May 5, 2020 | International, Aerospace, Naval, Land, C4ISR, Security

The defense industry needs new entrants, and a supportive government during crises

By: Venture capital community leaders

The COVID-19 health crisis is quickly leading to an economic meltdown, throwing millions of Americans out of work and forcing strategic reevaluations across industries. The defense industry is no exception. We are praying for a swift end to the crisis, but its effects will linger, shaping the Pentagon's priorities, organizational structure, military operations, logistics, supply chains and interactions with the defense-industrial base for years to come.

In the past few weeks, we have had numerous conversations with government officials about our venture and growth equity investments in the defense sector. These discussions have centered on the eligibility rules of the CARES Act's Paycheck Protection Program and the risk of foreign capital seeking entry into defense technology startups desperate for investment in these trying times.

But these are secondary questions. The primary question is this: How can the Pentagon best preserve its innovation base and develop the most competitive and advanced technologies?

The answer is simple: Buy commercial. New and emerging defense startups — and our men and women in uniform — don't need symbolic gestures. What they need is concerted action to bring the latest and most advanced technologies — many of which are routinely used in industry — to dangerously antiquated defense weapons systems and internal IT infrastructure. This was true before COVID-19, it is true now and it will be true when the next crisis strikes.

All too often the government has responded to crises by circling wagons around incumbent firms — the large prime contractors, whose political connections afford them bailouts in the name of “ensuring ongoing competition.” This process is already underway. After announcing its hope for a $60 billion relief package for the aerospace manufacturing industry, Boeing successfully lobbied for $17 billion worth of loans for firms “critical to maintaining national security.”

The CARES Act also announced provisions to streamline the Defense Department's contracting process, which sounds promising, except for the fact that these provisions apply only to contracts worth over $100 million. This discriminates against smaller, more nimble innovators and providers of cutting-edge technology.

This isn't how things have always been. After complaints about large horse dealers monopolizing military contracts during the Civil War, the government allowed quartermasters to purchase horses and mules from any dealer on the open market. In World War II, Congress created the Smaller War Plants Corporation, which awarded tens of thousands of contracts to small, competitive firms. Today, through innovative use of Small Business Innovation Research money, other transactional authorities, rapid work programs and the like, the Pentagon is certainly signaling interest in emerging technologies.

But let us be clear: We are not advocating continuing to invest larger dollar amounts into never-ending, short-term pilots and prototypes. The key to sustaining the innovation base through this crisis and any future crises is transitioning the best of these companies and products into real production contracts serving the day-to-day needs of the mission. Host tough, but fair competitions for new innovations, and then rapidly scale the winners.

America's technological supremacy has afforded our country nearly a century of military hegemony, but it is not a law of nature. Sovereign states and peer competitors like Russia and China will quickly outpace us if we take our prowess for granted. We need new entrants into the defense industry more than ever, but without government support through crises like this one, the talent and capital simply won't be there.

Why do investors say defense isn't a safe bet?

As the Department of Defense readily acknowledges, its mission is fundamentally changing. Breakthroughs in technological fields like artificial intelligence, autonomous systems, robotics, resilient networks and cyberwarfare mean that future conflicts will look nothing like those we have seen before. The DoD of tomorrow needs a fresh wave of technical expertise to understand and respond to these new kinds of threats.

That is not to say that legacy defense contractors are not needed; their expertise in large air and sea vehicles is currently unparalleled. But the expertise to build these new technologies resides in pockets of talent that the big and bureaucratic incumbents, who made their names with 20th century technology, lost access to decades ago.

The DoD has publicly exalted the importance of innovative defense startups for years. That is partly why we are so excited to invest capital into the defense sector at this moment in history. Silicon Valley has a chance to live up to its oft-ridiculed but sincere ambition to make the world a better place by investing in American national security.

However, we as venture capitalists and growth equity investors also have a duty to our limited partners who have entrusted us to invest and grow their capital. If we see the same old story of the government claiming to support small businesses but prioritizing its old incumbents, those investment dollars will disappear.

Times of rapid and unprecedented change, as COVID-19 has precipitated, also provide opportunities. The DoD and Congress can reshape budget priorities to put their money where their mouths have been and support innovative defense technologies. Each dollar awarded to a successful venture capital and growth equity-backed defense startup through a competitively awarded contract attracts several more dollars in private investment, providing the DoD significantly more leverage that if that same dollar was spent on a subsidy or loan to a large legacy contractor. This leverage of private capital means that every contract a startup receives accelerates by up to 10 times their ability to build technology and hire talent to support the DoD's mission.

