Pentagon’s commercial tech arm to ramp up role in military innovation

WASHINGTON — When Joby Aviation’s first electric air taxi landed at Edwards Air Force Base, California, in late September, it was more than a traditional aircraft delivery.

The milestone was the culmination of years of work with the U.S. Defense Department’s innovation community to determine whether an electric vertical-takeoff-and-landing aircraft — a previously unproven capability — could have utility for the military. It also served as a test case for how tailored acquisition processes can help nontraditional companies navigate the bureaucracy of the Pentagon.

That work started in 2016 when the Defense Innovation Unit, the Pentagon’s commercial technology hub, awarded Joby a $20 million contract to observe flight tests and gather data on the aircraft’s electric propulsion system.

At the time, the Santa Cruz, California-based startup was focused on the commercial market for its aircraft and wasn’t looking to partner with the government, according to Greg Bowles, Joby’s head of government affairs.

“We didn’t understand the importance of it,” Bowles told C4ISRNET. “Initially, we were worried about the complication it would cause.”

The company started building a relationship with DIU, and this first contract not only helped fund early testing but also showed private investors that the Pentagon saw promise in the company’s work and the electric vehicle market more broadly, which ultimately helped attract more than $2 billion in private capital, Bowles said.

It also led to more opportunities with the Defense Department. In 2017, Joby flew its first full-scale flight demonstration, becoming the first company to transition an electric vertical-takeoff-and-landing, or eVTOL, aircraft to flight. In 2020, the Air Force’s technology cell, AFWERX, granted the vehicle its first airworthiness certification through the service’s Agility Prime program.

Meanwhile, the company is working to earn Federal Aviation Administration certification next year and to launch its commercial air taxi service in 2025.

Bowles said the company’s early work with DIU did three things. First, it helped secure a footprint for Joby in the U.S. And second, it made it clear to the company there is a path forward to work with the Defense Department.

It also helped the firm overcome the so-called valley of death — the often terminal phase between when a project starts and when it is adopted and fielded by a military service. While it’s too soon to say how the military might use the aircraft in the future, Bowles said the company will likely explore whether it can support logistics and transportation missions.

“DIU and [Agility Prime] together have kind of shown us a pathway to work with the government that doesn’t take us directly over the valley of death. I think it kind of takes us around the valley of death,” Bowles said. “It’s a more tailored approach that works well for companies that are looking to kind of bring new technologies into existence.”

Joby’s experience exemplifies what has been the mission of DIU since its creation in 2015: to connect Silicon Valley technology companies with Defense Department users, helping those businesses avoid the pitfalls of government contracting and procurement and while allowing the department to take advantage of commercial products.

That mission has evolved over time — from an experiment in building inroads with commercial firms to an established organization with a proven model for prototyping and buying technology. And it’s about to evolve again.

Driven by concerns that China’s military is better at harnessing its domestic innovation sector, U.S. lawmakers are proposing major increases to DIU’s budget — from $70 million in fiscal 2023 to about $1 billion in fiscal 2024. And Pentagon leaders are calling on the organization to play a bigger role in helping the department field more commercial capabilities and to do so on faster timelines.

Doug Beck, a former Apple executive and a captain in the U.S. Navy Reserve, came on as DIU’s director in April and has been crafting a strategy for its next evolution, dubbed DIU 3.0. Beck told C4ISRNET the idea is to take the types of capabilities the organization has fostered, prototyped and transitioned to military users over the last eight years and “deliver a strategic impact.”

That means ensuring the technologies DIU pulls in can be directed toward the actual problems combatant commands and armed services are trying to solve, plus validating that the resulting capabilities are more than prototypes and therefore can be manufactured and fielded in large numbers.

“If you show up with some great tech and you have a couple prototypes floating around or flying around, that doesn’t deliver strategic impact,” he said in an interview. “You only achieve strategic impact once you scale to a level that makes a difference.”

Executing on this next evolution, Beck said, will take resources, collaboration and buy-in from the armed services, the innovation community, senior Pentagon leaders and Congress — all of which have been lacking for the organization since its inception.

