TRANSFORM OUR ACQUISITION PROCESS
TO WIN THE SILENT WAR

Templeton:

We are very pleased to have Major General Cameron Holt, recently retired, as a guest on the podcast today. Mr. Holt served as Deputy Assistant Secretary of the Air Force for Acquisition. Currently, Cameron Holt is the president and founder of Holt Consulting Group. The focus of his work is to bring together the best of American industrialists, technologists, and capital investors with innovative problem solvers and government to tilt the scales in favor of America and our allies—and against the adversaries of freedom.

Mr. Holt recently completed 32 years of military service, including his last four years as Deputy Assistant Secretary for the Air Force and Space Force. In that capacity, he oversaw a global contracting portfolio valued in excess of $825 billion and over 8,000 contractors that executed the full range of operational enterprise sourcing in major weapons systems worldwide.

Currently, Mr. Holt serves on the board of directors of the National Contract Management Association and as a member of the PPBE Reform Task Force that's sponsored by the American Society of Military Controllers.

As a patriot, a husband, and a father of four great kids, he remains committed to leveraging his extensive leadership and national security experience to make positive, lasting improvements to our unnecessarily complex and antiquated Cold War-era national security resourcing and acquisition system. All with an end game to accelerate and optimize US combat capabilities and further secure our nation against adversaries.

General, welcome to the podcast.

 
General Holt:
Thanks so much for having me.

Templeton:
This a big honor. I really appreciate it, and if I can put it into context: You're the motivation for this podcast, and it all started at the last Government Contract Pricing Summit, where we listened to you speak about this very issue. It really is your life's work as you go forward.

I’m certainly ready to do my part to make a difference in this important issue. So, I would like you, just for our listeners, to unpack this issue at a very high level, much like you did at the conference and as you've done for so many others. Then we can dig into the specifics of what all this entails.

 
General Holt:
That sounds great. It's an honor for me to be the inaugural guest on this great podcast. And I think it's a great way to continue the conversation that's so very important.

Templeton: 
As you spelled out, there are great threats against our nation. The year was said: 2027. And there are many things that we haven't been able to do because of the systematic problems that we have in arming our warfighters. Just at a high level, based on what you're able to share with us, for our listeners, why is it important for us to break down the silos, get this conversation going and affect change, in our systems and how we do business in the industry and, and how we work with our government?

 
THE SINGLE LARGEST THREAT TO OUR NATION – THE ‘SILENT WAR’ WITH CHINA

General Holt: 

Yes, absolutely. Thanks for that question. That's where it all starts for me—the threat. And as you look at our great nation, it is very popular these days for many to question and say “Hey, is this a good nation? Is it a great nation?” I think that there's been a lot of doubt created in that, both internal to our own country and frankly, by design, by the Chinese Communist Party. Either through bots or other means, they’re inserting messages into our social media, that we then take off with. And it breaks my heart to hear that, as I said from the stage back in June.

The Government Contract Pricing Summit that happened in June 2022 in San Diego was really a pivotal event. My family members have even sent me notes that the speech went viral inside China, and frankly, they've not been admirers of me for a long time. And that's the way I'd like to keep it, certainly for now. But the threats that we face: If you can think about this, I grew up part of my childhood in Hong Kong, and so this is not just a matter of my national security training while in the Air Force or my contracting or acquisition background, in the Air Force, It's really more personal than that. Even as a young child, I could understand the fear that the people of Hong Kong had as the day grew closer to when the British government would be turning over Hong Kong to China and the Chinese Communist Party rule.

Of course, they committed to keeping it free and keeping capitalism for 50 years. But for China, it's not an ethical issue to break their own commitments. It's not an ethical issue to steal intellectual property. We often think about these things in ethical terms. They truly believe that if anything was created on the planet, it's theirs by definition and that other governments in the world exist with their temporary permission. It's this paradigm that we really need to start considering. This is an adversary that is determined and patient, but very, very sophisticated and has been literally at war with our way of life, for decades, not just recently. I don't know if it will make sense to other people, but as I've thought deeply about this, I've dubbed this The Silent War, because China is not going to make the same mistake that either Japan or Al-Qaeda made—the Japanese back in 1941 or Al-Qaeda on September 11th.

CHINA UNDERSTANDS HOW TO PULL TOGETHER THE 4 INSTRUMENTS OF NATIONAL POWER

General Holt:

They're not going to make the mistake of taking an action that's so overt and so violent that it coalesces Americans around being American—around what our founders said in the Declaration of Independence. This notion of unalienable rights both precedes and supersedes any government, over other people. That is the flag in this capture-the-flag game. And they know full well how to dismantle us from the inside out, using our own fractures and our own system against us. They know how to pull together all four instruments of national power: diplomacy, information, military, and economics into one force, yet without triggering some act that would coalesce us and, stop the divisions that so many politicians or people in the media—or really anybody that benefits from more eyeballs and sensational stories —have been able to manage to try to divide us and divert us from being who we are as Americans.

