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How to Procure Advanced Military Tech
“When one person pees their pants, the rest of us wear diapers”
The military’s process for buying new technology is often glacial. Earlier this year, the New York Times covered three new companies whose satellites and drones were already being used in Ukraine, yet were limping through the Pentagon’s procurement system.
Last year, Defense Secretary Lloyd Austin said he was “determined to change the way that the Pentagon does business—and to create a true innovation ecosystem,” but that “this kind of change doesn't always move as smoothly or as quickly as I'd like.” In today’s interview, we dive into the tools that let the military buy tech faster.
What You’ll Learn
Why does the Pentagon struggle to buy high-powered military technologies?
What tools let the American military work with startups?
Why are the incentives to manufacture military tech in the US so weak?
David Rothzeid has been inside this system and knows what can work. During his time at the Defense Innovation Unit, or DIU, Rothzeid helped pioneer the Commercial Solutions Opening (CSO), a new, highly effective process for rapid acquisition of military technology. An Air Force veteran and current reservist, Rothzeid also has experience as an Acquisition Officer for Air Force Space Command, Air Force Materiel Command, Special Operations Command, as well as DIU.
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Tell me about your time at DIU.
DIU has an ambitious mission: to help companies who may not otherwise work with the DOD do that.
There are a number of reasons why these companies struggled to work with DOD. First, it's just a different world. We speak a different language. There's a lexicon barrier. Second, the DOD contracting procedures are generally designed to assume no risk, so, following the Federal Acquisition Regulation (FAR), it can be quite slow. Companies go through so many unnecessary hoops and hurdles that have little to do with the actual work.
There’s this over-reliance on process and compliance that favors incumbents over startups, which have significant pressure to grow but also have some of the best technical talent. What happens is the venture-backed startup focuses on problems and markets that are willing to scale and grow at the pace of demand, which has great economic and impact outcomes for those involved. DOD has a hard time empathizing with this reality and relies on systems built during a different era. This system needs systemic changes.
Defense Secretary Ash Carter challenged us to figure out how to get great technologists and entrepreneurs to work with DOD. Alongside Lauren Dailey, Robert Trejo, and others, I helped create a process that would allow DIU to put startups on contract in a way that was both efficient and legal — and made them feel like working with DOD was worth their time. With help from Army Contracting Command, we developed the Commercial Solutions Opening or CSO, which is a very popular solicitation process and is still used by DIU among other federal organizations today.
What is CSO? How did it work?
CSO is a fast process that enables DOD to work with innovative startups which have proven commercial solutions to hard problems. When CSO first launched, we would receive about 10 solution briefs for each solicitation. Soon, we started receiving 60+ solution briefs per solicitation, because word got out about how simple the process was. We created a meritocratic process that picked the right company, negotiated a contract, and put them on a prototype project to execute, all within 2-3 months of the initial solicitation. Then, of course, the Other Transaction Authority (OTA) allowed us to move straight into production. So if the project was competitively awarded and it was successful, then you can award them a non-competitive full-source contract.
We realized that these startups are only going to play ball with us if they understand there's something meaningful at the end of the road for them. That was the light bulb moment, and it has proven to be quite successful. A lot of organizations in government have adopted CSO or small variations of it.
That was great, but that’s just one piece of the puzzle. I felt that DIU could solve problems from an innovative standpoint given the organization's mandates, and given it wasn’t steeped in so much legacy.
Tell me about the system as it existed before you joined DIU. How has it evolved over time?
Let’s begin with OTA. It’s an authority that's been around since the establishment of NASA in 1958. But it was only available to NASA. Then this very cavalier general counsel named Rick Dunn worked with Sen. Sam Nunn (D-GA) to get OTA to the Defense Advanced Research Projects Agency (DARPA).
OTA is unique because it’s defined in the negative, by the things it’s not. It's a type of transaction that is neither a procurement contract, nor a cooperative agreement, nor a grant. So what is it? Because OTA is ill-defined, people in the government struggle to accept it. Generally, they’re loath to take action unless there’s a framework or playbook telling you exactly how to do it. There's a saying in the acquisition community: “When one person pees their pants, the rest of us wear diapers.” Regulations have piled up over the years because somebody tried to do something innovative that could be perceived as improper. We created whole regulatory regimes to make sure nobody ever did it again.