“Right now, we need to make progress,” he said. “We need to put points on the board, and we need to institutionalize the change.”

Silicon Valley beachhead

When former Defense Secretary Ash Carter created DIU in 2015, his vision was for the organization to serve as a “beachhead” in Silicon Valley, according to Bob Work, who served as deputy secretary of defense during Carter’s tenure.

“It was a horizon-scanning operation for the Department of Defense,” Work told C4ISRNET. “It was supposed to allow us to hear what they were developing, and it was supposed to allow them to hear what we were developing.”

But DIU got off to a rocky start. Its first director, George Duchak, had extensive experience fostering technology within the department, but lacked knowledge of Silicon Valley and the broader commercial tech community. The organization was also staffed and led by the undersecretary of defense for research and engineering, whose office wasn’t providing the attention Carter believed DIU deserved.

In his 2019 book “Inside the Five-Sided Box,” Carter, who died in 2022, wrote that after the organization’s first year, he realized DIU needed a fresh start.

“As the techies would say, I realized it was time to declare a ‘fast failure,’ ” Carter wrote.

He gave the unit a direct reporting line to his office and hired a new director, Raj Shah, who led the organization from 2016 to 2018. Within its first three months, the rebooted organization logged five successful projects and had another 22 in the works. By the end of Shah’s tenure, it had grown to include offices in Boston, Massachusetts, and Austin, Texas.

Shah also helped DIU take advantage of rapid acquisition authorities, allowing the organization to put companies on contract within 60 days, which Work said was previously unheard of. As of 2022, due in part to its contracting speed, DIU had transitioned 52 projects to the battlefield backed by multiyear production contracts from the military services worth up to $4.9 billion.

That speed helped address concerns from commercial companies about cumbersome DoD processes, but it didn’t solve all of DIU’s challenges. Its next director, Mike Brown, was vocal about the need for the department to reform its budgeting process to make it easier for firms to work with the government.

Brown, who left the department last year, had additional concerns about a lack of support for DIU from senior leaders and what he called a “glaring weakness in modernizing DoD.” By the time he started in 2018, the office had returned to its original reporting structure within the Office of the Under Secretary of Defense for Research and Engineering.

Brown and others have also pushed for a larger budget share for DIU, which relies largely on other Pentagon agencies for funding. Following a $10 million appropriation in FY17, the office’s annual research and development funding hovered between $20 million and $35 million between FY18 and FY22.

In FY23, Congress appropriated nearly $70 million for DIU.

Elevating innovation

Beck said DIU is making progress on some of the bureaucratic and cultural issues it’s faced in the past. Over the last year, Pentagon leaders took steps to give the organization more responsibility and influence — notably with Defense Secretary Lloyd Austin’s decision in April to have DIU directly report to his office.

“The 3.0 mission — you cannot do it buried. It wouldn’t work,” Beck said. “We needed to be a direct report to the secretary to do this.”

Austin and Deputy Defense Secretary Kathleen Hicks also made DIU a member of the Deputy’s Innovation Steering Group, which oversees DoD efforts to rapidly field high-tech capabilities to address high-need operational problems. Beck also chairs the Defense Innovation Working Group, which directly supports the steering group by vetting capabilities for it to consider.

These moves give DIU a key role in the department’s innovation process, Beck said.

“We’re at the heart of those things,” he noted. “The innovation steering group — before I got here, DIU wasn’t even at the table for that meeting.”

In that capacity, DIU will play a central role in an ambitious departmentwide effort called Replicator, which aims to field thousands of autonomous systems within the next 18 to 24 months. The initiative is the first test of the Deputy’s Innovation Steering Group’s innovation process.

DIU also helps coordinate the department’s innovation community and is deepening its partnerships within the services’ acquisition offices and the combatant commands. Having a degree of authority and being embedded in those places, Beck said, will help with what he views as one of DIU’s greatest challenges: resistance to change within the Pentagon.

“There are a lot of people in leadership who understand the imperative, who see the direction of the future, who are prepared to take some risk and move out,” he said. “There are still a lot of people out there for whom the way we’ve always done it — it’s safe. ... That takes time to change sometimes.”

