The A&D Minute: Faster, Stronger, Hire

Defense acquisition reform might need more than speed. Prime contractors may have to reset to deliver affordable production at scale.

Defense contractors' record backlogs come with a big caveat. Acquisition reform is stalking the corridors of the Pentagon and government buyers across the world.

Established programs and the long-term sustainment revenue they create could be upended as priorities shift. Reforms, notably in the U.S., may face structural barriers, but prime contractors particularly have to be agile enough for the expected changes.

The new U.S. National Defense Strategy builds on fresh priorities centered around homeland defense, including the proposed Golden Dome missile shield and evolving naval assets. Political uncertainties have focused more attention on domestic production assets, notably in Europe, and could shift the calculus on export opportunities.

A heightened and ever-changing threat environment has boosted military spending and attracted fresh government and private capital. It has also exposed long-simmering deficiencies in supply chains and production readiness, as well as the inertia created by acquisition systems and funding mechanisms.

The barriers to change are clear but the tailwinds for the U.S. reform require prime contractors to accelerate ongoing efforts to adapt to the landscape.

Company executives on recent investor calls highlighted their commitment to transformation. Beyond the buzzword of speed, they may need to change how they design systems and structure programs, manage new partners, make their supply chain more resilient, and manage intellectual property to achieve affordable production at a greater scale.

Planned reforms point toward a more open, modular, competitive ecosystem where speed, exportability, and commercial integration matter as much as traditional performance and compliance.

The new ecosystem

The reform agenda combines long-running structural constraints with aggressive changes to portfolios, industrial base policy, and commercial integration. Inflation, flat topline budgets in the U.S, and reliance on year-long continuing resolutions mean that any new model that is more capital-intensive may be funded through divestments or requirement trade-offs, not new money.

Primes may have to plan for heightened performance pressure in a resource-constrained environment, rather than expecting acquisition reform to unlock large new funding streams by itself. The availability of the war fighter solution is the new key capability they expect.

Pentagon leadership is signaling a deliberate push to expand the industrial base, increase competition, and reduce reliance on a small number of large integrators. This includes the use of new portfolio managers, who are able to shift resources between platforms and functions. It also emphasizes more reliance on new financial instruments, and a commercial-first orientation to lower barriers for nontraditional vendors and startups.

For primes, this means that maintaining today's share may already require strategic adaptation; growth may require leaning more heavily into the new model rather than an insistence by executives that they are "aligned with the customer."

Here we go, again

The Pentagon push includes the new Defense Acquisition Strategy, multiple executive orders, and a fresh national defense blueprint that emphasizes homeland security. This would, at least in part, be codified with Congressional backing in the 2026 defense policy bill. As ever, it's how those prongs are interpreted by appropriators that matters, but primes may have to prepare.

The acquisition memo envisions explicit expansion of the industrial base and active encouragement of non-traditional suppliers. Tools such as Other Transaction Authority and streamlined non-FAR pathways may be used to steer work toward commercial and startup partners that, arguably, can move quickly, often outside traditional competitive cycles.

Prime contractors could assume that some of their previous consolidation advantages—supply chain exclusivity and the ability to navigate the contracting landscape—could erode as new entrants gain access to funded pilots, portfolio roles, and production opportunities.

To prepare, primes could: 

• Expand partnerships and joint ventures with startups and mid-tier companies in autonomy, software, sensors, and manufacturing. The aim is to become the preferred scaling partner when prototypes transition to programs of record.
• This shift could reduce the value of proprietary integration alone, but primes can create advantages in system-of-systems design, mission engineering, and the ability to field and sustain complex portfolios at scale.
• Create internal cells that can respond to OTA timelines, with lean governance, faster pricing support, and minimal internal friction, while keeping the rest of the enterprise compliant for major FAR-based awards.
• Develop the capability to help the Pentagon integrate many small vendors, especially via enhanced cybersecurity and accessing test and certification infrastructure. Identify the best technology partners and assemble strike teams to quickly address evolving needs.
  

Commercial first

The push continues to a commercial-first, modular approach in which plug-and-play components and open systems are the default. The Pentagon is signaling that dual sourcing, sustained competition at the module level, and export-ready designs could be baked in from the start, not bolted on later.

Primes have already shifted from a historical model of highly integrated, proprietary architectures that lock in long-term upgrade and sustainment revenue. This could impact their capital allocation strategies. Government buyers are looking, again, to shift risk to the industrial base, requiring primes to consider responding with measures such as:

• Doubling down on building more capacity to deliver what the Department of War (DoW) is expecting, instead of buying back shares.
• Redesigning their supply chain organizations to drastically ramp up production and meet customers' capacity expectations. Fully embedding the power of AI to reinvent supply chain organizations, as the technology is now available, could reward early adopters.
• Redesigning product architectures and roadmaps around open interfaces, defined module boundaries, and published standards where the DoW seeks government purpose or unlimited rights.
• Building internal architecture authorities that ensure new programs are decomposed into modules that can be competed and upgraded independently while preserving system-level performance and cyber resilience.
• Investing in software-defined solutions including digital engineering, model-based systems engineering, and reference architectures that allow faster insertion of third-party modules without destabilizing the overall design.

This shift could reduce the value of proprietary integration alone, but primes can create advantages in system-of-systems design, mission engineering, and the ability to field and sustain complex portfolios at scale.

Rethinking data rights

The reform proposals explicitly anticipate broader government data rights to enable modular competition and vendor changes over time. This means that architectures designed to depend on proprietary interfaces and data are increasingly at odds with policy direction and may face exclusion from key portfolios.

The new breed of defense tech players face, perhaps, a bigger challenge. Financial backers count on the moat created by their fresh-start design and manufacturing strategies to generate revenues and profits to underpin stellar valuations.

Primes still need a defensible competitive advantage and protection for genuine innovations, so they could consider the following: 

• Develop more nuanced IP strategies that distinguish between where to concede government purpose rights and where to protect truly differentiating algorithms, tools, or manufacturing know-how.
• Equip legal teams to negotiate modular data packages rather than defaulting to maximal proprietary positions that may be non-awardable under new policies.
• Invest in proprietary capabilities that are less vulnerable to rights dilution, such as collaborative, data, and AI-enabled workflows; process IP; and advanced production methods. These can enhance cost and schedule performance even in open architectures.

AlixPartners is supporting clients in driving transformation across their portfolios. We look forward to a deeper conversation about capitalizing on the profound disruption in defense.

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