we take away from this mandate?

David 14:58
So, just like the Office of the Secretary of War started to consolidate a lot of these organizations or councils or steering groups, he is sort of asking the same of the services. And so I would say that, in some respects, it feels like the services are out in front of this. We’ve seen announcements around the Army FUSE program, and they’ve consolidated a lot of these seemingly related but not connected organizations that are doing innovation, experimentation, and scaling, and that’s now all under one house. The Navy is doing a road show with their new Navy Rapid Capabilities Office, and that seems to be a strong insertion point for innovation to get out to the fleet. They’re doing it in concert with the Office of Naval Research, which has historically been responsible for a lot of early-stage technology readiness level experimentation and working across a variety of national and government labs. And then Space Force, for a couple years now, has had this organization called the Commercial Space Office, COMSO, and they’ve been doing a really good job working with commercial organizations and figuring out how they can apply that to their mission mandates.

And so I guess the one service I didn’t really mention is the Air Force. They have a pretty famous innovation organization called AFWERX, but of late it’s been a little bit unclear exactly how that’s being tied into larger programs like Collaborative Combat Aircraft, which is pretty forward-leaning and leverages innovative companies. How is the Air Force going to be adopting this mandate to be more innovative? I think it’ll be really interesting to see how the services submit their plans. I really hope that, at least in some respect, we can see that at the unclassified level and provide some sort of comment, because one of the things that Secretary Hegseth reiterated is just how confusing and challenging it is for industry to understand all of this. So really what we ought to do is accomplish this transparently and make sure that we’re getting feedback from industry, so that we’re not just recreating the same thing as it was before.

So Maggie, maybe switching gears here, in addition to all these changes across innovation organizations and the need to go faster, Secretary Hegseth announced the Department of War’s new AI strategy. I think you’ve had some time to absorb it, but what were some of the major initiatives and themes from that strategy that stuck out to you and that our founders really need to know about?

Maggie 17:58
Yeah, definitely. I was excited to see a new AI strategy from the department. The last strategy the Department released was back in 2023, and if you can believe it, it did not mention generative AI a single time. Times have definitely changed since then. And I think, as you know, I’ve written about and we’ve talked about in the past that there are a lot of changes the department needed to make to really stay competitive in the AI space, as the pace of innovation has moved so quickly in the commercial sector. Overall, the strategy is focused on how the department can quickly adopt AI at speed to become an AI-first warfighting force. They’re trying to ensure that the entire department has access to leading-edge models on all of its networks, both classified and unclassified. The strategy starts out by detailing what they’re calling seven pace-setting projects, which are essentially, as far as I can tell, pilot initiatives to get the ball rolling on AI adoption within the department. Each of these is going to have a single, accountable leader who has to regularly report progress on aggressive timelines.

David 19:14
What would be a pacing project? Because that does sound pretty exciting.

Maggie 19:19
Yeah, yeah. So they’ve already announced one of these, GenAI.mil. I know, David, you’ve actually had the chance to play around with it, so I don’t know if you want to share anything about what that project is and how it is.

David 19:31
Well, sure. So GenAI.mil, a couple weeks ago when I was doing my reserve duty, all of a sudden one day we had an application on our desktop and we had access to Gemini. When you opened up the application, you could launch Gemini, but it also highlighted that coming soon would be a couple other of the more prominent large language models. And at the event yesterday, AHEG Seth announced that Grok is now available. The other two that I believe I recall seeing were going to be OpenAI ChatGPT and Anthropic. So it seems like the department is getting access to some of these cutting-edge large language models, and it’s really great to see. I will say, during my two weeks of reserve duty, I was using it quite a bit. Because I’m used to using it in my day job, I use OpenAI among others, and I was explaining to my coworkers how they might engage with it and leverage it. So it’s really great to see things that are in the commercial world coming to the department. I mean, I guess three years late, but who’s counting?

Maggie 20:43
I mean, I thought that this was a great initial project for the department to roll out, and they got basically just these basic AI tools in the hands of 3 million folks within the department. They did not overthink it, right? They are just giving people access to the exact same commercial tools that you and I have access to in our day jobs, really allowing people to see for themselves the power of these tools and find for themselves the major applications that are actually going to make a difference in their day-to-day workflows. So that was the first pace-setting project. They have a few more that they have not really released any details on, but they are looking at things like using AI for battle management, decision support, and improving simulation. The next major initiative that they announced is that they are actually going to be investing in more AI compute resources for the department.

David 21:33
I will just interrupt. I mean, that is huge to me, and as somebody who has watched the budgets be developed, it always feels like information technology and infrastructure are always a bill payer. So maybe just a little bit more on how exactly we are going to get to this AI utopia with the resources necessary to make it happen?

