The challenge and opportunity of luring new tech to the government market

Efforts to bring more small businesses into the federal market fold are certainly nothing new and neither are the challenges they face in competing for contracts with the Defense Department in particular.

One facet of that dynamic that has changed is how both DOD and some of its traditional suppliers -- both large hardware primes and systems integrators -- have looked to technology scouting functions as a means to look in the commercial or “nontraditional” marketplace for advanced tools.

On the part of DOD, this includes the Defense Innovation Unit (no longer "Experimental") as one of the primary outlets to scout for and bring in emerging technologies at a faster pace, especially given its Silicon Valley headquarters and other locations like Boston and Austin, Texas.

And for industry, large defense giants have used venture capital investments as one of their main methods for largely the same goal and as a way to anticipate customer demand ahead of time. Government IT systems integrators have increasingly looked to partnerships with commercial entities as well to be a bridge of sorts between the latter group and agency customers.

So why are we not seeing the number of new entrants in the federal market as prime contractors grow even as efforts to bring them in ramp up both in industry and government?

Tara Murphy Dougherty, president of the national security practice at market intelligence firm Govini, said programs like the Small Business Innovation Research grants and new contract types like Other Transaction Authority are helping to capture the interest of small companies that have new innovations and are interested in working with DOD.

They can only go so far however given the typical size of those procurements, she added.

“It should be paired with efforts to capture companies that are operating successfully in the commercial market and therefore don’t necessarily need DOD,” Dougherty told me. “Some of the most exciting and technologically advanced work is happening in those companies, (so) how do we attract them to working with the national security sector?

“It isn’t going to happen through $20,000 grants or a $1 million prototyping effort, it’s going to be through access to the $200 million program that the SIs can compete for and there has to be from DOD demonstrated change that the awards will correspond to quality of technology or solution.

This was one of a handful of thoughts gathered in a recent conversation with Dougherty, one of three panelists at a Feb. 1 event hosted by the think tank Center for Strategic and International Studies on new entrants and small business graduation.

That discussion highlighted a CSIS report released in November that showed a sharp drop in new entrants between 2007 and 2013. Eighty percent of these businesses leave the federal market after 10 years and 40 percent exit after three, according to the report.

One of her takeaways from that discussion, Dougherty said, is that the government continues to try some of the same things it has done before and hope for different results. And back to what she pointed out earlier, many companies in the commercial marketplace do not necessarily need the military as a customer to grow their business.

That group is not “necessarily so small or nascent or desperate for the defense work that they’re willing to entertain” some of those smaller-scaled procurements like SBIR funds or OTAs, she said.

Outside of the procurements themselves, the technology scouting function many companies have undertaken is one area where DOD has encouraged its main industry partners to help bring smaller or nontraditional entrants into the fold, she added.

For large primes like Boeing, Lockheed Martin and Raytheon for instance: their venture capital or seed investments in startups and other emerging companies are intended to both get those advanced technologies into customer environments, plus let those businesses operate as they are.

The scouting function should come on top of efforts by DOD to structure its contracts so that all parties are rewarded, Dougherty said.

“Therefore, that dynamic is reinforced.”