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“To Recieve Testimony on Defense Innovation And Acquisition Reform”

Senate Committee on Armed Services

January 28, 2025 (recording linked here)

HEARING INFORMATION

Witnesses and Written Testimony (linked):

• Honorable James F. Geurts: Former Assistant Secretary of the Navy

  Research, Development and Acquisition

• Mr. Shyam Sankar: Chief Technology Officer and Executive Vice President, Palantir Technologies

• Mr. Nathan P. Diller: Chief Executive Officer, Divergent Industries Inc.

HEARING HIGHLIGHTS

IN THEIR WORDS

SUMMARY OF OPENING STATEMENTS FROM THE COMMITTEES

• Chairman Wicker emphasized the need for defense innovation to maintain deterrence, particularly against China. He introduced the three expert witnesses, highlighting their contributions to defense technology and acquisition. He acknowledged some progress in innovation but stressed that much work remains, expressing optimism that proposed reforms would gain support from the new Pentagon leadership. He then outlined key areas for reform, including cutting regulatory red tape, leveraging the commercial tech sector, expanding the defense industrial base, reducing bureaucratic obstacles in acquisitions, and modernizing the defense budgeting process. He concluded by underscoring the urgency of these changes, stating that the U.S. is entering its most dangerous period since World War II and must act swiftly to ensure national security through innovation.

• Ranking Member Reed highlighted the importance of addressing challenges in the Defense Acquisition System, which he described as too slow, rigid, and outdated. He noted that the committee had worked to provide the Department of Defense with greater flexibility in acquisition through initiatives like rapid acquisition authority and other transaction authority. While supporting decentralization, he cautioned against excessive deregulation, which could lead to inefficiencies and duplication. He also highlighted concerns about the acquisition workforce, arguing that reducing personnel under the guise of efficiency could actually slow processes and harm effectiveness. Reed concluded by stressing that innovation requires not only new technology but also bold thinking and adaptation across all levels of the defense enterprise.

SUMMARY OF WITNESS STATEMENT

• Mr. Sankar expressed strong support for Chairman Wicker’s proposal, calling it the kind of reform necessary for U.S. defense innovation to succeed. Drawing from his experience at Palantir, he argued that defense innovation and procurement are broken due to a bureaucratic system that stifles creativity and competition. He described the Department of Defense as a monopsony—where a single buyer dictates the market—likening its rigid structure to Soviet-era planning. To fix this, he proposed cutting regulatory red tape, integrating commercial innovation into defense, increasing competition both inside and outside government, empowering leaders with long-term program oversight, and modernizing the budget process to allow for rapid adaptation to new threats.

• Mr. Diller framed his remarks around the idea that the U.S. must restore its ability to deter aggression through overwhelming strength while minimizing costs and risks. He emphasized the importance of manufacturing in maintaining military and technological superiority, citing his experience in both defense and industry. He praised the Forge Act as a way to drive a manufacturing renaissance in the U.S. and highlighted how his company, Divergent Technologies, is using AI-driven, fully digital production to revolutionize defense manufacturing. He proposed reforms to turn America’s software advantage into a hardware advantage, scale innovation efforts, and establish a distributed civil reserve manufacturing network to bolster military readiness while benefiting taxpayers.

• Mr. Geurts, drawing from nearly 40 years of experience in defense acquisition, emphasized that while the U.S. has seen success in innovation, its ability to scale and sustain those successes has diminished. He attributed this decline to excessive regulations, risk-averse bureaucratic culture, and a fragmented system that lacks clear accountability. Instead of trying to rebuild the industrial base of the past, he urged a shift toward a more agile and innovative "industrial network" that can quickly adapt to modern threats. He supported the Forge Act’s principles and stressed that minor adjustments would not be enough—systematic, large-scale reform is needed to empower the acquisition workforce and strengthen U.S. defense capabilities.