THERE DOES NOT HAVE TO BE EXPLOSIONS FOR CHINA TO WIN THE SILENT WAR

General Holt:

And that frankly breaks my heart. I will tell you that the sophisticated plan they are involved in is succeeding. And if you could think about it from their perspective, they don't need to capture our territory. They don't need to destroy anything. There doesn't need to be explosions for them to achieve all of their objectives, to make sure that all of the governments of the world, the government leaders of the world, the business leaders of the world, and increasingly even individuals, are compliant, and loyal to the objectives of the Chinese Communist Party. 

In fact, for years, there's been a progression of technology transfer from the United States to China. And some of that, of course, has made headlines about it being an illegal transfer of technology and, espionage and stealing. Frankly, a lot of it has happened voluntarily, through our open economic system that China has taken advantage of by listing false companies on our stock exchanges, and watching Americans invest their hard-earned money into fantasies by not being transparent, and in fact, completely untruthful about the status of economics and markets inside China. The Chinese Communist Party has passed laws that state if you want to do business in China—which is a very attractive thing for many of our business leaders, with 1.5 billion people and a growing spending-power economy—you have to commit allegiance.

WAR IS NOT ALL ABOUT MILITARY-ON-MILITARY FORCE

General Holt:

But to be able to participate in that economy, you have to follow Chinese communist law, which states clearly that any company operating inside of China must be compelled to support the intelligence needs and the national security needs of the state, even if that means spying on their own home country. And so, as we look at how exposed we are to those kinds of things, both legal and illegal, such as coercion in the economic space, we really need to start understanding that this war is not just about military-on-military force. 

It certainly has a component of that, but far larger weapons are being used, like the  Belt and Road Initiative that erodes our diplomacy in the world. Like economic initiatives that I just named, and manipulation. I have used the example of the NBA because it's such an institution.

Sports overall in this nation is such an institution. And yet the NBA walked away from the people of Hong Kong shortly after they tweeted out support of the people of Hong Kong and their struggle for freedom. When the Chinese Communist Party expressed concern over that, they immediately retracted and apologized, and they benched one of their more courageous players for voicing anti-Chinese rhetoric—an artist put that on their shoes.

 WE GLOSS OVER CHINA’S PLAN TO MANIPULATE GOVERNMENTS – SEE BELT AND ROAD INITIATIVE

And so, these kinds of things that our own media and some politicians like to gloss over: It is the war. It is a Silent War, but the end of it could result in not just the ability for the Chinese to manipulate and coerce governments, as is true today through the Belt and Road Initiative. Not just businesses as a result of their gargantuan growth and economic investment and, the opportunity that exists to do business inside of China, but also through various other means, military and otherwise, to keep us silent, to keep us below the level of what most Americans would define as war. And to keep our politicians complacent.

THE NEED TO PUT OUR ACQUISITION SYSTEM ON A WARTIME FOOTING – A WARTIME MENTALITY

General Holt:

As I look around right now, I have been a broken record on this. Many people are probably tired of hearing from me about the threat, but that is where it must start. And frankly, Tim, if I were to be fair, I do not see anywhere close to the same sense of urgency, either in our DoD leaders, in our White House, or in our legislative branch of government. I do not see the kind of urgency that I would see if they really did believe that we were at war and at an existential war at that. So everything short of that, we should force people to say, well what do you believe is the situation?  I believe for one, that we need to put our acquisition system on a wartime footing. I mentioned all of the other instruments of national power.

MOVE AT A WARTIME PACE – IT IS THE BEST DETERRENT

General Holt:

I still do believe that the military instrument of national power is important because it underwrites the other instruments of national power. And I frankly believe that if we can move faster than China could ever keep up with in moving one generation of technology after the other, of military technology and capability as fast as American ingenuity would allow us if we could drop the barriers to entry, and the institutions that protect people politically in a peacetime environment, but are not suitable for wartime, if we could drop that and really move at a wartime pace, I am convinced that that increase in capability would have enormous deterrent value against the activities of China, both militarily and otherwise.

And that's what I've dedicated the remainder of my professional career to, whether that's in uniform or out.

Templeton:

That's tremendous. And it's a great lead-in, in terms of unpacking what this initiative is all about. Because it's as you and I spoke earlier— it's what speed to contract is all about. Starting right from the bid process all the way through to delivery. And there are a lot of aspects that you've got much experience in. I mean, right from the beginning to the end, you unpacked 6, 7, or 8 different areas that we need to focus on before we start digging into some specifics to share with others. The work is to knock down the silos, if you will, and work together, as an industry, as Americans, to really meet this serious challenge.