Maggie 21:59
Yeah, so I think that really investing in these AI compute resources is going to be one of the major enablers of actually getting this technology into the hands of warfighters, as well as folks in the back office. I have written about this before. One of the major roadblocks to getting AI where it is needed is literally just access to compute, access to GPUs, access to hardware that can run on classified systems or that can run at the edge. You know, some people I have talked to actually talk about bringing GPUs, like an NVIDIA Jetson, just in a suitcase to make sure that they always have it when they need it, because they know that they are not guaranteed to have it. Yep, I have talked to people at our portfolio companies that do this, and I have talked to people in the government that do this. So, you know, what the Secretary has said is that the U.S. military is going to put real capital behind acquiring compute resources. He even went so far as to say that they are going to build data centers on military bases or on federally owned land. We will definitely see what has to come of that. These are going to be secure data centers where maybe we could actually do some AI model training on classified data.

David 23:15
Sounds awesome and definitely needed. I hope that the government is able to strike a deal, because what we are seeing is certain communities resisting data centers, you know, not in my backyard. Well, you know, federal land on military bases, and there are certainly plenty of old, ugly buildings that ought to be knocked down, and we could put some server farms in there. Maybe if the warfighter can get access to it first, that would be wonderful, yeah.

Maggie 23:45
Well, you know, we know there’s a lot of real estate professionals in this administration, so I’m sure they’ll be thinking carefully about where the best spots are to put these centers. The next major piece that I saw in this AI strategy actually harkens back to the 2023 strategy, which was, once again, really focused on data availability for use with AI models. This was the major focus of the 2023 strategy, and the new strategy takes it another step further. One of the major challenges to actually deploying and training AI models in the department is that a lot of data is stored in silos. It’s hard for the Air Force to access Navy data, or even within the Navy it can be difficult for different groups to access data, particularly classified data. And as we all know, our AI systems are only as good as the data they actually have access to. So what the Secretary’s memo does is direct all departments and components within the DoD to release a federated data catalog to the CDAO, the Chief Digital and AI Office, that exposes all their system interfaces, data assets, and other access mechanisms across all classification levels, and it says they need to do that within 30 days. I think it will be interesting to see if this can actually technically be done, just literally whether the technology is there to do this in 30 days. But this is certainly an aggressive mandate to force organizations to get their data into a ready state so it could potentially be used by AI. We also see that the memo directs CDAO to release this data to any user who needs it and who has all the security requirements necessary to access that data. It says that if CDAO wants to deny a request, they have to report it within seven days, and that denial can actually be escalated to the Deputy Secretary of Defense for Research and Engineering, Emil Michael. So it will be difficult for CDAO to deny data requests. This is really about trying to open up these data silos. Related to these data decrees, it also directs the services to accelerate rapid ATO reciprocity, authority to operate reciprocity. I don’t want to get too deep into the details of ATO reciprocity. David, I don’t know if you want to chime in here, but basically this is the idea that if I’ve gone through the full cybersecurity process to deploy my software with the Navy, then I should be able to deploy it with the Army or the Air Force without having to go through that same very rigorous cybersecurity process as a commercial vendor to deploy my software on service networks.

David 26:35
You know, it’s a long time coming. We’ll see if they’re able to exercise this. It seems to have been a thorn in the side, and Secretary Hegseth did mention that there will be no sacred cows, and this would certainly be one I’d be willing to sacrifice. Maggie, maybe just, like, what should this mean for our startups? How should they interpret these announcements around data reciprocity, data access, network reciprocity, network access? I think they maybe mentioned stuff around one of the buzzword bingos of modular open systems architecture, trust and responsible AI. They even, I think the memos talked about Advana. The Secretary didn’t mention Advana in his speech. What does this mean for our startups, or emerging companies that want to do business with the department?

Maggie 27:31
Yeah, well, I think it means that this is the time to really start accelerating your engagements with the department. This is a time when they are actively kicking off new projects to explore how these technologies can be used. I also think this is a time when you can actually help shape the infrastructure that the department is going to need to deploy the applications that startups are building. If you have opinions on what compute resources the department needs, and what data catalogs and data infrastructure they need, or even better yet, if you have a solution to support building out that data infrastructure and that compute infrastructure, this is the time to make your thoughts known. Start engaging with people at CDAO and within R&E. Start engaging with people at each of the services. The service chiefs and combatant commanders are going to start designating AI integration leads; they’ve been directed to do so within 30 days. Find a way to get in front of those people when they’re announced, and then really spend a lot of time with warfighters, with operators, deeply understanding their needs, understanding how your solution can solve a real problem for them, and work your way up from there. Yeah. I mean, David, what do you think? What did I miss?