SUMMARY OF Q and A

• Senator Sheehy stated that the challenge in defense acquisition was not innovation but the slow adoption and fielding of new technology. He asked what legislative change could encourage faster adoption. Mr. Geurts responded that empowering program managers and reducing bureaucratic hurdles would be the most effective change, allowing them to quickly adopt the best available technology.

  Senator Sheehy noted that commercial innovations often face barriers in defense acquisition and asked how the DoD could better leverage private-sector advancements. Mr. Sankar responded that the issue was not a lack of innovation but slow adoption, and he advocated for faster procurement, decision-making, and leadership-driven change.

• Senator Reed asked for an assessment of the DoD’s acquisition workforce. Mr. Geurts responded that while the workforce was talented, it lacked training in modern acquisition authorities and needed better implementation of reforms.

  The Senator noted the retirement of experienced acquisition professionals due to COVID-19 and asked if efforts were needed to rebuild the workforce. Mr. Geurts responded that reducing unnecessary oversight and creating a training pipeline on commercial and advanced manufacturing would strengthen the workforce.

  The Senator asked if changes were needed in engaging non-traditional defense contractors. Mr. Sankar responded that non-traditional firms innovate using private capital, unlike traditional contractors that rely on government-funded R&D, and suggested incentivizing more risk-taking.

  Senator Reed asked how to address the shrinking defense industrial base caused by mergers and acquisitions. Mr. Sankar responded that new entrants should be encouraged by reducing barriers, streamlining accreditation, and allowing real-world testing to foster innovation.

• Chairman Wicker asked if adjusting the ratio of reviewers to doers required a statutory change. Mr. Geurts responded that some changes could be made internally, but many review processes were mandated by statute or external oversight.

• Senator Fischer asked about the impact of continuing resolutions (CRs) on defense acquisition. Mr. Geurts responded that CRs disrupt contract awards and create inefficiencies, and suggested granting special authorities for highly dynamic programs.

  The Senator asked for a private-sector perspective on dealing with CR-related challenges. Mr. Diller responded that recent legislative changes had improved agility, and digital approaches could increase trust and transparency in defense spending.

  The Senator asked what limits his company’s ability to innovate within the DoD. Mr. Sankar responded that existing programs of record resist disruptive innovation, and attempts to regulate or standardize the process often stifle creativity.

  Senator Fischer asked which DoD initiatives were most promising for leveraging commercial innovation. Mr. Geurts responded that trust between government and industry had improved, but scaling commercial integration into standard acquisition processes remained a challenge.

• Senator Shaheen expressed concern over the pause on SBIR funding and asked about its impact on small businesses. Mr. Sankar responded that SBIR is essential for fostering innovation but should also provide a clear path for small businesses to scale into major industry players.

• Senator Rounds compared AI adoption urgency to the Manhattan Project and asked if DoD leaders held roundtable discussions with innovators. Mr. Geurts responded that he had organized such discussions in both Special Operations and the Navy, emphasizing their importance for leveraging innovation.

  The Senator asked how often Palantir was invited to the Pentagon for acquisition discussions. Mr. Sankar responded that the experience was mixed, with some agencies proactively seeking input while others remained insular.

  The Senator asked how to ensure defense innovation moves beyond discussions and contracts to real capabilities. Mr. Diller responded that innovation had evolved in phases, but the key challenge now was integrating new technology into military operations at scale.

  Senator Rounds asked why all acquisitions couldn’t follow a rapid acquisition model. Mr. Geurts, Mr. Sankar, and Mr. Diller all agreed that rapid acquisition should be the norm, with Mr. Geurts criticizing bureaucratic restrictions and Mr. Sankar emphasizing speed as America’s key advantage.

• Chairman Wicker asked if Palantir would be concerned about being excluded from roundtable discussions while competitors were invited. Mr. Sankar responded that this already happened and stressed the need for continuous reassessment of industry partners to avoid monolithic defense approaches.

• Senator Hirono asked about the benefits of giving combatant commanders direct funding for rapid fielding of technologies. Mr. Diller responded that it would allow them to quickly address threats like China in 2027, ensuring flexibility and digital accountability in defense spending.

