Interview transcript: 

Terry Gerton You, I’m sure, paid very close attention to Secretary Hegseth’s speech last Friday on the arsenals of democracy. What was your takeaway?

Stephanie Kostro Thanks so much for asking, Terry. And not only was I listening with bated breath, I was actually in the room. And for any Hamilton fans out there, it was the room where it happened. There were roughly 250 folks in an auditorium on Fort McNair when Secretary of War Hegseth rolled out his ideas for transforming acquisition. And there was a lot to be said, Terry, he spoke for well over an hour, nonstop, no questions, just kept going. I would say it’s fair to characterize the audience as a rapt. We were waiting for everything he had to say. There were three main topics he wanted to talk about. One was reforming or transforming the requirements process. The second was transforming the acquisition process. And the third was reforming foreign sales processes, and that’s including both foreign military sales and direct commercial sales. So all of that were key topics for everyone in that room.

Terry Gerton Well, let’s take those one by one and the requirements topic, of course, came up first. He talked about the end of the JCIDS and a realignment of the JROC. What did you take away?

Stephanie Kostro So the requirements process has long been an issue of great concern to industry, as well as from my time as a congressional committee staffer on House Armed Services Committee, talking about by the time you go through the several years to validate a requirement, it may actually be obsolete by the end time you roll out of that process. And so the idea of transforming the requirements process has been long anticipated. And I really appreciate what the secretary said regarding being flexible. Going for combining the requirements process with the acquisitions process so that it’s modular, that it does leverage available commercial technologies and products, that it really looks forward to getting a faster delivery times and getting weapons both developed and then deployed and in the hands of the warfighters who need them. So that was very much appreciated. No one, I think, will cry over the demise of JCIDS, but the question becomes, what rises to replace it. And, of course, the under secretary of war for acquisition and sustainment owes guidance on this issue to be released 45 days from the date of that directive, and then the military services have to come up with plans of action within 60 days. So the next two months are going to be very, very busy.

Terry Gerton All right. Part two was a reform of the acquisition process itself. The headline here is the elimination of PEOs and the replacement of them with program acquisition executives, right?

Stephanie Kostro PAEs, that is correct. So I think the other piece of this that goes hand in hand with requirements transformation is the reform and the transformation of the war fighting acquisition system, as they call it now, not the defense acquisition system. And it really focuses on the war-fighting piece of it. I think what I took away, and he said this a few times, Secretary Hegseth, and I’m going to quote him here, they want to increase acquisition risk in order to reduce operational risk. And for me that means putting flexibility in the hands of contracting officers and those in the programs to pursue modular, multi-source solutions throughout the development of a requirement, or rather the development, of a capability. And then actually to get it into the hands of the warfighter. They want to reward and incentivize speed and performance over bureaucratic processes. And that is music to a lot of industry’s ears.

Terry Gerton So a big part of that speed increases buying commercial first. Secretary Hegseth said they are willing to settle for 85% functionality and work toward 100%.

Stephanie Kostro So that was, I think, an interesting turn of phrase for him, mostly because he did say a few times to increase acquisition risk to reduce operational risk. And of course, you’re going to have to have a balance there of what is that 85% and what 15% are you going to be missing? And so I think as they move forward with embracing modularity, fostering competition and pursuing multi-source procurement, that you do want to move fast to contract. He also did mention not over-relying on the testing element. And so we’ve seen that in previous memos, particularly back in May, where Secretary Hegseth signed some memos about operational test and evaluation and streamlining that process in those offices. And so what I also found interesting is talking about putting contracting officers within the program offices too, so they can sit alongside the requirements developers and the folks who are responsible for fielding the capability, so they get a better sense of what the requirements are and how to incorporate those into contracts, leveraging commercial technologies as much as they are available.

Terry Gerton I’m speaking with Stephanie Kostro. She’s the president of the Professional Services Council. Stephanie, let’s touch on topic number three quickly, the foreign military sales reform.

Stephanie Kostro Part of this reform, or they keep saying transformation, not reformation, so I’ll key into that, transforming what military sales looks like. We’ve had lots of conversations, and I was at the Pentagon, in particularly the European office, talking with our allies and partners about how they could access U.S. solutions, and it always was a multi-year process to go from all of that pre-work where we talk about requirements to a letter of offer and acceptance at the end of it, and actually delivering the materials. It’s multi-year and it is so frustrating, particularly when companies want to compete with non-U.S. companies who don’t have the layers of bureaucracy. And so I look at the reorganization that the secretary laid out, that is to move the Defense Security Corporation Agency and the Defense Technology Security Administration, so I’ll say DSCA and DITSA, which is how we call them, over to the acquisition undersecretary. I think those are smart moves if in fact you want to speed up the fielding of compatible and interoperable equipment with our friends and allies. That said, I think it’s important to note that we need to incentivize folks in order to speed those situations up. And one thing that works really well, and it’s something that PSC has talked about in the past, is if you’re going to have an assistant secretary in a military service responsible for acquisition, and each of the military services has that individual, you need to put into their performance metrics foreign sales. They need to be measured on how well they are doing on that front as well. And that is something that I will be talking to the Pentagon folks and our CEO at PSC, Jim Carroll, will be taking to his Pentagon friends as well regarding how to actually incentivize this behavior.

Terry Gerton So this speech on Friday was the tip of the iceberg, much remains to follow in terms of detail, right? What will you be watching for there?

Stephanie Kostro I will be watching for the number of times and the depth of availability of Department of War individuals to speak with industry. This needs to be a collaboration. When you’re talking about speeding up requirements and speeding up contracting and speeding up foreign sales, you really need to talk to the industry that will be responsible for that. One thing that I did take away from the speech on Friday was an openness for profit. And I say that because a lot of times industry gets demonized for making a profit. But what happens is when you have profits, you can actually turn them back into the company and then make investments in future opportunities. And so if companies are allowed to make a profit, then they can have more money to invest in their companies and their technologies and actually move the ball forward faster. And so as we go through this, I will be looking at opportunities not only to comment formally through written comments, whether that’s through the Federal Register or the System of Acquisition Management, or SAM.gov, but also having round tables. We’ve offered to Department of War individuals, we at PSC are happy to schedule and facilitate a round table to have industry speak candidly with their government partners about how to make this happen faster, better and more efficiently.

Terry Gerton So you’d say that the speech was pretty well received by the folks in the room, then.

Stephanie Kostro I would say it was very well received as a rhetorical device. The proof is always in the pudding. The devil is always in the details. I think as we move forward, there will be more enthusiasm. Enthusiasm will grow, but it really depends on what those reports look like, that guidance from the undersecretary in 45 days, the military service plans of actions in 60 days, and how much input it reflects from industry. I think there is generally a recognition across the board, industry, executive branch and Congress, that something needs to change here. And in fact, a lot of what was in the speech reflected things that are under negotiation in the National Defense Authorization Act conference right now. And I think we are all rowing in the same direction. And I hope we stay doing that.

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