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Access Impedes Innovation in Defense — There is a Simple Solution
We were at a Department of Defense (DOD) facility, briefing Anduril Industries’ latest technology, and we knew that we still faced a major obstacle: Does Anduril have a facility security clearance?” We didn’t, because per DOD policy, we needed to be on contract to get a clearance. There was clearly a circular issue here: without a clearance, we were unlikely to secure a contract, but we also couldn’t secure a clearance without one. Having now leaped past this hurdle at Anduril it remains a sore spot for me and my colleagues as we think about how to create a community of new defense technology companies challenging the status quo. Innovative technology start-ups hoping to work with the DOD encounter many barriers, including heavy capital requirements, long contract cycles, mysterious acquisition processes, access to data, and cultural risk aversion by the government. However, one of the most frustrating is that of security clearances. I have worked now at two separate companies injecting innovative technologies into DOD and I have run into this barrier to entry at both. Companies like mine are told that they need a contract (including a DD-254, the document granting your company the right to secure information) in order to secure a clearance but are also frequently deemed ineligible to secure those contracts because they don’t already have a clearance. There are legitimate security reasons to restrict access to clearances for some companies, but the existing set of byzantine rules, regulations, and procedures have the practical effect of cutting off DOD from some of the most talented engineers and innovative companies in America. This unfortunate Catch 22 is occurring at the same time that the country faces accelerating security threats from emerging technologies leveraged by near-peer competitors. As a country, we stand to lose that competition if our best talent does not apply itself to assist in the effort. Based on these unfortunate policies, a company without a clearance (but often with cleared employees) that is interested in partnering with the government on classified work is pushed to using inefficient workarounds. The two most common options are signing a cooperative research and development agreement (CRADA) for a project, or, partner as an advisor or consultant with a friendly company that can hold their clearances. The first of these options can be expensive (as no dollars flow to the company under a CRADA) and therefore impractical for early-stage companies who are already capital constrained. The second relies on the benevolence of another company and is fundamentally inconsistent with the ‘spirit’ of the existing security guidelines. However, without reform, these are the only real options left for a small company. If it simply waited to receive an appropriate contract that would grant the clearance, it would be waiting roughly three years to actually begin performing any work (and receiving any revenue). For many small companies, this timeline is simply impossible.
How Congress Can Fix Its Trillion Dollar Accounting Error
The Federal Credit Reform Act (FCRA) of 1990 artificially lowers the costs of the government’s credit assistance programs. The problem is the requirement, written into the law, that the government use Treasury interest rates when discounting the value of future financial flows. The U.S. government pays very low interest rates on the money it borrows because investors view these debt instruments as essentially “risk free.” As the Congressional Budget Office (CBO) has explained on numerous occasions, a risk-free interest rate is the wrong one to use when discounting the financial flows of federal credit programs. Using Treasury rates artificially lowers the costs of federal credit programs, which creates perverse results.
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