  The Senator asked what training or tools acquisition professionals needed to better leverage flexible procurement pathways. Mr. Geurts responded that acquisition professionals needed training in various procurement methods and empowerment to choose the best tool for each situation.

  The Senator asked if other witnesses agreed with Mr. Geurts’ approach to acquisition training. Mr. Sankar agreed, adding that acquisition should be more connected to warfighters and benefit from increased competition among combatant commands.

  Senator Hirono emphasized SBIR’s role in supporting small businesses and asked if the program should continue. Mr. Diller supported SBIR, stating that it successfully helped thousands of small businesses enter the defense sector Mr. Geurts also agreed.

• Senator Ernst, working on SBIR reforms, asked how to improve the program to better transition small businesses into major defense suppliers. Mr. Diller responded that SBIR should expand participation, scale successful companies rapidly, and ensure due diligence to prevent adversarial influence.

  The Senator criticized “SBIR mills” and asked how to prevent misuse and refocus the program on innovation. Mr. Sankar suggested time-limiting SBIR participation to five to ten years and measuring success by how many small businesses successfully scale into major players.

  Senator Ernst noted that most SBIR funding went to the coasts and asked if it should be more geographically distributed. Mr. Sankar agreed, supporting reforms that ensure a broader geographic spread of funding.

• Senator Kaine asked how acquisition reform could improve ship and submarine building efficiency. Mr. Geurts responded that modernizing shipbuilding requires a networked approach, integrating digital data, advanced manufacturing, and commercial service providers to enhance efficiency.

  Senator Kaine asked for additional thoughts on industrial workforce challenges in shipbuilding. Mr. Diller responded that the current industrial model does not align with the available talent pool and urged a shift toward modernized manufacturing techniques.

• Senator Budd asked if lessons from SOCOM’s rapid acquisition approach could be applied across the military. Mr. Geurts responded that SOCOM’s success came from rapid decision-making, exposure to cutting-edge technology, congressional trust, and empowering program managers to oversee portfolios instead of individual programs.

  The Senator asked about Palantir’s experience navigating the Pentagon’s accounting and regulatory systems as a small business. Mr. Sankar responded that the process was complex, with invoices often rejected due to minor administrative issues, and suggested reviewing where deviations from commercial standards were beneficial versus outdated.

  The Senator asked how bureaucracy affects defense innovation. Mr. Diller responded that outdated cost accounting and excessive oversight slow innovation, and emphasized the need for digital transformation to reduce inefficiencies and free up resources.

  Senator Budd asked how program managers could iterate quickly while minimizing failure risks. Mr. Geurts responded that cultural change was needed, emphasizing outcome-focused decision-making, accountability, and allowing competition between performers to ensure rapid and effective acquisitions.

• Senator King stressed the importance of acquiring future-focused technology rather than outdated systems and asked how the DoD could avoid fighting the last war. Mr. Sankar responded that disruptive innovation often comes from military edges rather than central planning and highlighted historical examples where unconventional ideas led to game-changing advancements.

  The Senator noted that military aircraft development has slowed significantly compared to commercial industries and asked how to speed up innovation. Mr. Geurts responded that rebuilding the industrial base’s middle tier and improving commercial market integration could enhance adaptability and reduce delays.

  The Senator criticized the Pentagon’s tendency to demand custom solutions instead of using commercial off-the-shelf technology. Mr. Diller responded that excessive certification timelines prevent rapid adoption, citing delays in certifying 3D-printed aircraft parts despite readily available digital data.

  Senator King noted that the U.S. is risk-averse in weapons development, unlike China, which iterates quickly despite failures. Mr. Sankar agreed, arguing that rapid learning and adaptation, rather than perfection, should be the competitive focus in defense innovation.

• Chairman Wicker asked about the challenges of adopting 3D-printed parts for legacy aircraft. Mr. Diller responded that risk aversion and outdated certification processes hinder innovation, and emphasized the need to digitize engineering and manufacturing for cost savings and readiness.

