The Defense Innovation Unit is poised to play a key role in identifying commercial technologies with military applications. The 2024 Defense Appropriations Act signed into law March 23 boosts DIU’s budget more than eightfold from $112 million in 2023 to $946 million in 2024.
DIU has looked forward to a significant budget hike since Defense Secretary Lloyd Austin appointed Doug Beck, a former Apple vice president and U.S. Navy reserve officer, to lead the organization in early 2023. Citing “the vibrant and creative commercial sector,” Austin directed DIU to report directly to his office, rather than to the defense undersecretary for research and engineering.
“Our strategy is not to control but to coordinate and help orchestrate the entire innovation enterprise in the Department of Defense,” said Steve “Bucky” Butow, DIU space portfolio director.
Butow, an Air National Guard major general and combat pilot who serves as commander of the California Air National Guard, helped establish DIU in 2015 to identify commercial technology with promising military applications. DIU, based in Mountain View, California, is focused on six technology portfolios: space, autonomy, artificial intelligence, cyber, human systems and energy.
SpaceNews caught up with Butow to discuss “buy before build” strategies and the obstacles they face. One challenge he pointed out was difficulty in interpreting Federal Acquisition Regulation Part 12, the rules for acquiring commercial products and services.
Secretary of Defense Lloyd Austin (left) meets with Steven Butow, director of the space portfolio at the Defense Innovation Unit in Mountain View, California. Credit: U.S. Air National Guard photo by Master Sgt. Joseph Prouse
What are the advantages for the Defense Department in purchasing commercial technology?
Butow: In industry as a whole, we have traditional contractors, who do a very important job. They know how to deliver exquisite capabilities. The James Webb Space Telescope was clearly not a commercial thing. It represents the state of the art. But you could never buy 1,000 James Webb Space Telescopes. Exquisite things do not scale. It’s become somewhat of an Achilles heel for us in defense that we’ve become infatuated with exquisite ships, exquisite airplanes, exquisite things.
From Ukraine, you hear about things that work well but are running out. That’s not good. From an industrial policy standpoint, we have to relearn that commercial is the best path for us to reduce cost, increase scale and move with speed.
You can’t show up at a company with a bespoke requirement for a widget and say, “Retool your manufacturing plant to make this because we need it for wartime.” That would be too expensive. Instead, if we need to scale and increase production say, “What are the things we can do to help you to do that?”
How can you help?
Some of it is policy. Some of it is how we write contracts. We have to relearn how to work with the commercial sector. We have to be early adopters and willing users of the commercial technology, even if it just solves 80 percent of our problem today.
Are people willing to accept 80-percent solutions?
As a warfighter, there are times when I would want 60 percent of the capability. Because 60 percent is a lot better than 0 percent. If we say, “I’m not going to use it unless it solves 100% of my problem,” then we’ll never get it. Or if we get it, it’ll be too expensive because it exceeds what the market is willing to adopt right now.
We still do requirements-based acquisition. That comes out of the 1960s, the McNamara era. The world’s changed since then.
A lot of the work that’s happening with Congress and DIU is focused on how we make this transition. How can we rapidly adopt commercial capabilities at speed and scale.
Everything we do in DIU today is for strategic effect.
How do you define that?
It is introducing a commercial capability that is disruptive, it changes the way that we plan or execute an operation. Proliferative low-Earth orbit capabilities will get to the point here where you can get information from space without it ever touching the ground. That’s an amazing, empowering thing.
There’s not enough military broadband. That’s why we have had such a heavy reliance on commercial satellite communications for such a long time. That willingness to buy commercial satcom services from Iridium, from Inmarsat, from other great companies has made those industries stronger and more resilient over time.
What are the things that discourage the purchase of commercial products and services for national security space?
The first one is legacy policy. The Defense Department doesn’t control the Planning, Programming, Budgeting and Execution process. The most damning thing that the PPBE does – and remember it was written at a time when the government was the leader in research and development, not private industry – is if you have a new and emergent need or you want to buy something, it takes three years to get the money to do it. Three years is like an eternity in 2024. There are commercial companies that can’t even tell you what they’re going to be building in three years.
Companies iterate fast. Planet did six or eight iterations of their Dove in three years. Who knows what Starship is going to look like three years from now?
If you say “I’m not going to move any money until I write a requirement and do all these things,” you’re agreeing to buy yesterday’s technology, not today’s. With the steep rate of change in technology, we can’t afford to be buying yesterday’s stuff because our peer adversaries are buying today’s stuff.