David 28:47
I think that’s right. I think now is a compelling time. I’d like to maybe go back to talking about the Army FUSE program. They’re doing a series of experimentations with the intent that the things that are working will have on-ramps into programs like Next Generation Command and Control. So I think if you’re a startup, you need to start participating in these activities. I’m not saying that there is a well-worn path to scaling, to becoming like the next Anduril per se, but one thing that I thought was interesting that the Secretary mentioned is that he highlighted two companies that are now a pretty vaunted part of the fabric, Palantir and SpaceX, and said that for them to get a hearing and an opportunity, they had to sue the government, and we need to change that mindset. He also mentioned that the Gen AI application is now available to three million people. While our loyal listeners will definitely be listening to the things that the Secretary said, do not assume that the three million people in the department who now have access to Gen AI will have necessarily heard the Secretary. So I think it is important to take the time to read the memos, and we’re probably going to link them in the show notes, and then make sure you have that with you as you’re engaging with your customers, because they’ll need education about how much this transformation is trying to change the narrative. Again, I would say get active and engage. If you feel like you’re being told no a lot, I would say that people within the Office of the Secretary of War will definitely be hearing their boss loud and clear. If you become the squeaky wheel, it might get that higher headquarters organization to reach down and smack somebody to do the right thing, because these are directives. If there’s one thing that the military is supposed to be good at, it’s taking orders in a very direct, top-down fashion. So I think it’s important to get engaged and to give these new emerging organizations the opportunity to prove you right, that working with the department is the right use of your time and resources, and that you can start solving some of these very vexing national security needs.

Maggie 31:18
So David, what were some of the topics that were not discussed in this memo, in this speech, that you might have expected to be in there?

Top of Form

Bottom of Form

David 31:26
So you certainly covered a lot in a short amount of time. In fact, I was joking with one of my friends that I feel as though Secretary Hegseth sort of recreated all of the greatest hits that a lot of us have been saying for a long time about leveraging private capital, growing the industry base, and being innovative. He talked a little bit about contracting. He talked about authority to operate, okay? But what didn’t he get to? I guess I sort of highlighted a lack of what we’re going to do with funding flexibility, right? That’ll continue to be a thorn in the side of all of these initiatives. So I think we’re going to need to get more creative in the coming year with whoever will listen over at Congress. I was also surprised to hear nothing about personnel clearance, right? How do we get people access so that they can know about things that are happening, so that they can build products that will meet the needs of the warfighter.

Maggie 32:26
It was especially interesting that they didn’t include anything about personnel clearance, because they did make talent such a central part of this strategy. In his speech, the department just announced their new initiative, the Tech Force Initiative, which is really working to get early career technical and AI talent into the federal government in general, but the Department of War in particular, to come help build technology to solve some of their crucial challenges. And the AI strategy also directed organizations to be flexible when it comes to pay and hiring to get talented people in there. And, you know, I think, as many people know, getting through the clearance process is actually one of the biggest barriers to getting technical talent in the door. Totally.

David 33:13
I mean, I’m definitely bullish on Tech Force. I remember when the Defense Digital Service first stood up, and some of the initiatives and the education, honestly, that they provided others in the department around how technology was transforming, or should be transforming, mission sets. I’m very bullish on that. But yes, the personnel clearance and getting people through the pipeline, attracting that talent, is going to be a challenge. Also, the International Traffic in Arms Regulations, ITAR. I know that part of it is with the State Department, but, you know, the Secretary has talked a bit about foreign military sales, and I kind of put those two in a similar bucket of how do we allow our industry base to sell to our partners and allies and make sure that we’re not cutting our nose to spite our face from a market standpoint for the proliferation of some of this technology. So I would have liked to have seen a little bit more there, and then maybe just access to classified spaces. Again, if we’re trying to build trust and communicate, and this touches a little bit on personnel clearance, how are we lowering the barrier to entry to even having these types of conversations in the first place? Again, we need to be growing, and growing the amount of people that are in the tent so that we can solve these vexing problems with people’s imaginative and creative ideas. So that’s what wasn’t stated. But gosh, if there’s one thing we can count on, it’s maybe another emergency pod within the next few months as this administration continues to check through a lot of the things that will help modernize the department.

Maggie 34:51
Yeah, absolutely. There are definitely more changes to come, I have no doubt, over the next few months. I’m curious, David, what do you think our next Tech Position podcast episode is going to be about?

David 35:03
Man, this is kind of like a bit of a sign-off for us, right? Like presuming what’s next. Okay, so gosh, I really hope that we can either talk about an appropriations bill getting funded, and I am going to go out on a limb and say that with that appropriations bill will be a reauthorization for the CIBER program. So we might get two emergency pods within one activity. I’m really hopeful for that. So maybe early February we’ll be back with Tech Position episode three, and maybe four, depending on how we decide to split that baby.

Maggie 35:45
I definitely hope we get both CIBER authorization and a budget passed this year. Well, on that note, David, thank you so much for coming on to record this emergency pod. I know it’s 10:00 p.m. now as we’re finishing this recording, and I really appreciate, as always, learning all of your wisdom on all subjects innovation and acquisition in the Department of War.

