New DoD Report Outlines State of Competition in A&D

DoD recently announced its intent to crack down on consolidation in aerospace and defense.  A new report supports this plan, highlighting significant concerns about lack of competition in the defense industrial base—a challenge that industry experts say could affect the nation’s ability to defend itself and its allies. 

Industry Consolidation 

Consolidation is the leading reason for decreased competition. Of the 51 A&D contractors in the industry in the 1990s, just five remain in the present day. The report did not establish a link between consolidation and increased pricing, but it did raise concerns about strategic innovation, national security, and mission risk. It additionally asserts that having a single source or only a small group of sources for a defense need presents significant national security risks. 

Challenges of Data Rights and Intellectual Property

Another key factor driving the lack of competition is the rule introduced in the 1980s governing IP and data rights. Eighty-eight percent of new DoD contracts since 2011 have been awarded for acquisition of commercial items, where a vendor’s exclusive ownership of data rights complicates the contracts. DoD asserts that IP will now be an important factor in defense industry contracts, and in its evaluation of said contracts. 

The Decline of Small Business

Small business participation has declined by 40% over the last 10 years. The DoD report emphasizes the importance of expanding small business participation in contracts, especially disadvantaged and woman-owned companies. DoD has vowed to increase small business participation via outreach to suppliers, existing programs, and reduced barriers to entry. It also intends to use its Mentor Protege, Small Business Innovation Research, and Small Business Technology Transfer programs to welcome new entrants into the space. 

Addressing Entry Barriers

DoD has also expressed its desire to assess and reduce barriers to entry for small and marginalized businesses. In 2021, it published a Federal Register notice soliciting feedback from small businesses interested in joining the A&D space. Feedback from this notice may inform future DoD practices, and identify new priorities. 

DoD has been clear: it intends to promote competition to the greatest possible extent. A&D players who want to thrive in this space, including through M&A should carefully study DoD priorities, and assess ways to support those priorities if they want to succeed in this rapidly changing space.