Trump Transforms the Government With Commercial Innovation
If the president succeeds in reforming procurement, America’s future is golden bright.
If the Department of Government Efficiency is the opening act of President Trump’s cost- and regulation-cutting revolution, then the executive orders he signed this month are the main event. They set the stage for long-lasting changes in how the government spends money and harnesses private-sector innovation for the public good.
Commercial technology companies are pushing the envelope of the possible, from Artificial Intelligence to advanced manufacturing. Yet the government is largely closed for business to these very companies. Federal contracting is a regulatory labyrinth that makes it difficult, expensive, and time-consuming for companies, especially startups, to work with the government. Worse still, the market for government work is functionally a monopsony, where the single buyer has massive leverage over the sellers. You might think this leverage would result in better deals for the taxpayer. In practice, the government uses its bargaining power in overbearing ways that make doing business with it an unattractive proposition. Many contracts insist on custom products and extraordinary clauses, like demands that companies turn over their intellectual property to the government and use complex non-commercial cost accounting systems. What’s worse, often the government competes against the private sector with in-house development projects that are not designed to scale and rarely perform as well as commercial products.
Faced with these obstacles, many companies have decided Uncle Sam’s business isn’t worth the hassle, leaving the job to a handful of contractors with no privately funded products of their own but exceptional ability to game the system. The end results of this brain drain are countless big-ticket failures, like the $7.5 billion EV charging network that was never built or the $42 billion broadband program that connected zero people.
This consolidation and ‘specialization’ has happened everywhere in government but is most apparent in defense.
The United States dominated the 20th century in no small part because of the feedback loop between the private sector’s technology and the military’s mission; everything Chrysler learned about manufacturing cars better, faster, and cheaper for a vast commercial market could be used to build missiles better, faster, and cheaper for the military.
Today, that feedback loop has broken down, due to budget cuts, overregulation, and a host of other factors. The vast majority of commercial companies have exited the market, selling their defense businesses to five prime contractors almost wholly focused on defense. Separated from the commercial market, these specialists have fallen behind in the tech race. They’ve lost the sense of urgency and scarcity that make commercial companies move faster and keep their operations lean. Worst of all, they’ve come to resemble the sole customer they serve, becoming more like state-owned enterprises than the innovative, founder-driven companies they once were. I wrote the Defense Reformation and started this blog to draw attention to this tragedy and make the case for reform.
Of course, would-be reformers have been trying to slash procurement regulations and encourage commercial buying for decades. A half-century ago, David Packard urged the Pentagon to “make maximum use of commercial products and devices” because “DOD cannot duplicate the economies of scale possible in products serving a mass market, nor the power of the free market system to select and perpetuate the most innovative and efficient producers.” He knew that government needed the private sector if it was going to fulfill its vital missions. In the 1990s, the “Reinventing Government” movement led by Vice President Al Gore and the Republican Revolutionaries under Speaker Newt Gingrich tried again.
A high point of this reform era was the Federal Acquisition Streamlining Act of 1994, or FASA, which created a government-wide preference for commercial items and required the acquisitions corps to perform market research about commercial products before buying noncommercial items. During the signing ceremony, President Clinton lamented that the military couldn’t buy radios from Motorola during the Persian Gulf War because the contract would’ve taken longer to finish than the war. In the end, Japan donated the radios.
FASA is clear in its intent and stringent in what it requires of government buyers. If a commercial item exists that meets the government’s requirements, the government must buy it. If a commercial item exists that doesn’t meet requirements, the government must modify the requirements in order to buy it, if it can. Finally, if a commercial item exists and the government can’t bend its requirements to make it fit, the government must approach the commercial company and ask it to modify the product to meet the requirements.
This reform, and others like it, were well-intentioned, but the regulatory jungle overtook them like the ruins of a lost civilization. Without enforcement mechanisms or executives who cared, government buying took the path of least resistance by buying noncommercial products. Far from “preferring” commercial companies, in 2022 the Department of Defense spent three dollars on non-commercial goods and services for every one it spent on commercial. (And that figure was historically high, inflated by DOD spending on commercial items to combat the coronavirus pandemic.) A far smaller amount is spent on the kinds of commercial technology, like AI and drones, that will shape the future of war—or that are currently shaping the battlefield in Ukraine.
The problem is so persistent that Palantir sued the government in 2016 for the right to compete for a battlefield-intelligence platform the Army had built in-house. The government-made system was a flop with soldiers, but pride and the sunk-cost fallacy kept it alive—until a federal court, citing FASA, forced the Army to hold a fair competition. The salacious details of the lawsuit, and the depths to which the government sunk to hide both the failures of the developmental approach and to block commercial innovation, are documented at greater length in an excellent article in Fortune by journalist Steve Brill. Long story short? We won the lawsuit (and the eventual competition), but we never should’ve had to fight in the first place. Commercial preference is the law already. It’s just the most widely violated law on the books.
Enter President Trump, and a new wave of reform that may succeed where others failed.
The blitz began on April 9 with an executive order focused on reforming defense acquisitions. The order directs the Pentagon to circumvent the typical, tedious procurement process and use faster pathways, like Other Transaction Authority, “to the maximum extent possible.” It calls for a ground-up review of major programs that are over budget and behind schedule. Perhaps most notably, it calls for acquisitions personnel to be evaluated on their ability to move fast, “take measured and calculated risks,” and buy commercial. This is a revolutionary culture shift. It infamously took the Army seven years, hundreds of pages of requirements, and millions of dollars in testing to buy a new handgun. Next time, they can just put in a bulk order with Smith & Wesson.
The week after, President Trump signed two more EOs that touch the rest of the government. The first orders a review of the 2,000-page Federal Acquisition Regulation to remove any regulation not required by statute or necessity. It also recommends a sunset period for all non-mandatory additions to the FAR.
The second EO enforces the commercial item preference. It orders government agencies to review all contracts for non-commercial goods and services for FASA compliance, along with the market research used to justify those contracts. OMB will then determine whether the use is justified. Critically, this action isn’t merely a restatement of the law; it creates the structure to enforce it. If an agency wants to go non-commercial, now they’ll have to answer for it. The default is commercial, and this time it has teeth.
Together, these EOs have the potential to revolutionize the government’s broken acquisitions systems. Follow-through is key. Transforming the broken system will require buy-in from agency leadership and an army of dedicated servants who are committed to trying a new approach. That’s a tall order—but the alternative is sticking with an acquisition system that is manifestly failing the American people and wasting your tax dollars.
Executed faithfully, these EOs can transform how the federal government spends your money and interacts with the most innovative parts of our economy. The government can buy better technology, faster. It can waste less money. It can deliver the goods, instead of fueling the pessimistic belief that the United States and the West are destined for a world of scarcity and decline.
If the president succeeds in reforming procurement and deploying cutting-edge, commercial technology, America’s future is golden bright.