• Senator Banks asked how granting combatant commands their own acquisition authority would impact defense innovation. Mr. Sankar responded that it would be the single most effective change, as it would integrate supply and demand, allowing combatant commanders to address gaps in real-time rather than relying solely on service-driven procurement.

  The Senator asked why this reform had not already been implemented. Mr. Sankar responded that the post-Cold War mindset viewed competition as duplication and waste, favoring top-down planning rather than adaptive, decentralized decision-making.

  Senator Banks asked how the services and defense agencies would react to competition from combatant commands. Mr. Sankar responded that while resistance was expected, competition would eventually drive innovation, forcing program managers to adopt disruptive technologies rather than block them.

  The Senator asked for an example where a lack of acquisition authority hindered a combatant command. Mr. Sankar responded that Project Maven succeeded due to urgent demand signals from combatant commands, not service-driven initiatives, proving that frontline needs should drive acquisition.

  Senator Banks asked if the DoD’s limited pay-for-performance system for program managers had been effective. Mr. Geurts responded that pay was not the issue; rather, program managers were bogged down by excessive bureaucracy, limiting their ability to focus on delivering operationally relevant capabilities.

• Senator Cramer criticized the prolonged contract protest system, citing delays in defense modernization programs. Mr. Geurts responded that the protest system had been abused and suggested limiting companies to one protest per contract and implementing disincentives for repeat offenders. Mr. Sankar agreed, advocating for more real-world performance testing rather than paper-based competitions, which often rewarded fictional proposals over actual capability. Mr. Diller supported reducing bureaucratic obstacles, emphasizing that excessive protests stifled competition and innovation.

• Chairman Wicker asked if the DoD had the legal authority to conduct competitive "bake-offs" to determine the best technology. Mr. Sankar confirmed that such authority already existed and had been successfully used in some cases.

• Senator Warren criticized defense contractors for inflating costs under the guise of commercial pricing and asked if Palantir supported notifying DoD when contract prices increased by 25%. Mr. Sankar agreed that price transparency was essential for a competitive market but deferred an official response to his company’s business team.

  Senator Warren asked if removing Inspectors General (IGs) from oversight roles harmed national security. Mr. Sankar responded that historical examples showed commercial competition driving cost efficiency, but he did not directly address the IG issue.

• Senator Schmitt asked how to replicate the commercial space sector’s regulatory flexibility to foster innovation in defense acquisition. Mr. Sankar emphasized competition between services and combatant commands as key to unlocking innovation, arguing that centralized planning stifled disruptive ideas. Mr. Geurts suggested leveraging existing commercial technologies, rather than reinventing them, to rapidly integrate new capabilities. Mr. Diller noted that successful pilot programs existed but had not been scaled, stressing that transparency and speed were crucial for broader adoption.

• Senator Rosen asked how to incentivize public-private partnerships to ensure small businesses successfully scale within the defense industry. Mr. Geurts responded that while not every company will succeed, efforts should focus on rapidly scaling viable technologies and fostering networks where small businesses can collaborate with larger entities to bridge capability gaps.

  Senator Rosen asked how the U.S. could strengthen supply chain resilience by investing in domestic industries like critical minerals and semiconductors. Mr. Geurts responded that he was optimistic about recent efforts to diversify supply sources and emphasized the need to incentivize domestic production, from rare earth minerals to advanced manufacturing.

• Senator Scott asked if the DoD operates with a clear purpose for each expenditure, similar to private-sector budgeting practices. Mr. Geurts responded that while every budget line has a stated purpose, oversight is inconsistent, return on investment is not closely evaluated, and stopping ineffective programs remains a major challenge.

  The Senator asked if there was an example where a program failed its purpose and someone was held accountable. Mr. Geurts responded that accountability is rare but cited an instance where a Navy program manager was removed for failing to meet expectations.

  The Senator asked if competition made them better and whether DoD fosters competition effectively. Mr. Sankar and Mr. Diller agreed that competition drives improvement, but Sankar noted that DoD competitions often resemble "fiction writing contests" due to unrealistic constraints and short timeframes.

