Pentagon, Congress Push Military Acquisition Changes

December 2025
By Xiaodon Liang

The U.S. Department of Defense is reforming how it acquires weapons systems by loosening restrictions on defense contractors and emphasizing speed over other requirements, promising a transformational improvement to a widely criticized status quo.

The reforms, announced by Secretary of Defense Pete Hegseth in a Nov. 7 speech at the National War College, reflect decades of dissatisfaction with the performance of the multibillion-dollar defense acquisition system, and builds on proposals accumulated in recent studies.

The effort will depend not only on successful implementation and congressional support, but also on some important untested assumptions—such as the ability of competition to cure other ills of the contracting relationship—proving to be true.

The department will encourage the use of less-regulated acquisition agreements, reduce oversight of contractor prices, grant officials greater flexibility for reallocation of funds across portfolios of capabilities, emphasize speed over other requirements, and make further changes to acquisition processes in a new round of reforms, Hegseth said.

“We’re talking here about transformation, not toothless reform and we’re seeking it fast,” he said after acknowledging past attempts at changing the department’s processes, in which Pentagon civilian leaders, military service chiefs, Congress, defense contractors, and other interests have long competed for influence over decisions and dollars.

The announcement, followed by a Nov. 10 acquisition strategy report and a set of departmental memoranda, comes as congressional staff finalize changes to acquisition statutes in conference negotiations on the fiscal 2026 defense authorization bill. In addition, the Pentagon has begun extending alternative acquisition methods to nuclear and strategic systems, such as the nuclear-capable, sea-launched cruise missile and some missile-defense programs. (See ACT, November 2025.)

In May, the Pentagon issued a request for industry to provide prototype proposals for the new sea-launched cruise missile through an alternative acquisition method known as an Other Transaction Authority (OTA) agreement. Since Congress made permanent the Pentagon’s ability to use this acquisition option in the fiscal 2016 defense policy bill, department spending on OTAs to procure prototypes has grown and then stabilized in the last few years at around $10 to $15 billion annually, according to a Sept. 3 report by the Government Accountability Office (GAO).

“The jury is still out on whether [OTAs] actually produce better outcomes” in defense contracting, Greg Williams of the Project on Government Oversight wrote in an Oct. 1 analysis.

Nevertheless, an Apr. 9 White House executive order set a “general preference” for OTAs and the Pentagon’s new acquisition strategy directs their use when “in the best interest of the warfighter and the taxpayer.”

OTA agreements are not contracts and do not require compliance with some federal acquisition regulations, including cost-accounting practices. These exemptions allow for more flexible agreements—and potentially faster negotiations—at the discretion and judgment of acquisition officials, while creating some contracting risk for the government.

The authority to enter into prototype OTA agreements is limited to deals with nontraditional contractors—firms that have not had to implement Pentagon-mandated cost-accounting standards within the last year as part of a contract—or deals incorporating a cost-sharing agreement with the government.

Consortia involving nontraditional and traditional contractors are also eligible, although the GAO found that the use of consortia can prevent aggregated reporting of the proportion of work actually performed by nontraditional companies. On Aug. 22, the Naval Surface Warfare Center issued awards to four traditional defense contractors and only one nontraditional firm for prototype work on the sea-launched cruise missile through a consortium managed by National Security Technology Accelerator, an intermediary company.

Provisions in both the House and Senate versions of this year’s defense authorization bill would loosen eligibility restrictions, allowing greater participation in OTAs by traditional firms.

It remains unclear whether OTAs are subject to bid protests from the losing side of an award—a risk that can add years to an acquisition process. In February, a judge of the U.S. Court of Federal Claims ruled that OTAs fell under his jurisdiction in a case brought by defense contractor Raytheon against the U.S. government and Northrop Grumman over the award of an OTA agreement for the development of an interceptor for glide-phase hypersonic missile threats.

That decision is not binding on other judges of the court until the issue is taken up by the federal circuit court.

Meanwhile, the Pentagon is also seeking to reduce the use of specialized cost-accounting standards altogether. These standards traditionally have granted the government greater insight into contractor prices but are opposed by industry as intrusive and burdensome.

The Nov. 10 acquisition strategy supports aligning government accounting standards with civil-economy equivalents while raising the dollar threshold of Pentagon contracts over which rigorous cost-accounting standards are required.

“While Pentagon contractors may claim that they find [government accounting standards] to be burdensome, they provide the government critical insight into the costs of performing a government contract,” Julia Gledhill, a research analyst at the Stimson Center wrote in a Mar. 13 analysis for Breaking Defense.

“Without these standards, the government, on behalf of American taxpayers, would not be able to meaningfully challenge contractors when they engage in overcharging,”she warned.

The Pentagon’s new acquisition strategy claims that, as the department pivots toward promoting more competition among suppliers, “the competitive pressures of the market will provide inherent cost and quality management,” even in the absence of intrusive cost accounting.

In general, the Pentagon now seeks to promote “competition with lowered barriers to entry and diversification of prime and subcontractor sourcing without sacrificing quality.” One instance of this focus on competition is a new directive to minimize formal analyses of alternatives in favor of competitive prototyping.

But although the department has now been ordered to adopt a “two-to-production standard”—maintaining competing suppliers at least up to initial production—the requirement is heavily caveated to apply only “where affordable and appropriate” and “unless waived by the respective” military service officials.

The Sentinel intercontinental ballistic missile acquisition effort became a sole-source program in 2019 after Boeing decided not to bid on the engineering and manufacturing design contract. (See ACT, September 2019.) The missile program would later overrun a 2020 cost estimate by 81 percent.

Another significant change the Pentagon announced Nov. 10 is a shift from top-level acquisition officials managing one program to, instead, managing a portfolio of programs that either provide similar capabilities or multiple components of related systems. This reorganization would allow these new officials, to be known as portfolio acquisition executives, to make trade-offs across programs as they mature.

The Senate version of the defense authorization bill has endorsed the concept of portfolio acquisition executives, while the House version remains silent on the matter.

The acquisition strategy also emphasizes incentivizing the timely delivery of weapons systems, promising contracts that reward early delivery and penalize delays.

According to Todd Harrison, a senior fellow at the American Enterprise Institute, although Hegseth is emphasizing speed, “What he’s not saying is, ‘I’m willing to accept higher costs and lower performance.’ But that is the reality, that when you prioritize one, you’re making sacrifices in one or both of the others,” Harrison said in Nov. 4 comments to Breaking Defense.

One way the Pentagon will seek deployment of capabilities on faster timelines is through a preference for “iterative enhancement and rapid delivery of subsequent increments,” according to a departmental memorandum.

This approach has been championed in recent years by some niches of the military acquisition ecosystem, such as the Space Development Agency, which acquires tranches of incrementally improved satellites for the Pentagon’s nascent military constellations. But the approach has also yielded notable failures, including the Ground-Based Interceptor missile defense program that currently deploys several combinations of iteratively developed boosters and kill-vehicles, each with different testing records.