Invest Fast Or Get Left Behind. Pentagon Says To Defense Industry

Defense Secretary Pete Hegseth on Friday urged defense industry leaders to invest more of their own money and accelerate innovation. Warning that the Pentagon will use presidential authorities to compel production if companies fail to meet demands.

Speaking before hundreds of executives at the National War College, Hegseth unveiled sweeping reforms to replace Cold War-era acquisition processes with faster, more competitive systems. The secretary described the event as an opportunity to “look executives in the eye” and make clear that the era of slow, taxpayer-funded development cycles was ending.

“We commit to doing our part, but industry also needs to be willing to invest their own dollars to meet the long-term demand signals provided to them,” Hegseth said. “If they don’t, we are prepared to fully employ and leverage the many authorities provided to the president which ensure that the department can secure from industry anything and everything that is required to fight and win our nation’s wars.”

Following the speech, Hegseth’s office issued three memos: one renaming and transforming the Defense Acquisition System into the Warfighting Acquisition System; another ordering an overhaul of the joint requirements process; and a third focused on streamlining foreign military sales.

The Pentagon chief told contractors to embrace financial risk or risk losing Pentagon business. “You must invest in yourselves rather than saddling taxpayers with every cost,” he said. “For those who come along with us, this will be a great growth opportunity. To industry not willing to assume risk to work with the military, we may have to wish you well in your future endeavors which would probably be outside the Pentagon. We’re going to make defense contracting competitive again.”

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Steve Blank, co-founder of Stanford University’s Gordian Knot Center for National Security Innovation, called the speech a “death knell” for the existing acquisition system. “The Department of War just shot the accountants and opted for speed,” he told Defense One. Blank predicted major contractors would lobby Congress to resist the changes, saying the reforms would force companies to assume more risk and overhaul long-standing business models.

“Their first response is going to be hiring a whole ton of K Street people to lobby Congress,” Blank said. “So, this really forces primes, if they don’t want to hire lobbyists, to change their business model.”

Hegseth said the new acquisition structure aims to fix a system plagued by delays, limited competition, and ballooning costs. “These changes will move us from the current prime contractor dominated system defined by limited competition, vendor lock, cost-plus contracts, stressed budgets, and frustrating protests, to a future powered by a dynamic vendor space,” he said.

The shift from cost-plus to fixed-price contracts continues an evolution that began in the Obama administration. While fixed-price contracts can improve accountability, they have also caused issues in complex programs. Boeing cited such contracts as contributing to delays in the new presidential jets, while Northrop Grumman’s CEO said they are impractical for development work.

Deputy Defense Secretary Stephen Feinberg, in introductory remarks, reinforced Hegseth’s message. “The Pentagon and our contractors need to change and do better,” he said. “Those who don’t and resist it will be done.”

Hegseth’s remarks drew positive reactions from defense tech founders and investors who viewed them as validation of a shift toward innovation-driven competition. One attendee told Defense One the policy was “a vindication of our thesis that America needs an acquisition system focused on meritocracy and transparency.”

The new directive to prioritize commercial technology also represents a major change in approach. It encourages more fixed-price contracts with milestone-based incentives, emphasizing speed and performance.

Hegseth also addressed delays in the foreign military sales process, a long-standing frustration among allies. “Every conversation I have with presidents, prime ministers, and ministers of defense is, ‘What is wrong with your foreign military sales? We ordered it in 2014; it’s 2025 and it’s scheduled to deliver in 2032,’” Hegseth said. “We didn’t break it, but we’re going to fix it.”

He stressed that faster foreign military sales are vital to U.S. strategy. “They’re critical to our strategic vision on the global landscape. To accomplish this, our allies and partners must be armed with the best and most interoperable weapons systems in the world,” he said.

A memo dated Nov. 7 orders the Defense Security Cooperation Agency and Defense Technology Security Administration. Responsible for foreign military sales to move from the Pentagon’s policy office to its acquisition office.

Jerry McGinn, director of the Center for Strategic and International Studies’ industrial base division, praised the move as a “refreshing” focus on burden-sharing and partnership. “It allows more overall industrial capacity,” McGinn said, noting Denmark’s recent cancellation of its order for U.S. Patriot missiles due to a five-year backlog. “Doing better on that will be better overall because you’ll have allies buying stuff that’s compatible with ours.”

McGinn said successful implementation would require significant investment and personnel. “I’ve been calling to have our industrial base on more of a ‘war footing’ for some time,” he said. “Follow-through is going to be the key and the question is resourcing, because some of this will require additional attention and resources.”

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Editor’s Note:

As the Pentagon pivots to a faster, leaner acquisition system, Secretary Hegseth’s ultimatum to the defense industry marks a defining shift in U.S. military procurement one that could reshape defense partnerships and global readiness for years to come.