The Department of War (DoW) is in a race. Adversaries are moving fast, technology is evolving faster, and the Pentagon has made clear that winning future conflicts depends on its ability to rapidly field cutting-edge capabilities. It needs to unlock barriers that reduce the agility of both traditional prime contractors and venture backed startups building the next generation of battlefield technology. Primes and startups rarely agree about the best way to build new combat systems, but there is one area where they do, the requirement to complete Cost and Software Data Reporting.
The Cost and Software Data Reporting mandate, known as CSDR, was designed for large capital programs such as ships, fighter jets with decades-long development cycles. It was never built for privately funded commercial technologies. But under the current mandate, that distinction does not exist. Prior to 2021, these requirements were generally waived for Other Transactions and commercial acquisitions. After all, if those authorities are being used, even by a traditional contractor, isn't the whole point to move quickly and remove traditional red tape?
Ironically, no one has asked Office of Cost Assessment and Program Evaluation to do a version of CSDR on the CSDR process itself to see if it is effective at informing the department on acquisition costs.
Stifled Innovation for Non-Traditional Defense Contractors
In 2010, the DoW implemented the Cost and Software Data Reporting (CSDR) mandate, a reporting system requiring defense contractors to submit a detailed cost breakdown for the programs, solutions, and systems they offer to the DoW. When CSDR was rolled out 16 years ago, the goal was simple: to track, analyze, and estimate the future costs of major defense programs. In theory, CSDR would help wrangle sprawling DoW spending and fine-tune the Department’s budgets and enable Program Management Offices to understand what future systems should cost.
However, while CSDR can be useful for large defense programs, it adds significant complexity for non-traditional acquisitions, especially in the DoW's ability to leverage cutting-edge technologies from non-traditional defense contractors (NTDCs), emerging startups, and venture-backed companies.
Burdensome Reporting Requirements
Historically, NTDCs and startups have lacked the budgets and staff resources to stand up an internal reporting infrastructure that can adequately meet CSDR requirements in a timely manner. This places a massive, time-consuming burden on NTDCs who do not have the resources to adequately report, in addition to CSDR requirements that are completely incompatible with the concept of private funding.
Constrained Military Innovation
Last year, the White House released three Executive Orders (EOs) that directed the DoW to leverage cost-effective commercial solutions, modernize defense acquisition in a way that promotes procuring and fielding innovative commercial solutions quickly, and reduce federal procurement barriers to entry for NTDCs – like startups and smaller commercial businesses.
All three of these EOs, in theory, would foster a new DoW procurement path dedicated to supporting the military’s ability to quickly acquire and deploy cutting-edge technologies from NTDCs. Unfortunately, the CSDR challenges startups and NTDCs face are stifling or negating the federal government’s innovation and modernization goals.
The Department is in a race to deliver new and old technologies at scale, quickly. CSDR limits their ability to enable that goal for NTDCs.
Solving the CSDR Problem
The Department should consider removing CSDR requirements for NTDC and for all vendor funded and developed solutions. Both primes and startups would unite in universal relief.
CSDR, at its core, is meant for government-funded development programs so that future programs would have a baseline of what that activity would cost, such as naval ships and the manufacturing of F-35s. There is no question that CSDR serves an important purpose for large government-developed programs, but it is critical to recognize that it is having an adverse effect on leveraging non-defense investment into new technologies.
Alleviating NTDCs from the burden CSDR imposes on them would allow the military to meet the goals set forth in last year’s EOs: to reduce barriers to entry for innovative and cost-effective solutions NTDCs are developing, to modernize defense procurement, and to truly move at the speed of war.
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