The bottom line is this: There's no reason to let a health crisis today become a national security crisis tomorrow. The DoD has an opportunity to not only sustain but grow its innovation base, and give contracts, not lip service, to innovators. We, the undersigned, hope they do.

The contributors to this commentary are: Steve Blank of Stanford University; Katherine Boyle of General Catalyst; James Cham of Bloomberg Beta; Ross Fubini of XYZ Capital; Antonio Gracias of Valor Equity Partners, who sits on the boards of Tesla and SpaceX; Joe Lonsdale of 8VC, who also co-founded Palantir; Raj Shah of Shield Capital, who is a former director of the U.S. Defense Innovation Unit; Trae Stephens of, Founders Fund; JD Vance of Narya Capital; Albert Wenger of Union Square Ventures; Josh Wolfe of Lux Capital; Hamlet Yousef of IronGate Capital; and Dan Gwak of Point72.

https://www.defensenews.com/opinion/commentary/2020/05/04/the-defense-industry-needs-new-entrants-and-a-supportive-government-during-crises/

On the same subject

November 7, 2018 | International, Aerospace, Naval, Land, C4ISR, Security

Coopérations dans l'armement : la France peut-elle vraiment faire confiance à l'Allemagne ? (1/3)
Par Michel Cabirol La France et l'Allemagne ont à l'évidence des enjeux et des objectifs différents. La coopération franco-allemande est-elle assise sur des bases saines ? Pas sûr. La France peut-elle vraiment faire confiance à l'Allemagne en matière de politique de défense et d'armement? Pas sûr si l'on en croit le député LREM du Finistère, Jean-Charles Larsonneur, qui jette un pavé dans la mare avec son rapport sur le programme 146 (Equipement des forces et dissuasion) : "L'approfondissement, sans grande publicité et, pour ainsi dire, à bas bruit, du concept de nation-cadre de l'OTAN, consiste à fédérer autour de l'Allemagne les capacités de 17 « petits » pays, ce qui risque de réduire l'intérêt des Allemands pour nos coopérations bilatérales", a-t-il expliqué le 24 octobre à l'Assemblée nationale. L'Allemagne se place dans une volonté de leadership en Europe dans le domaine de la défense, qu'elle a très clairement exprimé dans son Livre Blanc de 2016 et dans sa stratégie dans le domaine des technologies clés. D'ailleurs, l'un des plus influents think tank d'Allemagne, la Stiftung für Wissenschaft und Politik (SWP), synthétise parfaitement la stratégie allemande. Il préconisait en août 2017 que Berlin prenne le leadership militaire de l'Union européenne, et de devenir le pilier européen de l'OTAN en raison du futur désengagement américain. "La Bundeswehr pourrait devenir une épine dorsale de la sécurité européenne à long terme, affirmait la SWP. (...) Cela exige de la volonté du futur gouvernement fédéral d'accepter un leadership politique et militaire dans l'alliance". Un avantage puissant pour l'industrie allemande L'Allemagne a effectivement su se saisir du concept de nation-cadre ("Framework Nation Concept"- FNC) élaboré par l'OTAN à son initiative à partir de 2012. De fait, l'Allemagne, qui a mis en œuvre ce concept, s'est entourée, en tant que nation-cadre, de 19 États membres pour mettre en œuvre des projets de coopération très approfondis, tendant à une véritable intégration pour certains d'entre eux (Pays-Bas notamment). Et pour de nombreux observateurs, ce concept va se révéler être un rouleau compresseur en faveur des intérêts industriels germaniques. C'est un "instrument stratégique qui pourrait servir puissamment les intérêts de l'industrie allemande", a confirmée Jean-Charles Larsonneur. Pourquoi ? Selon Antoine Bouvier, cité dans le rapport du député, l'interpénétration des enjeux capacitaires et opérationnels est profonde. Ainsi, les États partenaires de l'Allemagne ont souscrit l'engagement de porter au standard le plus élevé leurs capacités des chars de combat, ce qui constitue une "formidable opportunité pour KMW ". Cette opportunité est par nature d'autant plus grande que l'intégration des capacités militaires concernées est poussée. Ainsi, l'armée de terre néerlandaise ne pourrait désormais plus être déployée sans la Bundeswehr, tant leur intégration capacitaire est profonde. L'Allemagne, dans ce schéma, tient un rôle d'intégrateur des capacités européennes. Cette ambition s'appuie sur des ressources budgétaires à la hausse : augmentation de 34,3 milliards d'euros en 2016 à 42,9 milliards en 2019 (soit 1,31% du PIB). "Le concept de nation-cadre se constitue de fait comme le pilier européen de l'Alliance ‒ aux yeux d'Américains, mieux vaut voir l'Europe de la défense se constituer dans un cadre de l'OTAN, bien connu, plutôt que dans des constructions européennes moins maîtrisées par eux", a expliqué Jean-Charles Larsonneur dans son rapport. Le SCAF en danger? Un accord politique a été trouvé au plus haut niveau le 13 juillet 2017, formalisé par des lettres d'intention au printemps 2018. Il est convenu que la France aura un rôle prééminent dans la conduite du programme SCAF. Symétriquement, il est entendu que l'Allemagne en aura un dans la conduite du projet de char du futur tout comme elle a obtenu le leadership sur le futur drone MALE européen. Selon Jean-Charles Larsonneur, les industriels français et allemands ne disposent toujours pas d'un cadre réglementaire, ne serait-ce que pour échanger des informations. "Il ressort de mes travaux que la DGA attend des réponses de son équivalent allemand", a-t-il révélé. "Il est donc urgent de poser des jalons aussi irréversibles que possible dans la coopération franco-allemande, tant que le contexte politique le permet", a-t-il affirmé. Jean-Charles Larsonneur est inquiet sur la coopération franco-allemande. "La coopération franco-allemande présente en ce moment quelques signes de flottement", a-t-il estimé à l'Assemblée nationale. Il a cité en exemple la décision des Allemands de décliner la proposition française de développer en commun un missile européen pour le nouveau standard du Tigre, au profit d'un missile israélien, le Spike, comme l'avait révélé La Tribune. Mais selon Antoine Bouvier, le nouveau Spike LR2 n'est qu'au début de son développement et comporte donc des risques technologiques. "Le choix des Allemands pour une joint venture entre Rafael, fabricant israélien du Spike, et RheinMettall ‒ dont le rôle dans ce programme ne paraît d'ailleurs pas être dominant ‒ ne s'explique donc pas principalement par des considérations techniques", a précisé le rapport du député du Finistère. Le concept de nation-cadre permet également à l'Allemagne d'avancer discrètement ses pions dans le domaine des sous-marins. Après avoir fait céder la Norvège (membre du FNC), Berlin tente désormais de séduire la Pologne et les Pays-Bas en vantant un cluster européen sous-marin sous tutelle allemande. Ce qui marginaliserait clairement la France en Europe. En février 2017, la Norvège a commandé quatre U-212 et doit développer avec Berlin un partenariat à vocation mondiale dans le domaine des missiles mer-mer et des systèmes de traitement de l'information. La décision d'Oslo d'interrompre l'appel d'offres et de choisir une évolution du sous-marin en service dans la Marine allemande dans le cadre d'une coopération opérationnelle et industrielle renforcée, risque de faire t'ches d'huile en Europe... La France est en danger. https://www.latribune.fr/entreprises-finance/industrie/aeronautique-defense/cooperations-dans-l-armement-la-france-peut-elle-vraiment-faire-confiance-a-l-allemagne-1-3-795987.html
July 12, 2018 | International, Aerospace