In our 2022 National Defense Strategy, one of the primary tenets says that the Department will be a fast follower of commercial technology. Being a fast follower means that we’ll be readily adopting all these new and emerging capabilities from the first movers. Sometimes the first mover is the Defense Advanced Research Projects Agency. But a lot of time that first mover is a new company that’s doing something extraordinary.
Those are important relationships. For national security, you can’t wait until markets like space or artificial intelligence are settled and then start buying. We did that for small drones. That technology was developed here and financed here, but the market didn’t get established here. Then, DJI from China came in and basically took the entire market. Even today, 70 percent or 80 percent of the market share is DJI drones. It will take the government decades to reassert itself in that market.
We saw that with the launch market in the 1990s. The U.S. was number one. We went from hero to zero. Look at how devastating that was to the Florida Space Coast. Then we had the resurgence with commercial launch.
Are there also cultural barriers to commercial purchases?
Yes. The current culture still favors bespoke. The incentives are there. If you ask the laboratories, “What’s your metric for success,” the laboratories will tell you that it is transitioning technology out of the labs. What if that’s not the best technology? Or, what if we could make the James Webb Space Telescope even better with a commercial thing? We would need to encourage and reward that kind of integration.
It’s consistently been U.S. policy that when the government needs to buy something, it should buy it from the commercial marketplace first. It’s FAR Part 12. The first part of FAR Part 12 says we should be maximizing the procurement of commercial stuff. That’s right on the mark. But the rest is nebulous. The phraseology is problematic.
Every year, there are more commercial systems in space than government systems. By the end of the decade, you could have 10,000 more commercial sensors than government sensors. Ignoring that would be like being in law enforcement and saying, “I don’t care about Ring doorbells or cameras on light posts.” Why wouldn’t you want to take advantage of all that capability? You don’t have to own those things. You can award services contracts. The Department doesn’t write a lot of services contracts.
Do the regulations make it easier to buy hardware?
Yes. If you listen closely to the Space Force leaders, they are saying space is going to be the first software-defined domain, other than cyber. They will solve tough problems through software.
It’s too expensive to put humans in the heavens to do all the interesting things that need to get done. It’s much more cost effective to do that remotely. A great example is Intuitive Machine’s IM-1 lander. They had a failure and they solved it with software. That’s the power of technology today.
Do you need to create incentives to encourage commercial purchases?
Yes. We need incentives so people adopt the model that [Space Development Agency Director] Derek Tournear has created to buy in tranches. In fairness, you can’t do that with everything. You can’t build a new submarine every 24 months. But that would work for a lot of things in the Department.
Those incentives don’t have to be congressionally allocated. Those can be internal things for advancement. I have a lot of good friends in the science and technology community. They’re brilliant people who have worked on extraordinary things.
The measure of success can’t be that you create wonderful technology that sits on the shelf. The expectation and the incentives should point towards getting these capabilities out. It’s easy to think that the best thing is going to be the most exquisite thing. But if it’s so expensive that you can’t afford to have enough of them, then it doesn’t matter what the technology is. It just incentivizes somebody else to create competitive technology at a much lower price point. The bespoke and exquisite things are only needed if it’s not practical or affordable or achievable to do it with a commercial capability.
What other organizations are promoting commercial purchases?
Most of the services have pretty aggressive strategies to adopt and use commercial technology, but it’s still a very small part of the overall pie. A few percentages of the overall procurement budget.
I can’t say enough good stuff about what the Space Force and intelligence community have done. In-Q-Tel predates DIU by like a decade. We have a very strong relationship with In-Q-Tel because we live in the same zip code. It’s two different models, but the idea is, “How we keep we keep the government smart about what’s out there commercially.”
We also have good partners in the financial sector. Probably the most important thing is making sure that we have the right financial tools to help these companies to be on a path where they can flourish and not be at risk.
The Office of Strategic Capital, which is coming online this year, can be a big part of that. The ability to use things like debt financing to build satellites or spacecraft over more venture class funding would be good.
In spite of all this progress, it’s my impression that commercial purchases may still make up a small fraction of military space budgets. Should it be more?
It’s hard to say what it should be. Most people would be skeptical if it’s only a few single-digit percentage points. It’s probably in the double-digit percentage range.
Anything else you want to say?
I’d be remiss if I told you that there’s not competing things in the government for all these commercials things. Maybe not rockets, but communications, networking and other capabilities.
We have a whole innovation ecosystem in the Defense Department. There are over 100 organizations. If we were true to ourselves and asked, “Is this the most prudent use of our resources?” I don’t think it is.