  Senator Scott asked for three key reforms to drive major change in DoD. Mr. Sankar advocated for competing programs within DoD rather than monopolized procurement, as well as shifting more decision-making power to combatant commanders. Mr. Diller emphasized the need to digitize processes, recognize different acquisition strategies for different types of companies, and revitalize U.S. manufacturing with DoD acting as a catalyst.

• Senator Kelly raised concerns about an OMB directive freezing federal funding, potentially affecting DoD research and manufacturing technology programs. Mr. Geurts stated that inconsistent funding eroded trust with industry and discouraged long-term investment. Mr. Sankar acknowledged that delayed payments would create significant hardship but preferred not to speculate on layoffs. Mr. Diller warned that such unpredictability would deter commercial companies from engaging with the DoD, harming long-term innovation efforts.

  Senator Kelly emphasized the potential impact of the funding freeze on national security and urged the witnesses to assess how it would affect their businesses. All panelists agreed that stability in DoD funding was essential for sustaining innovation, workforce retention, and military readiness.

• Senator Sullivan criticized past restrictions on domestic critical mineral mining and asked how to incentivize contracting officers to take risks on newer companies instead of defaulting to established defense contractors. Mr. Sankar suggested deploying contracting officers closer to operational needs and fostering competition by having multiple options for acquisition. Mr. Diller emphasized that leadership must take on risk themselves to empower contracting officers and encourage a culture of speed and innovation. Mr. Geurts recommended aligning contracting officers with program managers and reducing bureaucratic burdens that discourage them from making bold decisions.

  Senator Sullivan asked how acquisition should work when services and combatant commands (COCOMs) have overlapping roles. Mr. Sankar argued that competition between services and COCOMs would drive better results, using examples like JADC2, where different service-led projects could have been framed as competing solutions rather than isolated efforts.

• Senator Slotkin highlighted the U.S. military’s slow acquisition cycle compared to China’s and stressed the importance of cultural change, arguing that a reform-minded Secretary of Defense is key to accelerating decisions. She emphasized that while taxpayer dollars require careful oversight, reforms must be top-down to be effective, and she strongly criticized the Trump administration’s funding freeze on previously appropriated defense programs.

• Chairman Wicker asked whether increasing production capacity, rather than stockpiling, should be the focus for sustainment and deterrence. Mr. Diller agreed, stating that depots should be transformed into agile, digital manufacturing hubs capable of rapid production and sustainment of both legacy and emerging systems.

  The Chairman asked about the bureaucratic inefficiencies slowing production and the shift from prototyping to scalable manufacturing. Mr. Geurts stated that while prototyping is strong, production capacity is lacking, and continuous manufacturing should be prioritized. Mr. Sankar emphasized that acquisition planning should focus on manufacturability from the outset to enable mass production at scale.

  Chairman Wicker asked about the Pentagon’s bureaucratic preference for time-consuming processes rather than time-saving innovation. Mr. Sankar argued that rigid program budgeting discourages efficiency and that acquisition should emphasize designing for scalable manufacturing rather than prototyping exquisite but impractical systems.

  Chairman Wicker asked whether the U.S. industrial base had lost diversity and whether it could be rebuilt. Mr. Geurts noted that the middle-tier industrial base had eroded and needed revitalization. Mr. Sankar pointed out that the original defense industry was built by visionary founders, and private capital now exists to fund a new generation of entrepreneurs. Mr. Diller stressed that DoD has the power to catalyze a resurgence in U.S. manufacturing and should embrace next-generation, AI-driven industrial processes.

  The Chairman asked if the requirements process overly dictates solutions rather than defining problems broadly. Mr. Geurts advocated for shifting from rigid requirements to problem-based acquisition strategies, empowering program executives to solve operational challenges flexibly.

  Chairman Wicker asked if Palantir competes more with government bureaucracy than with industry. Mr. Sankar confirmed that government-funded research institutions often act as competitors rather than enablers, and that some acquisition offices resist commercial solutions in favor of entrenched programs.

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