AN ENORMOUS BUREAUCRACY FUELS ITSELF

General Holt:   

Yes, absolutely. In fact, Tim, as we think about from beginning to end in the acquisition process and the contracting process that supports our national defense, I would even start well before an RFP comes out. In fact, what I would recommend to you as a part of this podcast is: It would be really fascinating to attack all of those areas that prevent speed to contract. And what I mean by that is not just the contracting process. You know, a lot of people recognize that the contracting process is overly complex. And, over time, more and more rules have been added by Congress over and over again without anybody finding the repeal button. As more of those laws are added, of course, they all have to be put into regulation.

 General Holt:

And so the bureaucracy that ensues is enormous. However, I would tell you that same affliction is affecting other parts of the process that prevent speed to contract, that prevent us from moving into what I would call speed to market: to moving as fast as we could, to compete with trying to deploy new generations of military technology and divesting ourselves of old, rapidly. And so, for me, it starts all the way back to where the combatant commands—and the services assess the intelligence and decide the future. Where there are key capability gaps between our adversaries and the United States that must be solved either through material solutions or non-material solutions. And then as you move forward in time where you actually document what those capability gaps are—if it's going to be a material solution that has to be approved at very high levels in the Department of Defense.

OUR ACQUISITION SYSTEM IS ARCHAIC AND ARCANE – CREATED BY ROBERT MCNAMARA IN 1961

General Holt:

And then, move from that into the planning, programming, budgeting, and execution system of the PPBE system, which is so archaic and arcane. It was created by Robert McNamara in 1961. And that is still the process we're using in the 21st century to fight a 21st-century adversary that is using economics against us, at speed. And frankly, the Chinese can move money in our markets in inside of 20 minutes. Yet that PPBE process and the congressional oversight that we all take as a going-in assumption today, we don't even question it anymore. That has left us so slow, and stove-piped. And frankly, we are now more centrally planned in the way that we fund national security than the Chinese Communist Party is. The Party is actually a lot looser with the way they invest, and they expect results from what they invest in, but they don't place the kind of controls and micromanagement on that money that our own Congress does.

 AN ACQUISITION SYSTEM THAT DISALLOWS MANAGEMENT TO MAKE GOOD CHOICES

General Holt:

So we have to look in the mirror at that process and say, “Considering how fast commercial tech moves on the planet today, do we really have time to think about putting a budget in, three years prior to when it would be executed? Does anybody really even know what the best technologies are that far back to be able to justify putting money into the budget process for it?” 

 And then as we move towards the execution year, few people understand that almost every bit of investment dollars, and what I mean by that is RDT&E (research, development, test, and evaluation) or production money, all of that money has the program name on it from statute all the way down. 

And not just that the program elements that are in the statute are so specific and narrow that even within a program, a program manager cannot move money between even the phases of the program and a Program Executive Officer (PEO). (It's ironic to me that we even say that because the title is kind of patterned after a CEO.)

General Holt:

Could you imagine a company CEO not being able to move money from one product line to another within their company— that is exactly what goes on in defense. A PEO cannot move money from one program to another inside of their own portfolio. It's illegal to do it. And so that process makes us extraordinarily slow. Companies that might have a game-changing emergent technology? Our PEOs would not be able to say “yes” to it in the execution year. It would be illegal to do it. And so, we've started to resort to small bits of money that are not micromanaged, like SBIR, Small Business Innovation Research Money. But now you see Congress using whatever excuse they choose to use in public to actually impose the same kind of micromanagement over that money. I agree with Congress when they're concerned about the effectiveness of the spending, but that's not how they measure.

ACCOUNTABILITY WITH NO MEASURE OF EFFECTIVENESS

General Holt:

The way that Congress measures spend accountability in the execution year is literally—the incentive is to spend all the money as fast as you can in the narrow stove pipes that the appropriators said to spend it in. There is no measure of effectiveness. There is no incentive to optimize the spend. In fact, it's illegal to optimize the spend within a portfolio in the execution year without prior notification of Congress.

EXPIRING FUNDS IN THE CURRENT SYSTEM FUEL FRAUD, WASTE, AND ABUSE

And then the continuing resolution process on The Hill: I will tell you, there is no other process, that I have been a witness to in my 32 years of military service—maybe with the possible exception of end of fiscal year for expiring funds—where more fraud, waste, and abuse results, than the continuing resolution process. And the irony of that is, Congress is very vocal about trying to avoid fraud, waste, and abuse happening within the Department of Defense.

