Trump team signals defense acquisition overhaul

A new guard of tech billionaires and venture capitalists is mobilizing to overhaul the Pentagon’s multi-billion dollar space acquisition process as Donald Trump begins his second term at the White House. They’re expecting to work with an administration stacked with like-minded reformers: commercial space advocates and Silicon Valley veterans, all of whom want to take on legacy defense contractors.That could mean fewer “cost plus” contracts, where businesses are compensated for expenses incurred as well as a fee, and fewer large programs of record. Instead, they expect more fixed-price contracts aimed at commercial suppliers.“Although we will have to wait for policy details, we expect space to once again be central to Trump’s agenda, boosting demand for both incumbent space and defense primes and new market entrants alike,” said James Bruegger, chief investment officer of the venture firm Seraphim Space.Space initiatives were a hallmark of Trump’s first term, which included the establishment of the Artemis program, the revival of the National Space Council and the creation of the United States Space Force. These precedents suggest space will again take center stage in Trump’s policy agenda.The escalating technological rivalry between the U.S. and China adds another dimension of urgency. Chinese space companies, backed primarily by government funds, have seen a surge in large funding rounds. Venture capital investment in Chinese space tech companies outpaced U.S. investment for the first time in the first half of 2024, Bruegger said.“In the face of China’s increasing assertiveness, we expect the U.S. under the Trump administration to respond in kind with a more aggressive push by the U.S. government — and in particular the Department of Defense — to support the continued growth of the space tech ecosystem,” he said.SpaceX stands to be a particular beneficiary, given the influential roles that both Elon Musk and Jared Isaacman, the entrepreneur and commercial astronaut who’s been tapped to lead NASA, are expected to play in the new administration.The administration’s close ties to Musk and other tech entrepreneurs could herald a shake-up in military space procurement, analysts and executives predict. At stake is a defense market worth hundreds of billions of dollars dominated by traditional aerospace contractors.“I think we’re going to see a big difference” from Trump’s first term, Gabe Dominocielo, co-founder and president of Earth observation company Umbra Space, said at the recent Baird Defense & Government Conference.He expects Trump’s administration to favor leveraging private-sector innovation, faster development timelines and more significant cost savings. He added that incoming leaders at the Pentagon and NASA are likely to challenge traditional “cost plus” models. Instead, Dominocielo predicts they will push maximizing efficiency and minimizing overhead, creating opportunities for tech-focused players to take on established defense contractors.Musk and other critics of the current system argue contractors have little incentive to control costs since their profit is tied to spending.And several appointments offer clues about a similar direction. Isaacman’s remarks at the Spacepower Conference in December emphasized the need for technological superiority and private-sector innovation to maintain U.S. leadership in space.Source: Govini. Credit: SpaceNewsAt the Pentagon, Stephen Feinberg, co-founder of Cerberus Capital Management, would serve as deputy defense secretary under Trump’s pick to run the Pentagon, former Fox News host Pete Hegseth.Meanwhile, Vice President JD Vance’s venture capital background and connections to influential tech figures such as Palantir’s Peter Thiel and Anduril’s Palmer Luckey suggest a potential realignment in procurement priorities.The SpaceX effectMusk’s role as the administration’s government reform czar presents both opportunities and challenges for space startups. While SpaceX’s success has proved the commercial model’s viability, its market dominance now gives some pause.But those concerns do not appear to be slowing momentum toward new firms competing for Pentagon contracts.“We’re going to see more budgets moving from traditional, legacy, decades-old programs of record into the newer space community,” said Frank Backes, CEO of space radar imaging company Capella Space.In a sign of the shifting landscape, The Financial Times recently reported that Palantir Technologies and Anduril Industries are in talks with OpenAI and SpaceX to form a consortium to jointly bid on U.S. government contracts.The timing might be right for commercial tech to make such a push. Silicon Valley’s interest in national security has grown significantly since the COVID-19 pandemic, extending into space infrastructure. However, the numbers show the challenge ahead: venture-backed companies were awarded less than 1% of the $411 billion in Defense Department contracts in fiscal year 2023, according to market research firm Govini.Breaking down barriersMeshing private sector technology with defense platforms presents formidable obstacles. “Many of us interface with the U.S. government through very archaic interface mechanisms,” said Backes, adding that AI-driven software services remain underutilized.Despite decades of reform attempts, the Pentagon’s procurement machinery has proved remarkably resistant to change. The Joint Capabilities Integration and Development System (JCIDS), the military’s laborious process