Like the laboratory system?
Yes. The laboratory system for one. At a recent meeting, we talked about incentive structures. The incentive structure in the lab is to transition technology out. There’s a lot of good technology.
DIU is a vessel to help transition some of that technology out of the labs, where it’s appropriate. We’re doing that right now with a lot of advanced energy and other capabilities.
But if we have something that’s fast moving, our money goes a lot further when it’s coupled with the private investment outside of the Department. That’s part of that overall demand signal that we need to show.
We also have classified networks. We have things that are part of the kill chain. Those are not commercial. We have different business models: government owned, commercially operated; government owned, government operated. There are different business models involving commercial technology today.
What are some recent changes that have encouraged the military to test and buy commercial products and services?
We’re integrating the commercial sector in our defense sector in ways that we haven’t done before. Companies like Lockheed, Airbus and Boeing have venture arms investing in small companies.
FAR Part 12 says we should be encouraging our defense primes to buy commercial as well. And it’s not easy. We can make it easier. We can do things to help make it so that companies can compete on a level playing field, which is how we use our Other Transaction Authority.
By level playing field, do you mean companies don’t have to have lawyers and contract specialists who know the federal acquisition process?
Or even a prime-sub relationship. If a prime works with a world-class software company and the world-class software company is doing the lion’s share of the work as a subcontractor, under the Federal Acquisition Rules I can’t even talk to the sub. I can only talk through the prime.
We’re not fully taking advantage of all the authorities that Congress has given us. Derek Tournear is. That’s why SDA is a rock star. They disrupted the acquisition model. They’re using all the tools in the toolkit. And the best thing that they’re doing is sticking to a schedule.
SDA is a great example of the 80% thing. It’s not worth waiting until you have the perfect thing. It’s better to have a series of things, be agile and provide the best capability you can, knowing that you’re going to have another follow-on capability in 24 months. This is what we call fast following that technology curve.
The industrial base that supporting SDA’s Proliferated Warfighter Space Architecture is fine-tuned to turn things out in 12-month, 18-month or 24-month intervals. If they don’t meet the schedule, he doesn’t buy it.
Has DIU played a role in pushing this whole narrative?
Yes. You don’t want to use the wartime environment to test and experiment. You’re putting people at risk when you do that.
If I were to ask the warfighters in the room behind me, “What’s the best thing I can give you in the field?” They want communications resiliency and diversity. They want to get away from having to carry 20 radios for every federated system.
We’re working on that through the DIU Hybrid Space Architecture Program. It’s coming together. It will offer the capability to communicate with some assurance of resiliency in case one of the networks gets brought offline by a cyberattack or something like that.
We are not alone. [Former Defense Secretary] Ash Carter was the impetus for this. He created DIU, the Rapid Space Capabilities Office, the Defense Digital Service. His legacy was helping to posture the Department to be more agile.
There’s technology that Derek Tournear and SDA is using that DIU helped to de-risk through prototypes. We funded companies to get their hardware into space. And we got third-party agencies like the Aerospace Corporation to validate the results. All that makes it easier for these things to enter the supply chain and get into acquisition for the government.
DIU is not an acquisition organization. We facilitate commercial companies doing business with the Department. We joke internally about the little old lady in the cubicle in the basement of the Pentagon who’s got these manila folders. To write a contract, she has to be able to drop documents into all those folders.
There’s nobody at the Department or in the acquisition community that says, “I’m not going to buy this because it’s commercial.” But they need all the right things to be able to make a deal. Understanding what those are and how to feed the system is very important. The Department has gotten good at doing that.
We’re going to be bringing new tools and capabilities in so we can move out faster. If the fastest way to make an outcome realized is to put money on a [Strategic Funding Increase] STRATFI or a [Tactical Funding Increase] TACFI, why not do that? We don’t all have to write new contracts and create more confusion.
Anything else you want to say?
We’re expanding our partnerships not just with the combatant commands but also with allies and partners. We have the ability to write contracts with foreign companies. We’re trying to integrate all our capabilities within the alliances, so that we don’t have a have/have not relationship with the warfighters.The last time we fought a war with just U.S. forces was probably the Civil War. Every campaign we go into, we have allies and partners. Being a good ally means sharing information and integrating our capabilities. That is not easy if everything is bifurcated and federated.
We can use technology to facilitate better levels of trust within our alliances. The problems we face today become much smaller problems if we have the whole world shoulder to shoulder with us. And technology is a big part of that.
This interview, which first appeared in the April 2024 issue of the SpaceNews magazine, has been edited for clarity and length.