The reality of it is a continuing resolution that delays all new starts, and that forces different PEOs and acquisition officials to delay the start of something artificially, which essentially moves all of the money and the program content to the right. That is an enormous waste of our resources. Yet no one seems concerned about that. And frankly, it's more effective at delaying our combat power to the field than any adversary could hope to—and it's our own nation.

And that's even before you get to the acquisition process. I think we can fix these things. So, I don't want to be overly negative, but it is essential for us to be candid and maybe even say it in a shocking way. Most Americans may not understand how it works when you get to the acquisition process after the appropriation is there.

A SIMPLE FIX TO DELEGATE AUTHORITY (INSTEAD OF MICROMANAGING) WILL PRODUCE RESULTS

General Holt:

Now, for most of the large capabilities that we might buy, you're in the process of regulation called DoD 5,000, the Department of Defense’s Acquisition Regulation for large systems. And that has been expanded to include information technology, not just major defense acquisition programs. 

That process, by its very nature, pulls all authority out of the field and organizes the acquisition into long arching timeframes that are marked by milestone decisions. For many of the capabilities we need, if we were really on a wartime footing, we could move so much faster.

If you just delegated the authority to move through that process, you really wouldn't have to reduce one iota of rigor in our systems engineering processes or other processes. If you were more interested in that, instead of micromanaging…if you were more interested in the effects and the outcomes than in the processes, we could move really fast.

WE HAVE PROVEN IN THE PAST THAT WE CAN MOVE FASTER

General Holt:

We've proven we can do it in this nation, with the skunkworks of old and the B-52, the F1 and F17, and many, many capabilities. When we really needed to produce it, we could do it in a very short amount of time. In fact, the Pentagon itself, I think was built in around 18 months. Imagine trying to do that today within the system that we have.

So, as we look at this podcast over time—I think it would be a really good thing to study each of those pieces. And in fact, the mission is not performed when the contract is awarded. The mission is performed when those articles are delivered or performed. 

And because of the consolidation of the industry and, the perverse incentives that I've laid out, a lot of times it's not even in a company's best interest to deliver on time, and stretching out a program can mean more money in the end. And so that's another place where we've got to get after it.

Templeton:

Very interesting. That is a solid, high-level, top-down explanation of what the issues are, right?

And the good thing is that you are positive that we can affect change if we were to come together and the idea of a Silent War if you will, and a lot of us as civilians, we listen and understand the need to put us on a wartime footing. But it's the truth and what you have shared, the deterrent, if we get a mindset to go to that position of a wartime footing and some of the other examples that you've shared, in other formats of what we've been able to do for Ukraine, being able to come together quickly and actually deliver, in wartime footing with that mentality.

And certainly, in some of the books that you’ve recommended to read, looking back into our own experience, of what we were able to do during wartime efforts to really see how we can move things forward. But taking a step further, you mentioned a couple of things. And one thing I would like to unpack is the current business model of awarding those contracts. You had mentioned in an earlier talk about why we still have a B-52 bomber that's flying as supported. Unpack for us the current business model of what it is to support that, as opposed to what we really should be doing going forward, in your view.

A BUSINESS MODEL WITH BARRIERS TO ENTRY THAT ARE ENORMOUSLY HIGH

General Holt:

Yes, sure. And that's a really great piece of this, Tim. To understand it's not just a matter of what the government regulations and statutes are. It's also the defense business model. And what has the defense business model become over time as a result of all that I just talked about?

Well, there's been a great pull toward consolidation in the defense marketplace. And frankly, if you look back at the history of the defense budgets, every time the leaders of our country have decided to pull back in a dramatic way for defense funding, it's been followed by a round of consolidations. 

But there never seems to be the opposite. There never seem to be logical breakups of companies. And so you get consolidation after consolidation. In the end, what you're left with are some very, very powerful players.

Now, why would you want to do that if we decry all of the bureaucracy? Well, the answer is, we have such a unique system with a unique cost accounting system and unique processes and clauses, the barriers to entry into that market, if you're outside of that market, are enormously high. And any company that is really fast, or technologists that know they can make a difference if they're trying to get in, they can't even accept a contract over a million dollars, that's a cost-plus contract because they don't have an approved accounting system. And for a company to make the decision to do that, that's an enormous decision, an investment, frankly. 

On the other hand, if you're in that defense industrial base, and you have really powerful trade organizations to keep those barriers to entry high—by that cycle that continues one statute after the next—that we have to implement through regulation, implementing the regulations, actually becomes a profit center inside of it.