to identify future needs, specifies requirements but doesn’t prescribe how those requirements should be met. Procurement offices within each branch of the military, including the Space Force, are responsible for conducting market research to determine whether bespoke systems or commercial products best fulfill the needs.Program managers often avoid taking risks with unproven startups, fearing both technical failure and the possibility that young companies might go out of business, said Clayton Swope, senior fellow at the Center for Strategic and International Studies.Swope pointed to a fundamental disconnect: “DoD knows how to do development, but trying to match a capability or that solution that originated outside of the requirements process” remains uncharted territory.The Space Force could become a testing ground for such new approaches. The service is already experimenting with novel procurement vehicles such as the Commercial Augmentation Space Reserve (CASR) program, inspired by the Civil Reserve Air Fleet model. However, critics argue that these efforts focus too heavily on contracting mechanisms rather than addressing fundamental issues in requirements generation and capability integration.Rajeev Gopal, vice president of Hughes Network Systems, highlighted systemic issues in the procurement process.“The traditional way of buying is suited for large programs of record,” Gopal said. Instead, he emphasized the need for more agile approaches tailored to cutting-edge technologies.Agencies such as the Space Development Agency, the Space Rapid Capabilities Office and the Defense Innovation Unit are already following faster acquisition models that bypass the Pentagon’s JCIDS process, but broader reforms are needed, executives argued.The Trump administration’s business-heavy leadership could bring unique insights into these acquisition challenges. “They understand those pain points for the space tech startup community and for venture capital, maybe like no prior administration,” Swope said.The key will be finding ways to create sustainable paths for tech firms developing useful technologies, rather than just offering one-time contracts that lead nowhere, he added. Another factor to consider is Congress, which has the final say on spending and often favors established programs tied to local jobs.What’s at stakeBeyond the business implications, failing to integrate commercial innovation could impact national security, Swope argued.“Without a mechanism to operationalize commercial space solutions, military leaders risk jeopardizing their ability to unleash the power of commercial space during a crisis or conflict,” he said. “This incoming administration is bringing to the table a lot of understanding about how the VC community works.”Yet barriers remain in reconciling Silicon Valley’s “move fast and break things” ethos with the military’s methodical approach to procurement. Retired Space Force Gen. John “Jay” Raymond, now at Cerberus Capital Management, highlighted this cultural disconnect.“We speak a different language,” Raymond said, acknowledging that his current private sector role has revealed blind spots from his government service. The military’s extensive requirements lists often clash with commercial solutions that might not check every box but still offer innovative capabilities.Commercial space firms were among the exhibitors gathered at the 2024 Spacepower Conference in Orlando, Fla. Credit: Space Force AssociationRecent Pentagon initiatives suggest growing awareness of this problem. The Department of Defense released its Commercial Space Integration Strategy in April, followed by the U.S. Space Force Commercial Space Strategy, both aimed at better incorporating commercial solutions into military operations.But executives point out that current efforts have yet to address broader issues of requirements and operational integration.Peter Platzer, CEO of space data firm Spire Global, pointed out that while SpaceX has successfully commercialized launch and satellite communications, other space industry markets such as space domain awareness and satellite-based navigation remain dominated by government systems and traditional contractors. “These are very large programs that should be 65% to 70% commercial,” he argued.Global competitionMeanwhile, officials underscore the Pentagon’s renewed efforts to partner with emerging commercial space startups, emphasizing the importance of dual-use technologies in maintaining military advantages.Maj. Gen. Steven Butow, director of the Defense Innovation Unit’s space portfolio, framed the challenge as both economic and military. “China is investing heavily in its commercial space sector not only for economic returns but also to enhance its military capabilities,” Butow said. “It’s about ensuring we remain competitive on multiple fronts.”Butow said a public-private partnership approach could redefine the future of defense procurement, positioning the U.S. to outpace global competitors in the rapidly evolving space domain.For now, many in the space industry will watch with cautious optimism whether the new administration can navigate the intersection of Silicon Valley innovation and military procurement, potentially ushering in a new era for space technology. The question remains whether breaking down long-standing barriers will lead to genuine reform or simply shift power from one set of dominant players to another.This article first appeared in the January 2025 issue of SpaceNews Magazine with the title “Welcoming the Reformers.”