Anne Bredemann

Associate Editor

Loyola University Chicago School of Law, JD 2026

In recent decades, the U.S. defense sector has undergone a significant transformation with innovative companies such Palantir, Space X, and Anduril pushing for the federal government to reconsider its current procurement process. The goal of these “New Age” companies is to level the playing field in government contracting so that they can continue developing the world’s most advanced and effective defense technologies.

How does the government’s current defense procurement process work? What is wrong with it?

Critics of the U.S. government’s defense procurement process argue that it is outdated and anticompetitive because it focuses on cost-plus contracting; the government offers contracts to companies to build defense systems, and these procurement leaders create and control the technologies for the military. These defense companies make money by a cost-plus basis, which means the government pays them a portion of the costs associated with the project. This incentivizes the defense companies to extend programs and exceed budgets, which results in more profit as costs increase.

After the end of the Cold War in 1993, the defense sector began its transformation when Clinton administration slashed defense spending by a staggering 67%. At the time, 51 major defense specialists existed, and just 6% of the government’s defense budget went to companies referred to as “defense specialists.” With reduced defense spending, the government allowed these 51 companies to merge with and acquire each other in order to stay in business. Today, just five major defense specialists remain. The merging process came to a conclusion when the government blocked the merger of Lockheed Martin and Northrop Grumman in 1998. Today, that 6% of spending is now 86%.

Procurement is also a long and bureaucratic process that the military often does not participate in themselves. Instead, Department of Defense leaders attempt to make decisions about defense needs without first fully understanding what those out on the field really require.

How is the process changing?

Traditionally, the government limited who can compete for certain large contracts in the defense space. Newer companies have accused the government of failing to conduct proper market research and argue that the government’s procurement process is more akin to a solicitation that excludes smaller, newer companies from bidding. Within the last decade, companies like Palantir and SpaceX have filed lawsuits against the U.S. military arguing that the current process violates the Federal Acquisition Streamlining Act (FASA) of 1994, which generally requires that federal agencies prioritize commercially available products when it is feasible to do so. In October of 2016, the Court ruled in favor of Palantir, finding that the Army violated FASA by failing to conduct proper market research and subsequently ordered the Army to reevaluate its procurement process. This was a major victory of Palantir –today, Palantir has contracts with most major branches of the Department of Defense and became the first defense company to join the S&P 500 in 46 years.

In 2014, Space X sued the government, arguing that the government’s awarding a sole-source contract to United Launch Alliance violated anti-trust laws and the contract instead should have been open to competitive bidding. Space X settled with the government but sued again in 2019 when the Air Force awarded contracts to ULA, Northrop Grumman and Blue Origin. Space X argued again that the selection process was arbitrary and unfair; however, in 2020 the Court dismissed the case. In 2020, SpaceX was able to secure a contract with the Air Force that could potentially cover over thirty missions which legitimized SpaceX’s entry into the defense market.

Together these cases underscore the tension between traditional procurement practices and the integration of innovative commercial technologies. These lawsuits kicked off a surge in new defense technology companies being founded, as well as a significant flow of capital investments from private markets into the space. As of 2021, venture capital investments in defense technology has ballooned past $100 billion, which is a 40% increase from previous years. This funding increase demonstrates the heightening recognition of the role that the private sector can play in developing necessary technologies for defense, such as artificial intelligence, data science, and autonomous systems. Likewise, the aerospace industry has grown by 12.5% and now has welcomed over 450 startups which are contributing to innovation in the defense sector.

Defense acquisition reform under the Trump Administration

This month, President Trump signed an executive order which mandated the Department of Defense to revisit and revamp its defense procurement process. The mandate required the DoD to give preference to commercially available technologies. The mandate –startups like Palantir and SpaceX hope –will prevent the DoD from paying major defense prime companies to build products that smaller startups have come up with on their own. This arguably will level the playing field –no more writing RFPs (Request for Proposals) that only legacy contractors can answer, which is what happened with Palantir in the aforementioned lawsuit.

In conclusion, “New Age” defense companies will likely continue to be crucial part of US Defense strategy going forward –as they already are. For example, Palantir is credited with helping the Obama Administration locate Osama bin Laden in 2010 so that Navy Seals could kill him. With newer companies like Palantir, Anduril, and SpaceX, the defense sector will likely adopt more autonomous systems, cyber defense, and space technologies and will undoubtedly continue to affect U.S. defense and perhaps even foreign policy in the future.