Interview transcript:
Terry Gerton Well, I’d like you to start by giving us some background on the new Govini scorecard about the U.S. Defense Industrial Base. How have you been doing it? What did you find?
Jeb Nadaner The scorecard starts with the fact that founder of our company about 10 years ago developed a series of very powerful AI algorithms and then he collected a whole bunch of data and the algorithms began to create correlations and new forms of data, it’s like recombinant DNA, and the result was this data was especially focused on federal government, what it buys, what is spends and a lot of insights. So hence came the first scorecard. And now several editions later, now we issue it every year, and in many ways, this is produced by the AI algorithms.
Terry Gerton Were there any surprising findings from your latest report?
Jeb Nadaner In the past, we focused on broad federal spending to see whether, how did it match, what did our ARC platform, which is AI enabled, what does it say about what the government says it’s spending on critical technologies versus what actually the spend is going to. This year, we decided to focus on critical weapons systems, critical weapons systems portfolios as the DoD defines it. And what we found, the most stark thing was extreme company concentration, extreme vendor concentration. And well over 70% of all the major contract value goes to around 10 companies. And the consequences of that are very severe on the industrial base. And it goes a long way to explain industrial fragility in the United States.
Terry Gerton There’s a statement in there that I thought was particularly telling, that the United States defense industrial base is dangerously unprepared for the demands of great power competition. Expand on that for me.
Jeb Nadaner Yeah, this extremely concentrated vendor base, and it’s really geared toward financial efficiency and it has been driven down the supply chains. So the result is the Department of Defense has really very few go-to players to get things quickly. It’s highly, highly dependent. And the consequence of that is we have basically over the last 30 years, if you look on a decade by decade basis, we’re getting ever less production and it’s taking ever longer. So, basically, if your metric is dollar taxpayer puts into the system and what do they get out? They get ever less. And the result is huge shortages in critical platforms, critical munitions, way too many ships and airplanes sitting in depot or the yards. If they’re sitting in a depot or the yards and they’re not at sea or they’re not fielded, they’re of no use. They’re actually called targets.
Terry Gerton This has popped into the news recently in the discussions about resupplying Ukraine when the president promised to send more Patriot missiles at the same time as the Defense Department had paused those shipments because they wanted to take inventory. How has our interaction with supply in the Ukraine-Russia conflict brought to light some of these critical gaps in the supply chain?
Jeb Nadaner So the first thing we discovered with Ukraine was something which was commonly thought to be we had enough of, artillery shells. It turns out we didn’t have enough artillery shells. It turns out that the pace of modern battle, you’re using far larger numbers than people had imagined, so turns out huge shortages, artillery shell famine. Now, we’ve made some progress in the last few years in terms of increasing production of shells, but that’s a window into almost every other munition and every other platform. And for the kind of deterrence that we need in the Indo-Pacific against China, 155-millimeter shells are among the least important things. So if you transpose that to Patriot missiles, THAAD missiles, HIMAR rounds, F-35s, we just don’t have enough of them.
Terry Gerton I’m speaking with Jeb Nadaner. He’s the government affairs senior vice president at Govini. Well, let’s talk a little bit more about the resupply of munitions particularly. We’re still making them like we were in the 1940s. Is there investment in the industrial production in addition to the supply?
Jeb Nadaner Yeah, so I think if you go to a lot of the places where we make munitions, particularly the beginning of the supply chain, where the chemicals, the energetics are mixed, the propellants are created, the binders are made, it is shocking. It is something out of the 1920s. Does it have to be this way? No, it doesn’t. But it’s a sign of the lack of investment over the years. We did not modernize it. There have been some efforts in the last few years. I think, from what I’m seeing, and this is pretty revolutionary, the new Deputy Secretary of Defense, Steve Feinberg, who has a very serious industrial background and his Undersecretary of Acquisition and Sustainment, Mike Duffey, they’re actually beginning to go to those plants. They’re calling in the managers of those plants to find out, okay, how do we really upgrade this operation? And that is the first serious attention at that, trying to manage at that middle level, that I’ve seen in a couple decades.