David 36:09
I really appreciate it, Maggie. It’s good to do this one in person, so that’s also fun. All right, until next time, until next time.

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🎧 Introducing the Techquisition Edition — a new sub-series of the Mission Matters Podcast, where David and I break down major defense acquisition news and explain what it means for technology startups building for the national security mission.

Our very first Techquisition Edition episode just dropped (link in comments). In this inaugural conversation, we dive into the NDAA’s most impactful provisions for companies working with—or hoping to work with—the Department of War. We cover:

👉 How the NDAA codifies SECWAR Pete Hegseth’s acquisition reform agenda

🛰️ New guidance accelerating DoW adoption of commercial space capabilities

🚀 What the NDAA signals about Golden Dome

🚨 Key proposals that did not make it into the bill

⚡ And much more...

You can listen to the podcast on Spotify, Apple, the Shield Capital website, or right here on Substack.

As always, please let us know your thoughts, and please reach out if you or anyone you know is building in the national security domain.

Subscribe now

Transcript

Maggie 00:19
Welcome to the first episode of the Techquisition Edition of the Mission Matters Podcast. Techquisition is a new sub-series of the Mission Matters Podcast that David and I are launching where we will break down major acquisition news and discuss how it will affect tech startups.

David 00:54
Well, Maggie, it’s really exciting to be doing Techquisition with you, and I’m sure we’re going to have Mike Brown joining us on several of these editions. I love a good portmanteau. Today we’re going to be discussing the 2026 National Defense Authorization Act, otherwise known as the NDAA, and we’re going to focus on what this means for tech startups. Over the weekend, the House Armed Services Committee released the full text of the conference bill, which means that the House and Senate Armed Services Committees figured out what they wanted to keep in, what needed to get thrown out, and all the things we call compromise. Earlier today, the House took it to the floor and voted to pass the bill. Next will be the Senate, ideally later this week, at which point it will be sent to President Trump to sign into law. And fun fact, Maggie, that I can’t help but bring up: only once in the NDAA’s history has a President vetoed it and then Congress, specifically the Senate, overrode the veto, and that was just a couple days ago during the first Trump administration.

Maggie 02:13
Interesting. What were they fighting over?

David 02:16
Something very political that we don’t need to get into here, because that’s not what our startups signed up for, but something for them to Google on their own time.

Maggie 02:26
Fair enough. I will say the NDAA holds a special place in my heart. Back in 2021, I was working my very first U.S. government job. I was an intern on the Senate Foreign Relations Committee, and my first assignment as a Hill intern was to read through the whole NDAA and figure out all the reports that the department owed to the Senate Foreign Relations Committee, SFRC. This is a 3,000-page document. This was before the days of ChatGPT, so I was manually searching through this document with keyword search to find all the relevant reports. It was very eye-opening to me about how the U.S. government actually works and how the executive branch actually works. I definitely wish I had LLMs back then. They were very helpful preparing for this episode, actually searching through the NDAA to find some of the key pieces that we are interested in or to identify things that maybe did not make it into this rendition of the bill.

David 03:30
Totally. Speaking of LLMs, big news on the military front. I’m currently doing my reserve duty at the Pentagon, and now there are giant posters of Secretary of War Hegseth pointing at you, doing his best impression of Uncle Sam, saying “I want you to use GenAI.mil,” where we now have access to Gemini. So congratulations to Alphabet and Google for getting Gemini onto the unclassified network known as NIPR. Apparently rolling out soon will be Grok, ChatGPT, and Anthropic in the coming months. I think a lot of legislative liaisons or people who would normally be parsing this document looking for little nuggets can now do more than just PDF keyword searches to figure out how their programs are being impacted by the NDAA. Three thousand pages, lots of reports, lots of authorities, lots of funding tables, lots of everything that we’re going to get into for this.

Maggie 04:40
Fun fact: I used an LLM to count this. The NDAA requests, I think, 122 reports from the Department of War that they’re responsible for providing to Congress in the coming months. But LLMs aside, this year’s NDAA is chock full of provisions relevant for startups looking to sell into the Department of War. It includes everything from acquisition reform to encouraging the use of commercial space assets, a little bit on ATO reform, changes to the Defense Innovation Unit, and much more, all of which we are going to break down in this episode. So let’s get started. David, I’m going to start with the most basic, dumbest question, but it’s one I actually asked you yesterday, and I think some of our listeners may have the same question. What exactly is the NDAA, and how does it compare to all these other mechanisms we hear about, like the budget bill, the reconciliation bill, continuing resolutions, executive orders, and more?

