Break the Department of Defense’s Acquisition Monopsony

For a long time, Walmart was a monopsony. The inverse of a monopoly, a monopsony results when one entity is the sole buyer of a given product or service. Walmart developed a notorious reputation of using its monopsonistic power to force its vendors to meet its terms, which in turn allowed it to set extremely low consumer prices. But in a monopsony, the lowest price isn’t the best price for the market because it hides the true cost, drives down quality, and decreases competition. Amazon’s arrival exposed Walmart as completely unprepared to compete on innovation. Today, there is a bigger monopsony that has evaded scrutiny but is even more deserving of disruption: the Department of Defense (DoD). 

Monopsonies reduce innovation among suppliers even more than a monopoly does. Diverse suppliers are forced to conform to the whims and peculiarities of the monopsonist. There are many examples of this within the DoD: Suppliers’ margins are regulated by the acquisition community’s preferred contract vehicle, cost-plus, which leaves little room for meaningful research and development. Even non-defense capabilities that shouldn’t be monopsonistic (e.g., payroll, HR), manifest that way because of excessive requirements that produce bespoke systems for the DoD. But the most dire consequence is that the monopsonist itself stagnates. Locked in a dynamic of trying to manage cost, schedule and performance, it loses sight of innovation and becomes vulnerable to disruption (Walmart and Amazon). How can the Department and the nation avoid that dynamic? We must have a competitive acquisition community to ensure overmatch and eliminate competition with other countries. 

Innovation is driven by competition. In the absence of competition there is no incentive to be better, faster, or cheaper. Much has been said about the weakened state of competition amongst the defense industrial base in the U.S. This collapse of competition was a function of Department of Defense policy at the Last Supper in 1993. But it’s been thirty years since the Last Supper, and the reality is that defense tech is increasingly competitive. Companies like Anduril, Shield AI, Epirus and many others represent the next generation of venture-backed Defense champions who have the ambition and aggressiveness to compete at a Prime scale. On the military side, friendly but fierce rivalry amongst the end user and warfighter community is equally robust: combatant commands compete to be more innovative than each other, and each service competes to be more relevant than the next. This competition breeds excellence, and excellence is the minimum requirement to deter China. 

The singular spot in this chain that is free of competition is the acquisition community. In general, there is only one Program Management (PM) office for a capability (e.g., F-35, XLUUV). Companies compete like gladiators in the arena for the PMs, who are themselves largely immune from outside pressures and completely free of competition. What would incentivize a program to deliver faster or cheaper than planned? From experience: Nothing. Anything that disrupts the plan is the enemy of the monopsonist. Humans only disrupt themselves when they are competing to win.  

We propose a structure where all programs have at least two competing program offices. This proposal is at worst cost neutral, and more likely to be cost saving through market and competition incentives (current large acquisition programs are typically delayed and experience cost overruns). The two competing program offices would take the requirements, devise their own acquisition strategies, and compete to deliver capability to the warfighter or mission user as quickly as possible. A senior leader from the mission would be the decider of the outcome on a continuous scale. It could be decided that 100% of the need would be fulfilled by a single competitor, or it could be 50/50, or anything in between. This is no different from how an airline might decide to be 100% Airbus, 100% Boeing, or some mix of the two that makes sense in context, a decision that is made continuously on each incremental batch of orders. As a powerful knock-on effect, this would radically increase the competition and agile capacity of the industrial base.

This proposal is similar to how some of the most complex and successful DoD acquisitions have historically operated. Take ballistic missiles in the 1950s and 60s: there was sustained, intense competition within and between the Army, Navy, and Air Force to deliver the best capability. The Navy’s Polaris and the Air Force’s Minuteman ultimately emerged as clear winners but not before the Regulus, Jupiter, Thor, Atlas, and Titan were developed in some form. As the missiles were competed, investments were dynamically allocated towards the most promising programs and away from the least promising. Harvey Sapolsky writes in 1972 in The Polaris System Development, “Centralizing decision making and eliminating competition would only have decreased the probability of obtaining the best system within any given time period.“

50 years ago, Sapolsky predicted our current monopsony’s stagnation. We need to break the DoD’s acquisition monopsony. Here is our proposal to do it:

Proposal

• There would be a minimum of two and a maximum of five competing PMs that balance need to compete with the need to make the evaluation reasonable. 

• Warfighters must take on more discretion in what they want. It would be too much to ask them to run the program, but it is not too much to ask them to test drive the final products to decide and evaluate what makes sense. Their lives will depend on it.

• All programs that are relevant to deterring China must participate in this structure. Programs that aren’t relevant are allowed to opt-out. 

• The PMs who may not be chosen as "winners" of this competition should not be punished; instead, they should be rewarded for the learnings and capabilities they have delivered. America's culture is centered around competition. We want to embrace that, but we must always remember that we are on the same team when it comes to beating China. It is PMs contribution to excellence through competition which means there is not competition with China.

The country, the department, and the warfighters will be better off with competition and that competition is required to spur innovation and efficiency. Let’s break the last remaining legislatively-granted competition-free arena in Defense. It is only such contributions to excellence through competition which will guarantee we are not in competition with China.