WASHINGTON: Defense Industrial Base Health received a failing grade for the first time from a major defense trade group, largely due to the unprecedented and ongoing challenges created by the COVID-19 pandemic. 19 and strategic competition from China and Russia.
This finding is part of the National Defense Industrial Association’s third annual Vital Signs 2022 report, which offers an analysis of the United States’ defense industrial base. For this year’s report, the NDIA and data firm Govini worked together to score eight “vital signs” that shape the performance of defense contractors, on a scale of 0 to 100, where an average score of 70 is considered satisfactory.
Of the eight categories — demand; production inputs; innovation; supply chain; competetion; industrial Security; policy and regulatory; and production capacity and surge preparedness — five were rated “fail”.
“The past year has seen a significant deterioration in signs, including ‘supply chain’ as well as ‘production capacity and peak readiness’, which is almost certainly the result of the impact of the pandemic,” according to the report. “Conversely, the only sign that has significantly improved was ‘demand’, reflecting recent growth in the defense budget.”
“Industrial security” continues to be the weakest sign in the NDIA report, with an overall failing rating of 50. The score reflects broader trends in industrial cybersecurity shortcomings, despite the increase resources devoted to countering the threat, the report said. The number of newly reported common IT cybersecurity breaches continued to increase.
“Data breaches, intellectual property theft and state-sponsored industrial espionage in private companies and academic labs are on the rise, while the dynamic nature of attacks makes them an ever-changing target,” according to the report.
Industrial security has also been an area of active federal regulation, the report says, citing certification of the cybersecurity maturity model as a prime example.
An interim rule for CMMC was issued in 2020, “prohibiting executive agencies from entering into contracts with any entity that incorporates any equipment or service that uses telecommunications equipment manufactured by Huawei, ZTE and several other manufacturers of telecommunications equipment manufactured in China,” according to the report. “CMMC is a DOD effort to improve the handling of sensitive information by and within the Defense Industrial Base. . . These programs are still in intermediate stages and their impact on cybersecurity remains to be determined.
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Innovation also remained stagnant last year, with falling investment and no change in the status of scientific research and development services, according to the report. NDIA gave this domain a score of 69 for 2021, the same score it received in 2020.
The need for American technological dominance is reinforced by the growing intensity of competition with China and Russia. According to the report, investment in R&D fell precipitously as a percentage of global spending. In 1995, the United States ranked fourth in terms of total R&D expenditure as a percentage of GDP and in 2019 it fell to tenth.
“Outside the private sector, public sector investment in innovation has also continued to deteriorate,” according to the report. “This is especially important given that public sector funding dominates the field of basic, experimental, and theoretical research in the United States. Between 2011 and 2016, US government funding for R&D projects fell by 12% in absolute terms. Over the same period, Russia and China increased their public investment in R&D by 13% and 56%, respectively.
The outlook for innovation remains bleak: according to the report, companies will be required this year to write off their R&D expenditure over five years under the Tax Cuts and Jobs Act 2017, which is equivalent to to a significant increase in taxes, negatively impacting innovation. .
This year’s report includes a new section: emerging technologies. The NDIA’s Institute for Emerging Technologies says there is some uncertainty about the future of emerging technologies and that the United States must prioritize defense modernization above all else.
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“The 2018 National Defense Strategy emphasized investing in advanced technologies to improve overall capability,” the report said. “The question now is whether NDS 2022 will do the same. Although we are still in a period of transition, it seems that the Biden administration will make relatively few changes to modernization priorities. DoD leaders said integrated deterrence will play an important role in the new defense strategy, which will require technology improvements across all agencies and services.
Despite the negative scores, the report highlights a few areas of trust. For example, demand for defense goods and services remained robust in 2021 due to an increase in contractual obligations issued by the DoD.
Another area that NDIA rated fair was competition, with an analysis of DoD’s top 100 publicly traded contractors yielding favorable results.
“This high rating was driven by several high-scoring factors, including a low level of market concentration for the total contract award, the low share of the total contract award received by foreign contractors, and a high level of capital expenditure in the DIB,” the report said. States. “Conversely, other factors within the ‘competition’ sign experienced declines, including a significant drop of 11 points for liquidity. However, these declines were anticipated due to the impact of the pandemic on the economy.