David 05:39
Sure. I’ll give you an unvarnished answer. I’m sure there’s a very well-scripted way to talk about it, but for me, having served in the military, the NDAA essentially gives us the authorities by which we can do our job, specifically in Title 10, which is what the military executes. If the department wants to stand up new organizations, spin down old organizations, retire existing platforms or weapon systems, or if they need new policy or new laws to execute their missions, all of that comes through the NDAA. It is the one bill that gets passed every year through Congress, going back decades. What it has also become is a bit of a catch-all. You’ll see in this NDAA the Intelligence Act, which gives the intelligence community some of their authorities. That really should be its own standalone bill. They have their own committees that go through it, but it gets attached to the NDAA because it’s something everyone will vote on, and more often than not, it will pass because national security is so critical to the U.S. people and to our largest government body.

Maggie 07:16
So just to confirm: we have the NDAA, which basically tells the Department of War what they’re allowed to do, what weapon systems they can field, what authorities they have. And it’s separate from the budget bill, which has not been passed yet, and which actually gives the department the money to do the things laid out in the NDAA. Is that the right way to think about it?

David 07:38
Exactly. The appropriations bill, which hopefully we get this year — last year we did not — is what gives the dollars to programs or activities so the department can carry out its missions as outlined in the NDAA. Something that’s confusing is that the NDAA has its own funding tables against various programs. It matters because it provides a gouge that the Appropriations Committee, specifically the defense subcommittees in the House and Senate (HAC-D and SAC-D), will take into account. But if your organization needs money to execute its mission, it is the appropriations bill that tells you what you get. They do anchor around what the NDAA puts in, which is anchored on the President’s Budget, submitted very late this year as the new administration wanted to put their own tentacles into the department’s priorities instead of using the one the previous administration had been putting together up until they left office.

Maggie 09:06
Got it. So at a high-level overview, we have the NDAA. It has $900 billion for the Department of War. One hundred sixty-two billion of this is going to procurement. One hundred forty-six billion is going to research, development, test, and evaluation. The rest is going to operations, maintenance, and then spending on personnel.

David 09:23
And military construction. Don’t forget about MILCON, its own separate—

Maggie 09:27
Thing. Okay, and military construction, but that’s—

David 09:30
Just an authorization. But $900 billion will probably be somewhat aligned to what the appropriators decide, but they truly have the power to determine how much money and to which programs this budget goes.

Maggie 09:47
Got it. So I want to really dig into the key parts of this bill that are going to be relevant for startups building in the national security space. One of the most relevant pieces of this year’s NDAA for startups, from my perspective, is this section on acquisition reform. Just last month you, me, and Mike Brown recorded a podcast discussing the Secretary of War Pete Hegseth’s new memo on acquisition reform, which is really looking to shake up a lot of the ways acquisitions are done today, like the requirements process and program executive offices. So how does this NDAA complement or add to that memo?

David 10:29
The NDAA codifies in law the concept of portfolio acquisition executives. This was highlighted by Senator Wicker when he originally released the FORGE Act. As the Senate Armed Services Committee Chair, he talked a lot about giving what used to be known as program executive officers—very senior acquisition officials—much wider authority. PAEs are now going to have a much broader range of responsibilities than PEOs ever had. All functional elements, whether finance officers or contracting officers, are now going to fall underneath the portfolio acquisition executives. They’ll be able to make more trade-offs with the resources at their disposal to prioritize based on a more fluid requirements dynamic.

They will still get their requirements from the service chiefs. But another big thing the NDAA codifies, which had been hinted at in other department memos, is the dissolution—or maybe that’s too strong a word—of the Joint Requirements Oversight Council. They will no longer provide overarching requirements that program offices then execute. Instead, portfolio acquisition executives are expected to receive requirements directly from their service chiefs. So Air Force PAEs will get them from the Chief of Staff of the Air Force; Army PAEs will get them from the Chief of Staff of the Army; and so on. To me, this is a huge tectonic shift in acquisition, providing significantly more flexibility across a diversity of capabilities and programs and giving more authority to individuals who previously would have seen it fractured across many other personnel.

Maggie 12:43
So the way to think about this is: previously the JROC was this joint group that led the requirements process, which was the multiyear process of collecting all the specific requirements for anything we wanted to procure. But today the change is that this requirements process no longer needs to be as rigid or as time-consuming as it was in the past. And now, instead of having this joint body in charge, you’re going to have the service chiefs themselves—the CNO and others—in charge of their own services’ requirements. Is that right? Correct?

David 13:24
Yeah, and, I mean, you know, it’s not like the JROC did every single requirement, but certainly for a lot of major programs it drove a lot of timelines. We’re just delegating that authority or responsibility back to the services, and then we’re also giving the senior acquisition officials significantly more latitude and accountability to execute the programs over which they have jurisdiction, all with the goal, as the conference report highlights, to reduce bureaucracy and increase decision making.

Maggie 14:00
And what’s the significance of codifying this into the NDAA rather than just relying on this memo from the Secretary to carry out these reforms?