Because Replicator is tied to an operational imperative — jump-starting the DoD’s innovation machine to better compete with China — Beck sees it as a way of making inroads and deepening partnerships with the services and the acquisition community. For those resistant to change and skeptical of DIU’s role in it, Replicator could provide a way for senior leaders to push through that hesitation.

Near-term challenges

Since changing culture and deepening partnerships with the services won’t happen over night, Beck said, he needs to make near-term progress on two more immediate obstacles: people and money.

The organization in recent months hired two senior executive service-level deputies, a civilian role that is equivalent to a military general or flag officer rank. DIU has never had a senior executive service official on its staff, and Beck said he counts these hires as a significant win.

There are other key roles he must fill, but the organization lacks the hiring authorities to move forward. Beck said he’s working with Congress to get approval and has plans to have the right people in place by 2025, but he needs to bridge that gap until then.

“It’s all the nitty-gritty nuts and bolts of getting that stuff done and pushing it through a system that is not used to working at this kind of speed,” he said.

From a budget perspective, DIU has received help from Congress in recent months. In June, the House Appropriations Committee proposed boosting DIU’s budget to $1 billion in FY24.

Attached to that funding would be the management authority for a “hedge portfolio” made up of innovative, commercially available systems like drones, satellites, agile computing and communication nodes, and artificial intelligence capabilities.

The proposal echoes the work of Brown and retired Rear Adm. Lorin Selby, who in recent years advocated for a “hedge strategy” that would enable the Pentagon to field large swaths of off-the-shelf, networked capabilities to augment the military’s major weapon systems.

Rep. Ken Calvert, R-Calif., chairs the House Appropriations Committee’s defense panel and championed the hedge portfolio legislation. He told C4ISRNET that funding is key to DIU’s ability to execute on programs such as Replicator.

“Nothing works if you don’t provide the resources to do this,” he said.

The fate of that proposal is unclear, as lawmakers are poised to consider a compromise bill in the coming weeks. Calvert said he talked to his counterparts in the Senate and there’s some openness, but “sometimes change is hard.”

However, he said, “it’s what we must do in order to make sure that we get capability out there as soon as possible.”

Promising steps

National security experts and former DoD officials say actions by defense leaders and lawmakers are promising and indicate a growing recognition of the importance of DIU’s role within the department. But without deeper reforms, some worry that any near-term successes may be short-lived.

Pete Modigliani, vice president of the Washington, D.C.-based national security advisory firm Beacon Global Strategies, stressed the importance of DIU having the resources and support it needs from within the department. Those improvements, he said, must be coupled with changes to the way the DoD writes requirements for and buys new capabilities.

“When folks like DIU come in and say, ‘Hey, we’ve found some great companies with some novel technology that are going to have great defense capabilities,’ the acquisition professionals often aren’t able to react. ... The system constrains them,” he told C4ISRNET. “They can’t integrate it without breaking all these things that they spent years putting together.”

Bill Greenwalt, a nonresident senior fellow at the American Enterprise Institute think tank, said the proposal from House appropriators is a promising step toward supporting the organization’s role in scaling commercial technology, but it’s likely not enough.

He said in an interview that to better leverage commercial technology to counter China, funding increases must be coupled with reforms to the Pentagon’s budgeting process.

“We have to kind of step back and [recognize] our entire budgeting and acquisition system is not conducive to competing against a real peer competitor who is taking advantage of commercial technology at a much faster rate than we are,” Greenwalt said. “This is like putting a Band-Aid on a mortal wound.”

Work, who is now a senior fellow for defense and national security at the Center for New American Security think tank, told C4ISRNET he’s concerned about how some of the Pentagon’s deeper cultural issues and resistance to change could play out in the budget process.

For example, Work said, if the department pulls money from other projects to fund Replicator — which it appears poised to do — that could spark pushback from the services.

“People who get money taken away from them can go to Congress, they can go to the secretary of defense — there’s all sorts of things they can do to gum up the works,” he explained. “That’s a big thing because this is going to cost money.”