Slovakia selects F-16 over Gripen for new fighter
By: Aaron Mehta WASHINGTON ― Slovakia has decided to purchase 14 new Lockheed Martin F-16 fighters to replace its Russian made MiG-29 jets. The Slovakian Defence Ministry's announcement Wednesday means the F-16 has beat out the Saab Gripen. In a statement on the ministry's website, Defence Minister Peter Gajdoš said the U.S. jets were selected because they are “state-of-the-art modern machines,” and the ministry statement said the U.S. planes were cheaper according to an analysis done through 2040. However, the ministry did not put a final price tag on the F-16 purchase, but Reuters reported that the dollar figure could be €1.1 billion (U.S. $1.3 billion) for the 14 jets. “We are pleased Slovakia has selected the F-16 Block 70,” Lockheed spokesman John Losinger said. “This partnership will deliver new capabilities to the Slovak Armed Forces and strengthen Slovakia's strategic partnership with NATO and the U.S.” In April, the U.S. State Department OK'd the potential sale of 14 Block 70/72 F-16Vs for Slovakia, indicating the process for getting those planes on contract should be fairly smooth. Slovakia's choice of the U.S. jet over its Swedish counterpart is notable in a regional context, as two of its closest neighbors ― Hungary and the Czech Republic ― operate the Gripen. Poland, however, operates the F-16, as do a number of other NATO nations. Lockheed's sale of the F-16 to Slovakia is the second order since the company made the decision to move its production line from Fort Worth, Texas, to Greenville, South Carolina. The Slovakian sale, coupled with the Bahrain deal cemented last month, will help Lockheed keep production of the F-16 going while its biggest potential customer, India, figures out what it wants out of a future fighter. Lockheed has proposed moving the entire F-16 line to India in exchange for a large order, but India seems to be taking its time, having released a request for information to a handful of defense aviation companies in April. https://www.defensenews.com/digital-show-dailies/riat/2018/07/11/slovakia-selects-f-16-over-gripen-for-new-fighter/
December 3, 2019 | International, Aerospace, Naval, Land, C4ISR, Security