David 14:11
Now it’s law, right? And so the department has to fulfill this, whereas if it’s a memo directive coming from the Secretary, Congress could actually say, Not so fast, and say, Actually, no, we like it the way that it is, and you’re going against the law and we’re going to double down on the law. Maybe a good example of this and how the NDAA oftentimes differs from the wishes of the Department of War: take the retirement of certain aircraft. I think the Air Force has been trying to retire the beloved A-10 Warthog since maybe before I even joined the military in the aughts. Once again, Congress has said, No, you are not going to be able to spend one dollar to retire the A-10. You think you are, or you would like to, and we’re saying, No, you cannot. And so with this PAE construct, Congress is saying, Go do this versus waiting for, you know, Mother, may I.

Maggie 15:17
So reading through this document, I noticed there was a lot of focus on commercial space and changing the way that the department works with commercial space providers. What were some of the provisions you came across that were most relevant for commercial space startups looking to work with the U.S. government?

David 15:37
It seems like Congress is continuing to march down this road of buying commercial space as a service instead of owning the entire system from soup to nuts as a government-owned, government-controlled system. Instead, it’s continuing to explore different commercial offerings and how we can use the data coming off these satellites to fulfill our mission operations instead of having to own it full saddle. You might think of it as here on Earth: I could buy my car and be responsible for the maintenance of my car, or I could just Uber around where I need to go when I need to be there. I think the Space Force in particular has been moving in this direction, and this NDAA continues to reinforce and emphasize those salient points, because there’s a lot of benefit from a cost standpoint to doing it this way.

We’ll see. There’s one program in particular that’s been bandied about for a while: the tactical surveillance, reconnaissance, and tracking program, which gets into this debate between what the intelligence community does with its Title 50 authorities and what the United States Space Force or the combatant commanders would like in terms of more tactical information coming off satellite vehicles that they would use for their own mission sets. This continues to be an area of interesting debate, and Congress once again seems to be reinforcing the idea that the Space Force, or the services in general, can start to provide some of this outside of the intelligence community, which has traditionally provided a lot of the overhead imagery to the combatant commanders.

Maggie 17:30
So basically, instead of the US government having to own the satellites that are collecting imagery and data, now they can just buy that data from a commercial player?

David 17:41
Exactly. And this is really important, because the department is still a very large buyer in this community. A lot of companies that were built ten years ago were thinking they would have massive commercial businesses of people buying their overhead imagery, whether it was electro-optical or thermal or multispectral or hyperspectral. You name it. It hasn’t really played out that way. The United States government and the national security apparatus have very large budgets to do these types of things, but traditionally those budgets have been tied up in building and launching the asset itself, instead of just getting the good data off the bird in the first place. For us, we have a lot of investments in this area, and we think this bodes well for those companies.

Maggie 18:35
While we’re talking about space, it’s impossible to ignore the elephant in the room, which is Golden Dome. This is a major priority for this administration. What does the NDAA have to say about this initiative?

David 18:50
I think it’s really important that you bring this up, because Golden Dome is the big winner in the reconciliation bill that was passed earlier this year. But I think what Congress looked aside—

Maggie 19:04
David, what is the reconciliation bill? How does that fit into this tapestry of bills?

David 19:10
Oh man, yeah. We talked about this on an earlier, not-yet-called-Techquisition edition of the podcast, so I’d definitely encourage our listeners to go back and brush up there. It was essentially a one-time funding bill pursued by the current administration and passed by Congress to provide, what was it, $110 billion around a variety of things. I think what some members of Congress didn’t like was how little definition was provided to that overall funding pot. Very much the opposite of what we’re seeing with this NDAA and what will be the ensuing appropriations bill, where some might say Congress is micromanaging. The reconciliation bill was quite the opposite.

So for this NDAA, they’re trying to set parameters around what they expect to see from Golden Dome going forward. That includes setting US missile defense policy around deploying and maintaining the next-generation missile defense shield, protecting against different foreign attacks, and ordering a description of a system architecture, which I believe General Gutline, who’s the head of the Golden Dome program, has been putting together for quite some time. Congress is essentially articulating: we expect to see this from you.

Maggie 20:37
Moving on from the world of space, I want to talk about some of the organizations responsible for tech innovation in the department, specifically the Defense Innovation Unit—your alma mater. What, if any, changes did the NDAA make to DIU?

David 20:56
Not a lot. There was one initiative that asked them to set up several hubs around the country, and they gave them a little bit of money for it. But if you looked at the funding table, DIU, through the President’s budget, requested $48 million, and it seems like that’s where HASC and SASC landed. So they’re authorized up to $48 million. Of course, as we’ve already talked about, everything depends on what the appropriators do.

If you recall, in the past couple of years the appropriators have plussed up the DIU budget by quite a bit—some order of magnitude of a billion dollars across a couple of different funding efforts. It wasn’t necessarily totally flexible for DIU to use that money as they wished. Some of it was partitioned off to Replicator, which has now transitioned to another organization.

