Startups Thrive With Contracts Via Defense Innovation Office (1)

The Pentagon’s innovation arm for rapidly deploying new technology has developed satellites already being used in Ukraine, according to a fiscal 2022 wrap-up.

The Defense Innovation Unit, which has its headquarters in Silicon Valley and was launched in 2015, is the Pentagon office focused on moving commercial sector prototypes into production in national security fields like cybersecurity, artificial intelligence, autonomous tech, and space.

Among the companies DIU wants to collaborate with are startups and small businesses doing cutting-edge technology development. Those companies tend to need shorter award and payment timelines than used in traditional procurement to make working with the government financially feasible.

“If I had my druthers, I would make this process the process by which we buy all technology. I wouldn’t even waste time on doing any of these very large competitions,” said Brian Drake, Federal Chief Technology Officer at Accrete.AI, who has seen both sides of the DIU process as a participant and government evaluator. Drake previously served as the director of artificial intelligence for the Defense Intelligence Agency.

DIU handed off 17 new products to the Pentagon in fiscal 2022, double the number in 2021. That success pushed the organization’s transition rate overall to 47% since fiscal 2016. In that period, DIU has awarded $1 billion in prototype contracts.

Defense and national security concerns arising out of the war in Ukraine drew significant attention from DOD in the second half of fiscal 2022.

Commercial remote sensing companies that received prototyping contracts with DIU to supplement existing US intelligence satellite constellations are providing images of Russian military activities and the war’s impact on regional agriculture. Planet Labs, for example, has supplied its satellite data to support humanitarian missions in Ukraine like tracking evacuations, de-mining operations, damage assessments, and human rights abuses.

“The war continues to go on after sunset,” said Payam Banazadeh, CEO & Founder of Capella Space, a commercial company providing synthetic aperture radar technology for high-resolution mapping in any conditions. Capella’s monitoring abilities “have been invaluable to everyone involved to just have, really, awareness and be able to do continuous imaging.”

A full report on DIU’s previous fiscal year is expected later this month.

Outcome-Driven Contracts

DIU was created with the intent of solving the “valley of death” conundrum in which private sector partners languish between funding stages for federal research and development and full production contracts.

Cherissa Tamayori, DIU’s director of acquisitions, said DIU is increasingly focused on the transition of tech into established defense programs. The office is looking for projects with the potential to scale and have the most impact across the DOD.

The office puts out solicitations for problems that the Defense Department is looking to solve with emerging tech in the commercial sector. A panel of experts selects winners to work on prototyping their technology or system, and the companies are paid as they hit coordinated milestones. This differs from typical federal contracting obligations that pay out after the work is considered complete. The flexibility in DIU’s budgeting makes the process more attractive to startups and small businesses.

The outcome-driven DIU process follows the commercial sector’s way of prototyping. Companies get funding only as they hit development milestones, which means less risk—and potentially less money—for the government, Drake said. By contrast, regular DOD contracts, say for large weapons systems, use test and evaluation cycles that assess the contractor’s performance against targets defined by the government.

Another appeal for companies is that DIU’s contracting process is more collaborative.

Jennifer Roy is the senior director of federal business development at Quantifind, which worked with DIU to develop the company’s financial risk analysis tool. She said DIU’s position as a “facilitator” between the company and potential government end users kept the conversation going throughout the entire innovation process. That support is also crucial for small businesses transitioning, she said.

The prototype contract with DIU ran four months and then “DIU coached the government on how to reach us,” Roy said. “Once you’ve proven yourself through a DIU prototype, it makes you more accessible,” she added.

“These are all things that as an outsider to the government we don’t have luxury of just calling up the contracting officer at a federal agency and saying like, ‘No, no, no, trust us. You can talk to us,” Roy said. “Having that sort of inside shepherd was, I think, one of the most important factors.”

The typical contracting process isn’t about “how can we solve this problem differently?,” Drake said. That change in approach is “where I think DIU is doing things that are gonna fundamentally reshape how we buy.”

To contact the reporter on this story: Patty Nieberg in Washington at pnieberg@bloombergindustry.com

To contact the editor responsible for this story: Amanda H. Allen at aallen@bloombergindustry.com