Defense innovation stymied as gridlock in Congress bars emerging tech

WASHINGTON — With a little over six weeks in the government’s fiscal year, Congress faces the uphill battle of passing a defense appropriations bill and avoiding a continuing resolution.

CRs keep funding at the previous year’s levels with limited exceptions. A divided Congress has frequently relied on the practice in recent years to evade a government shutdown while lawmakers negotiate appropriations for the next fiscal year, and it’s increasingly likely that a CR will be required for fiscal 2023, the law firm Alston & Bird said in a note to clients on July 26.

While a CR keeps the lights on, its impacts can be detrimental to the Pentagon’s efforts to keep pace with rival nations in emerging technologies. Because funding is fixed at the previous year’s level, CRs delay the start of new programs and contracts, many of which fall under the sphere of defense tech.

“It pauses our modernization efforts and it gives China the advantage of continuing to innovate while we’re in that pause,” said Kea Matory, director of legislative policy at the National Defense Industrial Association trade group, in an interview. “It’s essentially a self-inflicted wound, but unfortunately, it’s kind of become the norm.”

“The government is not always the easiest customer and when you add on CRs, it’s not a business model that would work in the commercial sector,” she said.

As the Pentagon strives to incorporate artificial intelligence, machine learning and other cutting-edge innovations into warfighting, defense officials and lawmakers have sought to create programs and offices to oversee the modernization.

Under a CR, such “new starts” are denied the funding needed to hire a workforce and the cash to begin issuing contracts since the office didn’t exist in the previous year’s appropriations bill. They add uncertainty to the contracting timeline, and without consistent appropriations, many emerging technology initiatives may end up delayed or abandoned.

The impact is similarly felt on the industrial side, according to Elaine McCusker, a senior fellow at the American Enterprise Institute.

Large companies have learned to deal with the disruptions caused by CRs and adjust for the government’s episodic funding. But many emerging technologies come from smaller companies that do not have the same level of resources or expertise in navigating the disjointed timeline, she said.

“They just don’t have the same kind of breadth and depth to be able to absorb those types of changes,” McCusker said in an interiview.

What happens to government contractors in a CR?

For companies dependent on federal dollars, the cost of the delay is borne out by the small business owner, said ML Mackey, CEO and co-founder of Beacon Interactive Systems, a maker of information management software for the U.S. military.

When a CR is issued and a contract put on pause, companies are still responsible for payroll and other expenses, Mackey said. In many cases, companies have to find ways to make up for the lack of cash flow.

Mackey said small business owners regularly have to resort to personally financing, whether it be through a loan or by putting expenses on a credit card.

Although a contract will ultimately come through when Congress issues an appropriations bill, a business owner carries the financial burden created during the delay.

For small tech companies looking to get into the defense sector, the prospect of taking on that financial burden could dissuade owners from doing business with the government.

In June, the House Appropriations Committee reported 12 pieces of funding legislation, including the defense appropriations bill, and said it will attempt to pass them on the House floor by the end of July. The federal fiscal year ends on Sept. 30.

In recent years, Pentagon officials have faulted lawmakers for their frequent use of CRs as a funding measure, citing their heavy costs and damaging impact.

At a hearing in January, Commandant of the Marine Corps Gen. David Berger testified to a House Appropriations subcommittee that CRs negatively impact the Pentagon because no amount of resources in the future can bring back lost time.

“We actually stand to be outpaced by China, not because of their speed but because of our failure to comply with our own budgetary processes,” he said.