Another thing mentioned in the NDAA relating to DIU is a discussion on the Blue UAS program. There was some reporting that Blue UAS was moved away from DIU, so there was discussion around that not being needed from them anymore, but Congress still expects more information around Group 1 drone requirements. Overall, things were pretty quiet for DIU relative to past NDAAs. It’ll be interesting to see what happens with the appropriators, as Representative Calvert, the chairman of the House Appropriations Committee for defense, has been a big fan of the organization and has plussed them up in previous years.

Maggie 22:36
There was also something in there about the new BOOST program that’s assigned to DIU. Is that something we should be paying attention to?

David 22:43
When I first read the draft, I was intrigued. But after more reflection and talking to some other sources in the building, it seems BOOST is just the NDAA’s way of codifying what is already transitioning from DIU. There was no funding line associated with BOOST and no new reporting requirement. I think it’s really just: how well is DIU transitioning their prototype projects to production?

In past years DIU has put out annual reports, and within them they highlight a lot of their prototype-to-production transitions and how those move on to different services. We haven’t seen an annual report in a little while, so maybe this is part of that. I don’t know—that’s speculative. I’m just spitballing here.

Maggie 23:42
What did the NDAA have to say about how the Department of War is using AI?

David 23:49
Yeah, well, you know, Maggie, this would be good fodder for your Gray Matters blog, which is always writing about AI. And I think the reality is there wasn’t much in here about it, which I think was surprising. I don’t know—you kind of read a little bit about what was going on in the NDAA. How would you interpret it based on all the research and writing you’ve been doing over the last, I don’t know, two years now?

Maggie 24:15
Yeah, I was surprised that there was not more in here. There didn’t seem to be any major changes made to the Chief Digital and AI Office, the CDAO, even though in the news there’s been quite a lot of discussion about potentially changing the organization. They set up an AI Future Steering Committee to understand how AI and AGI will affect the department. They set up a task force to investigate developing potential sandbox environments for AI testing. There was a little bit in there about ATO reform. It was relatively light, but basically they were directing the different services to find some ways to speed up the Authority to Operate process, which is the process by which software vendors are able to get their software authorized to operate on DoD networks. So it’s not explicitly AI-related, but it will certainly affect AI companies.

But then something I actually did find interesting was when I dug into the document that describes the discussion between the House and the Senate during the conference in which they come up with the compromise bill. It looks like the House version of the bill initially included more on generative AI, trying to force the department to conduct a few pilots, but it was not in the Senate version and was ultimately struck from the final version. So it looks like we actually could have had a more aggressive NDAA when it comes to generative AI, but for whatever reasons—unclear from the document—they decided not to do that.

There was a little bit of justification given. It basically said the Department of War has not yet come out with a comprehensive AI strategy on how they’re planning to use these tools in a responsible and safe way. So Congress did not want to force the department to start experimenting with these tools until they had done their own strategic thinking around how this was going to be used and how it was going to be used responsibly. They were basically saying they want to see a DoW AI strategy before they’re going to force their hand. I guess we’ll see how that turns out in the ensuing years. There are certainly a lot of great people in the department working on AI adoption and a lot of companies building tools looking to improve the lives of end users in the Department of War.

David 26:49
Yeah, well, I mean, obviously we’ve now got GenAI.mil, right? So it seems like the department is reading between the tea leaves that this is something that may be important to Congress in the future and is trying to get out in front of this technology trend that has certainly had a massive imprint on the commercial world. I will also say that, just being in the Pentagon the last few days, there’s a lot of talk around artificial intelligence, specifically generative AI and using it for different work streams. So it seems to be top of mind and present, regardless of what is or isn’t in the NDAA.

Maggie 27:31
So David, what are some pieces that did not end up making it into the NDAA that you might have expected to be in there?

David 27:40
Certainly a number of things. I was surprised because it feels like they have bipartisan support. One of them was access to SCIF-accredited spaces. SCIF stands for Sensitive Compartmented Information Facility. This is where classified conversations or classified networks occur. My understanding is that this was a pretty important thing to the Defense Modernization Caucus, and for whatever reason it did not get in, although it was in the House bill. So it was in the SPEED Act but didn’t quite make it during conference.

Another area that we often talk about as being an impediment to access to government is the Authority to Operate. I would have expected stronger language around ATO reciprocity. We’re getting to a point where the tech stacks are leveraging a lot of the same infrastructure. The differences are at the user application layer, but the reality is approving officials across different weapon systems, commands, and services have the power of the pen, and they’re just not incentivized to leverage another person’s work to quickly bring software onto different network systems. I think that’s a huge miss and clearly an impediment to commercial innovation or really just warfighter effectiveness.

Another thing that didn’t make it in or was controversial—and I recommend people read about it because there were a lot of news articles—was the right to repair. This would give the services the ability to actually fix their own equipment and provide them the technical orders to do so. Despite being in both bills, it seems the defense industrial complex was able to keep that one out. So maybe something to follow in the future.