Terry Gerton Well, that leads me into a question about budgeting. How do you hope that this information influences the budget? The NDAA is on the hill right now. We’ll be talking about 2026 appropriations. Is this going to motivate discussion of a serious investment in industrial base of production capability?
Jeb Nadaner Yeah, I think the DoD is beginning to plan that. I think the key is not to just look at the numbers that are put down together in the notorious POM process, PPBE process. The key is to actually think about, okay, where will that money actually go? How long does that money take to get on contract? That’s a big factor. By the way, that’s another finding of the scorecard. The slowness of Defense Department contracting, this should really concern Defense Department leaders, and it is causing some of the concentration because contracting timelines are so extended compared to the manufacturing sector in commercial activities. The only companies that have the wherewithal to sustain that long commercial process of a long DoD process for a contract are generally the top 10 vendors. And the irony is that the taxpayer reimburses them for every second that they spend on the contracting process. For the venture-backed companies, the small innovative entrants trying to get in the department, they’re completely self-financed. So a very long contracting process is a very serious disincentive to being in the DoD market.
Terry Gerton Well, that aligns with some of the talk we’re hearing from DoD about speeding up the acquisition cycle. When you think about your scorecard, where would it suggest that DoD ought to prioritize investment in the industrial base?
Jeb Nadaner Well, one is in a lot of these foundational supplies. They need a program of record or something similar for key components that go across multiple systems. The scorecard shows that the way the DoD is buying things is really a very siloed way. It’s program office by program office. The reality is it’s one supply chain. So they’re cannibalizing each other. It’s fratricide. So they could get bulk buys on things across programs. So that’s going to be one very important thing that they could do.
Terry Gerton Sounds like they need a restructuring to enable that as well though.
Jeb Nadaner Yes, restructuring will help. Automating a lot of the acquisition process with software is really critical. We’re using sort of an 18th century paper process with a little bit of email. It’s very inefficient. There are things typically in a world-class manufacturing company, there’s a whole bunch of workflows that are done automatically by algorithms in seconds. Nevertheless, in a lot of DoD program offices, it’s manually done. It doesn’t work well, so we keep throwing more people at the problem. As everyone knows, adding more people doesn’t necessarily increase effectiveness.
Terry Gerton Well, you mentioned the duration of the contract process and also the length of the POM process. What could DoD and Congress do in the short term to help address some of these critical gaps?
Jeb Nadaner I think one is, Congress has provided just about every speedy authority and law the department could want. It’s a question of really the department using them. One of the noticeable things in the Trump administration is one of President Trump’s executive orders called for the use of commercial purchasing, commercial off-the-shelf software, commercial off-the-shelf hardware. The ironic thing is he’s asking the department to follow a 31-year-old law. So, so much for lawlessness in the Trump administration. Actually, the law goes back to Senator John Glenn of blessed memory, but the department always says it needs more authorities. It doesn’t really need more, it needs to use the authorities it has.
Terry Gerton But it’s hard to buy artillery shells off the shelf.
Terry Gerton Yes, however, you could manage that process a lot quicker. You can qualify, for example, a lot of the parts that go into things like artillery shells and other munitions, a lot of those parts have not been made in years. The vendor may no longer be in business. So you can find the new vendors really one of two ways. The way the DoD does it now, which is largely they put out a request for information or RFI, and they’re hoping that someone’s going to read the Federal Register. Most small businesses don’t read the Federal Register. Or, they can go into an AI-enabled platform, and within a few seconds, they can identify the 12 companies capable of making the part. That’s the kind of shift they need to make. That’s the kind of shift that the commercial sector made a long time ago, and there are some signs that maybe this Department of Defense is going to move in that direction and scale those kind of technologies.
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