The military’s dilemma in building more small-business contractors

Of the hundreds of billions of dollars a year that the Pentagon pays for products and services, a large portion flows to established military contractors like Lockheed Martin, Raytheon and Boeing. Military leaders want to direct more of the contracts to smaller companies.

In the past decade, the number of small businesses with Pentagon contracts has declined, said Farooq Mitha in congressional testimony earlier this year. He directs the Defense Department’s Office of Small Business Programs.

“This is an economic and national security risk for our nation,” Mitha said. “We risk losing mission critical domestic capabilities, innovation, and strong supply chains.”

The military is trying to attract small businesses in part because they account for the vast majority of companies in the U.S., Mitha said. The efforts reflect a broader shift across Defense Department agencies to collaborate with outside organizations that may not already have strong ties with the military.

Military leaders said smaller organizations provide key advantages.

“The biggest one is risk,” said Col. Martin Salinas, chief operating officer for the Air Force’s innovation arm, AFWERX. “Those large bites at risk, at bleeding-edge capability, are likely coming from the great American small businesses that are trying interesting things.”

It’s Salinas’ job to help bring those firms into the Air Force’s fold through efforts like the Small Business Innovation Research program. It helps government agencies offer varying levels of financial support to smaller businesses developing technology or products an agency wants.

With AFWERX, Salinas manages more than $1 billion a year in this type of funding, the largest SBIR budget in the Department of Defense, he said. It equates to about 1,600 contracts a year.

“We understand not all of those 1,600 contracts are going to transition to a capability, but if we cast a wide net, you have a higher likelihood of finding that next great thing,” he said. “If we are funding that small American company, ideally our adversaries are not.”

The process for companies that want to tap into this pool of cash can be cumbersome and frustrating.

Patrick Hitchins learned that when he first approached AFWERX in 2018 about his company’s technology around tracking data from wearable fitness devices.

Hitchins, the CEO of Austin-based FitRankings, said he was well-received, but that didn’t make securing a contract any easier.

“The people are awesome; they’re the greatest asset of the military,” he said. “The systems in the military, the policies and the technology itself is the most frustrating … and the bureaucracy.”

It took Hitchins a couple of months to register his company to work with the government before he could even apply for a contract, he said. His first application was denied.

Hitchins said the process has improved greatly in the past five years, but it’s still challenging to overcome how the military has historically handled working with outside proposals.

“You hear this phrase a lot: ‘Requirements driven,’” he said. “So if you have a great idea, and want to work with the DOD, if they don’t have a requirement for what you have, typically you cannot work with the government.”

Salinas acknowledges this traditional thinking has hindered progress in the past.

“Good ideas weren’t always well received,” he said. “If there wasn’t a requirement, it was typically brushed aside.”

But the mentality has subsided, Salinas said.

He adds there’s an abundance of innovative ideas, and he’s working to build demand for them inside the Air Force. That means tightening the development timeline and helping the military see that a new solution might meet most of what it’s looking for and likely at a better cost, Salinas said.

Military branches also have started accepting proposals from companies that may have a solution to a problem that hasn’t been explicitly identified.

Hitchins credits this “open topic” route as the reason he was able to get his foot in the door and eventually secure a contract to provide the U.S. Space Force with a new platform to measure physical fitness and readiness.

However, he no longer has that contract after brakes were put on that specific change, he said.

“Sometimes technology outpaces policy or rules and regulations, and then the policy needs to catch up, and it can be a painful process for that to happen,” Hitchins said. “As the SBIR Phase 3 company that developed this technology, the mandate states that eventually that work should go to us.”

Hitchins said he’s working with the Air Force under other contracts and seeking business with other military branches, too.

Open topics allow more companies to propose ideas to different branches, but it can be hard for those businesses to know what they should include in the application.

“There’s not much room for creativity to get the larger vision of the product across,” said Ashish Patel, a principal at DroneDomo. “You just don’t know who’s reading the applications on the other side; you’re unsure of ‘Is this the right way to frame it?’”

DroneDomo designs and builds “drone ports,” small structures where drones can be stored, charged and maintained. He’s turning to the military as a potential client because the FAA has tight regulations on civilian drones.

“We really felt like we had an innovative product and wanted to find a way to utilize it,” he said. “The military has the ability to potentially bypass some of the regulator needs.”

Earlier this year, Patel’s SBIR application was rejected without much constructive feedback, he said.

“Tell me why this isn’t a good application for the military,” Patel said. “I don’t know how we can change our proposal. It’s almost like you need to hire a consultant to navigate this.”

Patel came away from his experience with the impression that winning military contracts requires having contacts inside the armed services.

Small-business owners who have won Pentagon contracts don’t necessarily disagree.

“A lot of our success has come from the fact that we know some of these people out there, or over the years they’ve seen or heard of our work,” said Craig Brooks, the president and chief engineer at AP/ES Inc.

Brooks’ St. Louis company has secured SBIR contracts since the late 1990s to provide engineering and analysis to determine how long fleets of aircraft will last.

Before he started AP/ES, Brooks was an industry consultant. He has come to learn that developing an innovation is sometimes the easiest part of working with the military.

“We were able to do the technology, but were we able to convince the other people to use the technology?” he said. “There’s not just one Navy, there’s not just one Air Force. You’re dealing with hundreds of entities that have their own controls, procedures and processes.”

And those points of contact change frequently because of turnover in the military ranks, Brooks said.

“You’re having to reintroduce yourself every few years, you have to reeducate them,” he said. “They are in a constant motion, because that’s just the nature of the military.”

Despite the frustrations and challenges, Brooks and the other business owners said the SBIR and Department of Defense programs are positive and bring new technology to the military.

“[The military] is a customer that is worth going through some growing pains, because it’s for all of our benefit,” Hitchins said.

This story was produced by the American Homefront Project, a public media collaboration that reports on American military life and veterans.