Contract Awards by US Department of Defense - December 02, 2019
NAVY General Dynamics Electric Boat Corp. (GDEB), Groton, Connecticut, is awarded a $22,209,893,409 fixed-price-incentive, multi-year modification to previously-awarded contract N00024-17-C-2100 for construction of nine Virginia-class submarines, eight with Virginia Payload Module (VPM), from fiscal 2019 to fiscal 2023. The contract modification includes spare material and an option for one additional submarine with VPM. If the option is exercised, the cumulative value of this contract will increase to $24,097,439,556. The awarded amounts include previously-announced material awards (including long-lead-time material and economic ordering quantity material) totaling $3,197,633,908. This contract modification is for the construction of the fifth block of Virginia-class submarines by GDEB and major subcontractor Huntington Ingalls Industries' Newport News Shipbuilding division, inclusive of design support and all efforts necessary to test and deliver each submarine. GDEB will continue to subcontract with Huntington Ingalls Industries' Newport News Shipbuilding division. Work will be performed in Newport News, Virginia (25%); Quonset Point, Rhode Island (21%); Groton, Connecticut (20%); Sunnyvale, California (8%); Norfolk, Virginia (1%); Bethlehem, Pennsylvania (1%); and Annapolis, Maryland (1%), with other efforts performed at various places throughout the U.S. below one percent (22%), and other places outside of U.S. below one percent (1%). Work is expected to be completed by August 2029. If the option is exercised, work is expected to be completed by February 2030. Fiscal 2017 and 2019 shipbuilding and conversion, Navy (SCN) funding in the amount of $3,155,793,018 will be obligated at time of award and will not expire at the end of the current fiscal year - funding: fiscal 2019 SCN (95%); fiscal 2017 SCN (5%). The Naval Sea Systems Command, Washington, District of Columbia, is the contracting activity. Kellogg Brown and Root Services Inc., Houston, Texas, is awarded a $14,070,093 for modification of the second option under an indefinite-delivery/indefinite-quantity contract for base operations support services at Naval Support Activity (NSA) Kingdom of Bahrain. After award of this option, the total cumulative contract value will be $44,363,284. The work to be performed provides for, but is not limited to, all management, supervision, tools, materials, supplies, labor and transportation services necessary to perform security operations, galley services, unaccompanied housing, facility management, emergency service requests, urgent service, routing service, facilities investment, custodial, pest control service, integrated solid waste, grounds maintenance, utility management, wastewater, operate reverse osmosis water treatment system, chiller and transportation at NSA Kingdom of Bahrain. Work will be performed in NSA Kingdom of Bahrain. This option period is from December 2019 to November 2020. No funds will be obligated at time of award. Fiscal 2020 operation and maintenance (Navy) contract funds for $4,159,063 for non-recurring work will be obligated on individual task orders issued during the option period. Naval Facilities Engineering Command Europe Africa Central, Naples, Italy, is the contracting activity (N62470-17-D-4007). L-3 Technologies Inc., Salt Lake City, Utah, is awarded a $9,999,144 firm-fixed-price modification (P00012) to a previously-awarded firm-fixed-price, cost-plus-fixed-fee contract (N00019-18-C-1030) to procure eight Common Data Link Hawklink AN/SRQ-4 systems for the MH-60R aircraft. Work will be performed in Salt Lake City, Utah, and is expected to be completed in December 2022. Fiscal 2020 other procurement (Navy) funds in the amount of $9,999,144 will be obligated at time of award, none of which will expire at the end of the fiscal year. The Naval Air Systems Command, Patuxent River, Maryland, is the contracting activity. AIR FORCE Lockheed Martin Missile and Fire Control, Orlando, Florida, has been awarded a $988,832,126 definitization modification (PZ0010) to previously-awarded contract FA8681-18-C-0021 for Air-Launched Rapid Response Weapon critical design review, test and production readiness support. The contract modification will definitize the contract terms, specifications and price. Work will be performed at