And cash flow is good. I think I saw a LinkedIn post recently where $12 billion in one year amongst the top eight defense firms is being returned to shareholders either through shares, buybacks, or dividends. Now, I would never say that's a bad thing, but certainly, that's plenty of money to sustain a lot more players in the marketplace than just eight. Right? So, as you look at that, each of those defense companies recognizes that with a specific technology, there may only be two competitors in the marketplace. In fact, in some areas, there's now only one when it comes to certain key technologies. And regardless of what technology you're talking about, those defense primes need each other in realistic ways. And so, whether they're the prime or the sub, they're going to be involved in the business regardless.

BUSINESS MODEL INCENTIVE TO LOSE MONEY ON THE FRONT-END – TO EARN ON THE BACKEND

General Holt:

The business model has become, within that protected marketplace in the defense industrial base, really a perverse incentive to buy in on the front end. So, if there's a new bomber, a new fighter program, or new cyber capability or spacecraft, there are strong incentives to try to buy in, either by buying a lot of plant property equipment outside of the government funding or, usually it's underbidding what you are willing to take that program on for. A company is incentivized to lose, you know, in some cases, $300 to $500 million today. And ironically, that's when the dollars are most valuable, before inflationary effects. And so you might ask, why in the world would they intentionally lose $300 to $500 million to earn that business? Well, because the business model then relies on them having that business for decades and decades and decades after that.

GOVERNMENT-SPONSORED IP VENDOR LOCK INHIBITS COMPETITION

General Holt:

And so, the lifeblood of the defense industry has become IP vendor lock. Now, I've got no problem with intellectual property being protected and owned by its rightful owners, but it has gotten to such a scale that it's almost a religion. Tim, if you ask a lot of the general counsels in the defense industry, in fact, I actually was invited to speak to a group of them. And, just as a kind of a fun test, somewhere in the middle of my speech, I said, “Now I want to talk about intellectual property.” And I paused for a second, and then I asked the audience, “Okay, tell me the truth. When I said those words, how many of you tensed up immediately”? And they laughed and they raised their hands, all of them. Why is that?

IP VENDOR LOCK BUSINESS MODEL SHOULD CHANGE TO A SPEED-TO-MARKET BUSINESS MODEL

General Holt:

Well, because IP vendor lock has become the sole means in many of these companies to sustain profitability and competitive advantage. If you juxtapose that against what's happened in the commercial business model, in the commercial tech industry, it's not that intellectual property's not important. In fact, I think we should be protecting it against China. But what is replaced in intellectual property as the number one means to sustain profitability and valuation of a company, it's no longer IP vendor lock in the commercial tech industry. It's speed to market. And so right now, as we speak, Apple and Samsung are locked in a battle of who can get more capability out quicker. Every car company is out there, especially the EV market. Who can get more capability out quicker, more range out quicker? And so, in the commercial marketplace, it's about speed in generations.

A SYSTEM THAT CONTINUES TO SUPPORT IP VENDOR LOCK VS SPEED TO MARKET

General Holt:  

You see it again and again. The commercial marketplace abandoned old technologies that they sold years and years ago in favor of investing their dollars, their research and development dollars, that the taxpayer does not pay them back for if ventures fail. Which is not true of the defense marketplace. They favor that speed to market. So, in defense, ironically, that's exactly what we need. That's exactly what we need to move faster than China can move. But on the backend, right now, because of losing money early on, they must pursue IP vendor lock, even if they have to sue us in court over it. There are a ton of court cases right now I can cite for you. And then when it comes to lobbying Congress, our appropriators and our authorizers are both lobbied really hard by defense trade organizations against divesting old weapon systems.

Now, you hear it in the news as well. The people of Arizona and Davis Mohan really like the shape of the aircraft shadow on their tarmac. And it needs to be the shape of an A-10. We can't have the F-35 there. But it's certainly relevant to the fight with China. And there's no other way to close air support. 

These are the talking points, but they're all wrong and everybody knows that they're wrong. In fact, if you were to put the F-35 in place of the A1-10, nobody would care that the shape on the runway is a little different. The economic support of the people of Arizona is still there. So what is the argument? The argument is we want to keep that A-10 flying as long as we can make it fly.

CHANGE THE MODEL SO EVERYONE IS ON A LEVEL PLAYING FIELD

General Holt:

When you look at the financials of a company, it's all about return on invested capital. And as invested capital, the risk of invested capital goes down and down and down. That number on the bottom of that equation goes down and down over time. And return stays the same or goes up. In many cases, the return on invested capital numbers skyrockets.

And that's where the sweet spot of business needs to be, particularly after you've lost money intentionally when the dollars are most valuable. I, however, believe that if we can prevent buying-in behavior up front by getting really serious about it and saying that in a source selection for a new capability, you will be thrown out of the competition. Same if you try to bring your own money to the table. In any facilities that are necessary that you've already bought, they have to be included and amortized in the contract and paid back by the government.

