Defense Prime Contractors Have a New Problem on Their Hands

The defense primes have a fresh challenge on their hands: A US Army that’s tilting ever more toward a start-up-friendly, fast-moving procurement system.

US Army Secretary Dan Driscoll said on Monday that the military needs to rapidly overhaul its procurement processes and reduce its dependence on the largest defense contractors.

“We cannot f—ing wait to innovate until Americans are dying on the battlefield,” Driscoll said in his remarks at the annual meeting of the Association of the United States Army in Washington.

“We must act now to enable our soldiers. Our window to change is right now, and we have a plan to do it. We will set the pace with innovation, and we will win with silicon and software, and not with our soldiers’ blood and bodies,” he added.

Driscoll told meeting attendees that the military will be announcing changes to the way equipment is purchased “in just a matter of weeks.” He added that a Silicon Valley approach, which combines “venture capital money and mentorship with startup culture,” would be “absolutely ideal for the Army.”

“We are going to completely disrupt the system that held the Army back for decades and lined the primes’ pockets for so long,” Driscoll said.

“We will break down barriers until we measure acquisitions, not in years and billions, but in months and thousands,” he added.

Representatives for the US Army did not respond to a request for comment from Business Insider.

Primes under fire

Prime defense contractors are companies that have direct contracts with the government. They include major aerospace players such as Lockheed Martin and Boeing, as well as arms makers like General Dynamics.

Since taking office in February, Driscoll has called for a revamp of the military’s procurement processes. Driscoll served in the Army from 2007 to 2011 and was an officer with the Army’s 10th Mountain Division in Iraq.

In an interview with Business Insider in April, Driscoll said Washington has “optimized for nearly everything other than the soldier in their decision-making.”

“What has occurred is a hollowing out of a lot of the tools that we have given our soldiers,” Driscoll said.

During an appearance on the “TBPN” podcast in May, Driscoll said he would consider it a “success if in the next two years, one of the primes is no longer in business, and the rest of them have all gotten stronger.”

The largest arms makers have the expertise to design classified systems to the military’s needs and the advanced manufacturing to build them at scale in the US. They often rely on subcontractors to integrate the sophisticated systems and their computerized displays and controls.

These projects face an inherent strain: They must be built rapidly enough for current missions but with sufficient capability to remain effective in a war that could be decades into the future.

It’s a lengthy process that has been consolidated to a smaller number of major companies since the end of the Cold War. And it is this system that the Defense Department wants to widen to new players and speed up.

Silicon Valley titans, who specialize in rushing new digital services to the market, have also criticized the defense establishment.

“The Pentagon recently failed its seventh consecutive audit, suggesting that the agency’s leadership has little idea how its annual budget of more than $800 billion is spent,” Elon Musk said in an op-ed he cowrote with biotech entrepreneur Vivek Ramaswamy for The Wall Street Journal in November.

Musk and Ramaswamy wrote the op-ed as co-leaders of the White House DOGE office. Ramaswamy left DOGE in January, and Musk left in May.

Primes can move slowly

In the US, some major weapons developments by primes have been marked by severe delays. This includes Lockheed Martin’s F-35 program, which was mired in controversy, delays, and rising costs. The United States Government Accountability Office in 2023 said the program that builds three versions of an advanced stealth fighter was “more than a decade delayed and $165 billion over its original plans.”

Jets still arrive late. In 2024, all of the F-35 Lightning II stealth fighters delivered came late, with an average delay of 238 days.

Other big projects involving primes that are facing delays include Boeing’s KC-46 Pegasus aerial-refueling tanker and the US Navy’s Virginia-class submarine program with General Dynamics Corp. and Huntington Ingalls Industries.

Driscoll did not elaborate on what a new procurement system looks like, and the Pentagon has gutted its weapons testing office that independently assesses programs. The US military would likely still need many of the products made by primes. They are often the most advanced items a military buys, which is why they can be more vulnerable to issues than when companies work on smaller systems or single components.

Many US defense contractors lack commercial sales, making them wholly dependent on government spending. Huntington Ingalls Industries, for example, is the only American shipbuilder with the facilities and expertise to build nuclear-powered aircraft carriers.

An F-35, for example, has thousands of parts, and is a multinational project, with parts coming from allies like the UK and the Netherlands.

The defense market may be most open to new players in software and expendable drones, where barriers to entry are much lower.

Ukraine, hailed by allies as successful at manufacturing small drones to defend itself against Russia, still wants the big-ticket items like armored vehicles and missiles from allies, with its less-powerful assets alone unable to do much more than keep Ukraine on the defensive.

But its fight has still inspired Western industry. A host of new defense companies have emerged in response, and many major Western defense contractors have initiated new partnerships to acquire cutting-edge technology, work more efficiently, and address capacity gaps.

Jerry McGinn, the director of the Center for the Industrial Base at the Center for Strategic and International Studies, told Business Insider that while startups could make inroads into arms manufacturing, it will be difficult for them to beat the incumbents.

McGinn was the principal deputy director in the Office of Manufacturing and Industrial Base Policy at the Department of Defense from 2015 to 2018, where he oversaw acquisition policy.

“You’ve got to have a strong technical workforce, so there are significant barriers to entry there, but you have seen companies get involved,” McGinn said.

“The big example, of course, is SpaceX and Blue Origin. They disrupted the space launch business by coming in with their model, but it is hard to do,” he added.

A startup-friendly US military

Driscoll’s calls for quicker industry processes are in line with those of Silicon Valley and the views of US allies abroad.

And Driscoll’s push for cost-cutting means the market will adjust accordingly, says McGinn.

“If the government says, ‘We want more commercially oriented drones that they’re simple to make, that cost a hundred thousand dollars or less,’ companies are going to do that, and some companies that may not be competitive for them, they won’t bid,” he said.

“This is very much a monopsony, where the government sets the market. The companies are going to be competitive, and they are going to try to respond. They will partner with other companies to make themselves more competitive,” he added.

In May, Meta announced it is partnering with the defense technology startup Anduril to build next-gen extended reality gear for the US military. Anduril said the project was “funded through private capital, without taxpayer support,” and would “save the US military billions of dollars.” This program has suffered from years of delays and problems.

Meta’s CTO, Andrew Bosworth, described the collaboration as a “return to grace” for Silicon Valley’s ties with the military.

US allies have said the West needs to take a startup mindset to weapons development and testing.

While not rejecting the primes, many European defense leaders have said they want a shakeup. Militaries across the continent are buying from smaller, newer companies as well as the big players.

The UK’s armed forces minister, Luke Pollard, in May said that “Ukraine’s battlefield successes stems not just from great technology but also from their extraordinary ability to fail, learn, and iterate rapidly.”

Pål Jonson, the defense minister of Sweden, a NATO member and Ukraine ally, told Business Insider in February he was inspired by the Defense Innovation Unit in Silicon Valley, which helps companies and the US Department of Defense work together to field new technology at scale.

He said that using Silicon Valley as inspiration helped Sweden develop swarm drone technology in less than a year — a project that, he said, traditionally could have taken five years.

CSIS’s McGinn said defense officials should not see startups as a silver bullet to their procurement issues. Relying on a mix of both startups and traditional defense firms will better “contribute to the Army’s success,” he added.

“This is not about choosing only Silicon Valley companies. We need all kinds of companies to help support the Army and other parts of the Department of War,” McGinn said.