DARPA did a great job leveraging OTA throughout the years. In the 2016 NDAA, Sen. John McCain (R-AZ) and his team on the Senate Armed Services Committee rewrote some rules so that more technologies could go straight to production. This allowed DIU to move more contractors from the prototype phase to production. What we were thinking about was, “How do we sweeten the deal for these companies who don't have to work with us?”
As a country, we’re at this inflection point. The current defense innovation industry base, which has been really good to us thus far, is not going to keep us relevant in the fight with China. There’s just no incentive structure: it just isn't there. The budget size just isn't there. So how do we tap into this third party capital ecosystem where the next generation of innovative technologies is being built? OTA provided that blueprint for us. We created CSO to allow for collaboration, speed, and flexibility, because each prototype project would need to be a little bit different. How do you create a framework to accomplish that?
What was something that you learned that was unexpected in this process?
You don't need so many layers of management. So often, acquisition was unnecessarily hard. We were so much of a compliance organization that we forgot to think through the utility of what we were actually doing.
Of course, CSO had its own warts. But we were able to address them. We were very efficient. We knew what the process was trying to do. We stuck to first principles so whenever issues came up, we would deal with the roadblocks.
For example, we’d built this nice process to get the right companies on contract, but there were sometimes challenges in the execution phase with things like getting the company access to the military bases. So we created what we called Agreements Officer Representative Training, where the customers who were sponsoring the prototype were trained to understand what they were responsible for. We had enough data from existing projects to insert lots of anecdotes within the training, so banal issues like getting invoices signed and getting access to bases became clear. We built our own training, rather than mandating the customer have random certifications from an organization like Defense Acquisition University, which may not be relevant to our brand of acquisition.
I’ll give you another example, about the CSO negotiations process within CSO. We’d receive all the solution briefs, and down-select based on our criteria. We’d bring them in for a pitch, choose the company we intended to award a contract to, and negotiate collaboratively with these companies. They were surprised that we brought them into that process. But we designed it that way so there were fewer surprises or misunderstandings. You’re talking through all the aspects you’re signing. After you’ve signed, it’s hard to make a modification. It blew people’s minds how we would actually negotiate these things. But when you do it together in the same room, projects tend to have really good outcomes.
What advice would you give to your past self on your first day of work?
We had one situation that was hard, and it honestly took some of the wind out of our sails. It was the first lodged protest against a DIU contract award. We were executing these prototype projects and had even moved some of them into production. Our third one was with REAN Cloud, which was protested by Oracle and sustained by the GAO. I thought GAO had overstepped their jurisdiction and their rationale seemed weak. The GAO told us that we needed to state more clearly that going into production was a logical step following a successful prototype project. I wish we had thought more about moving to production and made sure it was clear to everybody involved in the process. That really did knock us back quite a while before we had the courage, momentum, and enthusiasm to award production contracts again. So that was tough, but we learned through it.
Why did you go into government?
I was a sophomore in high school when 9/11 happened. Of course, that was a pretty profound event. I had flirted with the idea of joining the Army Reserves upon graduating high school. But I was told that I should go to college, so I put military service on the back burner. Then, as a sophomore, I stumbled into the ROTC program.
How did you find yourself at DIU?
In 2008, I graduated from Miami University and simultaneously commissioned into the United States Air Force. Through the job selection process, I chose acquisition after meeting a Contracting Officer whose experience sounded very interesting to me.
Plus, as an economics major, I'd always fancied myself a businessman, which is what my dad was. The fact that I could be a businessman in the Air Force felt natural.
The Air Force is unique relative to other military services, in that it allows lieutenants to serve as Acquisition Officers. And luckily for me, I had several bosses along the way that provided significant autonomy to learn, fail, and try new things. In 2013, I ended up with this opportunity to deploy with the U.S. Special Operations Command Ghost Program at MacDill Air Force Base in Tampa, Florida and Bagram Air Base, Afghanistan.
It was a total immersion program. You’re on a very small team, working deployment-like hours. It was amazing, working with really intelligent, dedicated, and highly motivated people. Because of my time in the GHOST Program — as well as my participation in special programs at Hanscom AFB and my affinity for rapid acquisition — my friend who helped stand up DIU said, “David, you should come here.”
This was in January 2016. DIU had been operational for only a few months. I went out there for a three week work assignment and fell in love. At that time, I was ignorant of the entire startup ecosystem and how venture capital worked.
It was a TV show to me: Silicon Valley. That was about it. But I absolutely loved the idea of what we were trying to do: help bring commercial innovation back to DOD through any means necessary — and with that, opening up the playbook of rapid acquisition.