Everybody's got to be on a level playing field. I also think in development and production, the government side needs to rethink what we thought about in the eighties, and that is, in the eighties, we thought cost-plus contracts in development and production should only earn a very small amount of profit. In fact, there are statutory limits on cost-plus contracts for how much profit you can authorize. However, you can still do award fees outside of the contract. And what I would say is we need to restore the profitability of development and production. And in fact, start to think about it like the commercial marketplace, where the profitability to Apple or Samsung could be enormous for getting speed to market and getting that new capability out there. Yes. I think in many ways, we've got to do the same on the defense side.

PUT PROFIT IN THE RIGHT PLACE TO INCENTIVIZE THE RIGHT BEHAVIORS

General Holt:

If we expect speed to market to replace this IP vendor lock and this lethargy that affects all of our business decision-makers on the defense side, well … they're not fast, they're slow, and they're slow because of their fiduciary responsibility to the taxpayer. Frankly, they are getting a lot of money in the current business model. But if we change it so that we prevent buying-in behavior, increase the profitability of development and production, and insist upon a competitive marketplace, even for upgrades in the aftermarket after a weapon system's fielded, then I think you will see our interests aligned with the defense industry, national defense, speed to market and financial success on the business side.

If we can do that Tim, I will tell you, American ingenuity will outpace anything the Chinese can do in speed. We can outthink them, we can out-innovate them, we can outproduce them, but the incentives have to be there. That's the great power and strength of capitalism that the Chinese system does not understand and cannot take advantage of. If you look at the profitability of Chinese companies in defense, it's like 0.7, 0.8 of a percent in profit. And that's not a strength, that's a weakness. So, if anybody were to take my words and say, “Oh, he's just against profit in the defense business,” I’m not; I’m all for profit in the right place to incentivize the right behaviors.

Templeton:

Yes. The right business model.

General Holt:

Yes, absolutely.

Templeton:

It's interesting on this business model and in all deference to our major players, it's us, it's our government. You refer back to Robert McNamara. Well, I'm old enough to remember him, which was a long, long time ago—and his thinking is still in play today. And that's the business model. 

General, moving this work forward to change the system, will level the playing field and definitely give us the ability to have an upper hand. And by the way, obviously, you've forgotten more about this topic than all of us will learn over the next six years. I mean, you are packing a lot of information in a short period of time, but you are hitting the salient points on what we need to focus on to change how we look at things—right from the battlefield—how we're deciding what those systems and what those weapons are, and how we execute on those.

The business model we offer for this whole speed to contract - speed to market, if you will, will give us the ability to make some major improvements. Specifically, I ask all of our guests this coming in.

And granted, not many will have that high-level view that you do. All of us in the industry have our specific areas on how we could take these thoughts and bring the things to the table of what we've done in the past, or the big ideas of what we would like to do going forward. And you've given specific examples. I know you have many because you've been in the field, and hands-on right down at the tarmac level on this for many, many years.

What are some examples of how you've been able to change the system inside your authority, and specifically, what big idea are you going to attack first, that you think will make the biggest difference in this whole idea of speed to market as we move forward?

2 INITIATIVES THAT PRODUCED RESULTS IN THE PAST

General Holt:

That's a great question, Tim. And for the first part of it, what I'm going to talk to you about is inside-the-box innovation—things that don't require one change to law, not one change to DoD or higher-level regulation, that we can be doing today. So that's a really practical thing, and I'll talk to you about it in terms of not just what we could be doing, but what we did do in the Air Force while I was there. And so I'm not talking theory, I’m talking actual practice. 

Then for the second part, I'll talk about the biggest part, which is inside-the-box innovation that I think is so necessary.

So on the first question you asked, I'll talk about what I led in the Air Force called mission-focused business leadership.

LEADERS WHO ELIMINATE THE RECRIMINATION CULTURE SUCCEED

General Holt:

Before I begin, let me just say, with all humility, this is not about me. It's about an environment that I set and that 8,000 contracting officers were incentivized to use. And so the gains that we made are their gains, not mine. I merely set the environment and created the blast-shield support for them so that the recrimination culture that DC is so fond of, and in fact is necessary for the system that we have, could be avoided. The problem is, it causes paralysis and risk-averse behaviors. When you criticize the folks doing contracting, it's really easy to do. There's no cost in doing it. You don't have to understand contracting to do it. You don't even have to diagnose the problem in the right way,  but you can convince people that it's “contracting.” That's the problem.