Orlando, Florida, and is expected to be completed Dec. 31, 2022. The total cumulative face value of the contract is $988,832,126. Fiscal 2020 research, development, test and evaluation funds are being obligated in the amount of $23,000,000 at the time of award. The Air Force Life Cycle Management Center, Eglin Air Force Base, Florida, is the contracting activity. GTA Containers Inc., South Bend, Indiana, has been awarded a $9,404,953 delivery order (FA8534-20-F-0003) against previously-awarded contract FA8533-16-D-0001 for collapsible fuel tank production. Work will be performed at South Bend, Indiana, and is expected to be completed by Jan. 31, 2022. The total cumulative face value of the contract is $24,507,563. Fiscal 2019 other procurement funds in the amount of $9,404,953 are being obligated at the time of award. The Air Force Life Cycle Management Center, Robins Air Force Base, Georgia, is the contracting activity. ARMY Fisher Sand and Gravel Co., Dickinson, North Dakota, was awarded a $399,962,000 firm-fixed-price contract to design-build border infrastructure along the southern perimeter of the Cabeza Prieta National Wildlife Refuge in Yuma County, Arizona. Five bids were solicited with three bids received. Work will be performed in Yuma, Arizona, with an estimated completion date of Dec. 30, 2020. Fiscal 2018 military construction, defense-wide funds in the amount of $268,072,900 were obligated at the time of the award. U.S. Army Corps of Engineers, Portland District, Portland, Oregon, is the contracting activity (W912PL-20-C-0004). InSap Services Inc.,* Marlton, New Jersey, was awarded a $41,636,459 modification (BA02 44) to contract W91QUZ-11-D-0017 to provide personnel with technical experience to sustain the Army's Logistics Modernization Program. Work will be performed at Picatinny Arsenal, New Jersey, with an estimated completion date of Dec. 31, 2020. Fiscal 2020 other procurement, Army funds in the amount of $7,961,225 were obligated at the time of the award. U.S. Army Contracting Command, Rock Island, Illinois, is the contracting activity. DEFENSE INFORMATION SYSTEMS AGENCY Unisys Corp., Reston, Virginia, was awarded a single award indefinite-delivery/indefinite-quantity firm-fixed-price contract for Unisys Operating System 2200 capacity services. The place of performance will be at current Defense Information Systems Agency data centers. The contract ceiling is $80,457,160. The solicitation was issued as an other-than-full-and-open-competition action pursuant to the authority of 10 U.S. Code §2304(c)(1) and Federal Acquisition Regulation 6.302-1, with only one responsible source and no other supplies or services will satisfy agency requirements. Proposals were solicited via the Federal Business Opportunities website (www.fbo.gov), now known as beta.SAM.gov website (www.beta.sam.gov). Only one proposal was received. The period of performance (PoP) consists of a one-year base period and two one-year options. The PoP for the base year is Dec. 1, 2019, through Nov. 30, 2020, and the option years follow consecutively through Nov. 30, 2022. The Defense Information Technology Contracting Organization, Scott Air Force Base, Illinois, is the contracting activity (HC1084-20-D-0002). (Awarded Dec. 1, 2019) DEFENSE LOGISTICS AGENCY AvKare Inc., Pulaski, Tennessee, has been awarded a maximum $11,727,127 firm-fixed-price requirements contract for potassium chloride tablets. This was a competitive acquisition with one response received. This is a one-year base contract with four one-year option periods. Locations of performance are Tennessee and Minnesota with a Dec. 1, 2020, performance completion date. Using customers are Department of Defense, Department of Veterans Affairs, Indian Health Services and Federal Bureau of Prisons. Type of appropriation is fiscal 2020 through 2021 defense working capital funds. The contracting activity is the Defense Logistics Agency Troop Support, Philadelphia, Pennsylvania (SPE2D2-20-D-0081). UPDATE: ADS Inc.,* Virginia Beach, Virginia (SPE8EH-20-D-0001), has been added as an awardee to the multiple award contract for fire and emergency services equipment, issued against solicitation SPE8EH-16-R-0001, and announced March 21, 2019. *Small Business https://www.defense.gov/Newsroom/Contracts/Contract/Article/2030017/source/GovDelivery/

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