And then maybe near and dear to my heart, though I was not surprised based on what I’ve been hearing from Congress: the Small Business Innovation Research program was not reauthorized through the NDAA. That means it could either be attached to the appropriations bill, some other bill, or done as a standalone bill. Tough sledding there. A lot of small businesses and startups really depend on SBIR. It’ll be interesting to see how the services respond. The SBIR/STTR program is mandated by Congress, but that doesn’t mean federal agencies can’t execute a similar program on their own. They would just have to do it independently.

We’ll see how different organizations respond. I wouldn’t be surprised if the Army, through FUSE, continues to execute SBIR-like programs even if they’re not technically SBIR. But there are going to be ramifications for that, and we should continue to watch it.

To our listeners—because we did this in our last non-tech edition podcast with Mike Brown—if you have not talked to your congressional representatives or senators and you think SBIR should go the way of the Innovate Act, which Senator Ernst is pushing for, you need to do it. It actually matters, and it’s what gets members of Congress energized and motivated to do things that may not seem intuitively obvious to them. Okay, enough about SBIR, because this is not a SBIR podcast, and there are other things to discuss about the NDAA, but SBIR was not in it.

Maggie 31:44
I called my representative right after we wrote that blog post together, David, so I’ve done at least a little bit of my part.

David 31:52
Amazing. I live in DC, so mine can’t vote.

Maggie 31:56
Well, that’s a whole other can of worms we don’t need to go down on this podcast.

David 32:00
So another area that I thought would have made it in but didn’t was the Economic Defense Unit, which was referenced recently in the big transforming acquisition memo put out by the Secretary of War. This seems to continue building on the theme of leveraging third-party capital as a warfighting instrument. We’ve seen the creation of the Office of Strategic Capital, their work on the Small Business Investment Company Critical Technologies Initiative, providing third-party VCs with leveraged capital to deploy into critical technology areas, and now also the loan authority, which we saw with the MP Materials investment from the government. The Economic Defense Unit just continues to build on that. I believe we’ll see it in the next NDAA, and this is probably just a case of not all of Congress being on board, since we saw it in one house in one bill but not the other.

Maggie 33:10
So what were some other notable provisions in this year’s NDAA, rapid fire, that are going to be relevant for tech startups?

David 33:19
Okay, rapid fire. One thing I think was interesting was key reforms to the Test and Evaluation community, putting a lot of those authorities inside the portfolio acquisition executive and creating an accredited test pipeline to speed up software for continuous improvement on already fielded systems, so you don’t go through a super laborious process. I think that will be key to readiness. Another area was the Modular Open Systems Architecture. A lot of pen to paper on that, which I think bodes well for commercial innovation. There are still a lot of discussions around intellectual property and what the government needs to own versus what will be restricted rights based on commercial technology developed with private or non-government funding. The more MOSA is adopted, the easier it will be for commercial vendors to engage with the department without getting tripped up by the IP debate. Those were a couple of the big things that will definitely benefit the overall acquisition system for startups. Great.

Maggie 34:41
And then last question. What advice do you have for startups, given the way this NDAA came out, to best take advantage of the new provisions that are going to help push them forward?

David 34:55
If you had things that didn’t make it in that you would have liked to have seen, that tells you where some of your lobbying efforts have come up a bit short. You need to pay equal attention to both the House and the Senate, because we saw plenty of areas where one chamber put something in and the other did not, and it didn’t automatically make it into the final bill. That would be one area. Also, continue to work with the department to make sure that when Congress calls up the DoD and says, “Hey, is this important to you? We’re thinking about putting it in the bill,” the department is advocating accordingly. It’s a full-court press. Everyone is your stakeholder, and sometimes you have to bring them together to see things through. You can never start too early on government relations and lobbying efforts. In fact, if you’re waiting until the springtime, you might already be too late for what should be released in the fall’s NDAA. So get going. And we’re happy to provide recommendations here at Shield Capital, as several of our portfolio companies work with some great government relations firms, and that has made a huge difference for them.

Maggie 36:27
Great. Well, David, thank you so much for an amazing first episode of the Techquisition Edition of the Mission Matters podcast. Looking forward to many more to come.

David 36:37
Always a pleasure. Thank you, Maggie. Yes, very excited for this new part of the Mission Matters podcast ecosystem.

Maggie 36:46
And excited to see how the Senate votes in the days to come. Definitely.

Akhil 36:50
Hey everyone, thanks for listening to the Mission Matters podcast from Shield Capital. Tune in again next month for another conversation with founders building for a mission that matters. And if you yourself are looking to build in the national security space, please reach out to us.

Keywords: NDAA, Tech Startups, Acquisition Reform, Defense Innovation, Commercial Space, AI, Military Spending, National Security, Golden Dome, Defense Modernization