OUR ‘WHY’ IS NOT COMPLIANCE, IT’S TO GET THE MISSION DONE

General Holt:

In most cases, I will tell you, it's not, in fact, that contracting can be the solution. In that inside-the-box innovation, what we did with mission-focused business leadership was to change the “why” we do something, which is not compliance. It's not to keep everybody out of trouble. 

We do things to get the mission done. That's the very start of it. And that's why I shared the threat briefing that I created with the help of the joint staff, right up front when we began this change. It’s the “why” we need to use our knowledge to hack our own system to get faster and better. 

Then the second piece of that—the business leadership piece: It's not enough to know contracting and pricing. You've got to understand balance sheets and income statements and cash flow statements to align those incentives.

ELIMINATED 700 PAGES OF BUREAUCRACY

General Holt:

What we've done over the last four years is to methodically look at that whole ecosystem that prevents speed and innovation and risk-taking behavior. So, the first element: We had way too many rules, way too much mandatory stuff that you had to pay attention to every day, day to day in the trenches. So, we did something called Operation Clean Sweep, which in the end, no kidding, deleted 700 pages worth of mandatory provisions.

And why were they created? Because somebody wanted to stay out of the press. Somebody wanted to stay off the radar screen. Somebody wanted standardization to the exclusion of innovation so that they could be assured that their own personal advancement doesn't get hurt. That’s the culture that we've got to fight in ourselves.

I'm not disparaging it. Certainly, career progression is great, but at what cost? And so, we've got to get rid of all of those constraints and mandatory rules.

I called that “tools, not rules.” We're going to push a bunch of new technology. We're going to push the data and better strategies down and we're going to remove the rules so that innovation can thrive. It's not really critical that everybody does everything the same way in this period of time. It's more critical that everybody tries something new. And whatever the best ideas are, we all know about them and benefit from them immediately as a learning organization.

 And so that's that big piece. The second piece I would tell you is you have to drive authority down. And right now, I fear we're going in the opposite direction once again in the Department of Defense, in the Air Force, and other places. I'm not just trying to be overly critical, but there seems to be more trust in senior leaders, more trust in their own decision-making ability than in the ability of the people that are closest to the mission problems.

MICROMANAGING LEADERS WASTE ENORMOUS RESOURCES BY NOT DELEGATING

General Holt:

It's ironic to me that in the military, we might entrust a young staff sergeant with a life-or-death decision on whether to use lethal force in the moment or not, on the battlefield. Yet, we will not trust that same individual with making a decision on the acquisition side or the business side where nobody will get killed or injured as a result of even the worst of mistakes. 

So we've got to start to figure out these military concepts of mission command. What does that really mean in the acquisition business? Frankly, senior leaders should stop micromanaging and stop relying on everything having to come to their level, because frankly, it's such a massive organization that anything that has to come to you for a decision, you just spent 14 weeks of your people's time on doing nothing more than staffing that decision to your level and based upon your availability.

Your calendar could be another six weeks before they actually get to see you. And yet, we don't count that cost as a risk in our combat capability. Well, in contracting, we did count that as a cost, as a risk, in fact, a greater risk than making the wrong choice at lower levels.

So you've got to push enormous amounts of authority down and trust the kids out there to do the right thing. If there are unethical actions or unethical decisions, those are different things that should be punished. People should be held accountable, but in such a way that you don't change the rules so that it could never happen again. And you continue to trust as the leader: The vast majority of the people that serve are going to try to do the right thing. They will make mistakes, but that's where senior leaders need to be a blast shield and take the impact of that themselves.

CHANGING THE CULTURE – CHANGED EVERYTHING

General Holt:

Changing the whole culture is really important. From that comes an explosion of innovations in contracting. I could not name them all, like everything from Pitch Days. During these, literally, if you can write on a clean sheet of paper your idea, you too can participate in Air Force acquisition. Imagine that. 

We satisfied all of the rules and we had to work doubly hard to do it, to make it look so easy at the end. But, to the private sector, those we're trying to attract that are non-traditional players in defense, but great technologists, that's a worthwhile endeavor. Commercial Solutions Opening is a pilot authority that Congress gave us. But here again, they started imposing all these high-level approvals that have to be undertaken to use this kind of opening. 

KNOWING THE SYSTEM WELL , WILL GREATLY HELP SPEED TO CONTRACT AND MARKET

General Holt:

And what I told the Congress is: If you don't authorize commercial solutions’ openings in the future, I'll still do them. And they were like, “What? How can you do that?” Well, it's a mindset. I told them, “You didn't give us a single authority in commercial-solutions opening that we didn't already have in the FAR. And so if you take away that authority, we'll just do a combined solicitations synopsis under Part 5, which we can do today, and we'll follow that up with a Part 12 contract, which is a commercial contract, which we can do today. So everything that a commercial solution is, we can do it and call it something different. And that's what people need to be willing to do— is to exercise that Part 1  guidance in the FAR that says, “If it's not specifically prohibited, it is by definition allowed subject to good business judgment.”

That gives rise to all the innovation you'll ever need, even inside of the Federal Acquisition Regulation. Not to even speak of all those innovations that our airmen took on that are outside of the FAR to include 2371 A and B, other transaction authority 2373, experimental procurement authority, and many other authorities and technology insertion agreements. It is the use of a full range of commercial tools and even the use of small business or small purchase procedures, even in major weapon system settings.

Imagine doing a blanket purchase agreement in a major weapon system. Well, guess what? You can do a blanket purchase agreement in 10 minutes, and you could go to 7 million under simplified acquisition as long as you're not breaking the rules and splitting requirements. Why isn't that sufficient? Why don't we use that with many more program managers?

Templeton:

I love this General.Specifically because you're stating a couple of ideas that leaders can implement right now. And the first thing that you stated: It all starts the top - right? Leadership with the right mindset and being able to entrust those people under your command— you trust them to make decisions. And that's all about good leadership, to be able to decentralize that, if you will. And actually, you've taken the time to put a cost to it, and what it means to the contract going forward.

And you gave specific examples for those people that are in the industry, to think down what we call ‘that hallway of thought— to be able to think differently about where they are right now. Those listening right now can implement this in your own processes and your own areas of control, the way the General has.

As we move to closing this out General, I did want to give you some time to share. I know that where you're at— you're now moving forward in your consulting. This is your life's work. I know that you're a man of priority, that you've got first things first. What's the big idea that you're going to work on that you think will really move the needle? Where do you think you’ve got the ability to make change?

General Holt 

Yes. Well, thanks for that. Besides my Holt Consulting Group, a business of client support, I've got a whole range of things that I do on the pro bono side where it's really about continuing the policy debates. And as I told you back in June from the stage in San Diego, the biggest game changer out there, the biggest demand signal for reform that will have an outsized effect on our ability to move faster than China can move or could ever hope to move, is to change the micromanagement of appropriations.

It is to hold appropriators accountable, to hold our elected officials accountable, and modernize our oversight of national security spend within the PPBE process. And you mentioned that I'm on a PPBE reform task force that's sponsored by the American Society of Military Comptrollers.

ON A MISSION TO OFFER BOLD IDEAS THAT CHANGE EVERYTHING IN THE SYSTEM

General Holt:

We plan to offer some bold ideas and those bold ideas will have enormous leverage for changing everything throughout the rest of the system that I just named. Giving a PEO authority to move money in execution year, does not need to mean necessarily that Congress has given up its rights to oversight, as is their constitutional responsibility and duty. I believe that that can be modernized. I would argue that the free cash flow model and capital reinvestment in publicly traded corporations is a fantastic model to use. 

It's proven, and frankly, Wall Street analysts have enormous oversight and power over publicly traded corporations. But they don't restrict the movement of money within the corporation beforehand. And so, I think if we adopted that kind of model where maybe if we got a quarterly update from those program executive officers based on “How are you optimizing the spend across your portfolio?”, not “How are you just spending all the money as fast as you can in the narrow accounts we gave it to you in?”

But doing that requires a lot of courage on behalf of those elected officials, because they will get a call from that one constituent company that is really upset that in their sole-source negotiation, money was pulled from it because they wouldn't provide cost data or for some other reason. But frankly, I think that if we can continue to discuss the urgency of us moving faster than China and really get some courageous appropriators and authorizers together around those solutions, I really believe we can make change in a very short amount of time.

Templeton:

That's tremendous. Well General, this has been exciting. I would say if you're listening to this and you don't have a chill running down your spine on what we can do as Americans going forward, you're not alive.

This is a big project, and it takes all of us, right, as you said, as patriots, as Americans to come together. We can make an effective change going forward. And sir, I would ask you, as we continue this podcast, I certainly invite you back to listen to the insights of some of our other leaders, and also give us an update on this important work that you do.

General Holt:

I'd love to do that, Tim. And I thank you for providing this forum. But if we're successful on the day that we open the hangar doors on the next generation air dominance fighter and wheel it out for all to see for the very first time—as the cameras are clicking and the videos are rolling—if we fly a prototype of its replacement right over the crowd, that's when we will know we've got it right. That's when we will know that American ingenuity has now accelerated the game beyond which the adversaries of freedom can keep up with. And that's where we need to be.

Templeton:

Again, thank you, I truly appreciate your time and your insights on this important topic.

General Holt:

Thanks so much, Tim.