The United States does not simply need to buy faster. It needs to buy in a way that preserves leverage after the contract is signed.

That is the central policy challenge facing the U.S. defense industrial base. Part one, SpaceX and the Evolving Defense-Industrial Problem, established the diagnosis: the sector has become too concentrated, too dependent on incumbent primes, too vulnerable to proprietary sustainment arrangements, and too exposed to capital markets that reward scalable software more readily than manufacturing depth. The practical question now is what the state should actually do about it.

The answer is not to nationalize the defense industry, abandon private innovation, or pretend that government alone can manufacture its way out of strategic vulnerability. Nor is it enough to fund more start-ups, create more innovation offices, or celebrate every new prototype as evidence of industrial renewal. The harder task is institutional. 

This article advances a six-part agenda built around lifecycle contestability: the ability to keep weapons systems, supply chains, repair pathways, and strategic technologies competitive, repairable, scalable, and governable long after the initial award. It focuses on technical-data rights, second-source financing, strategic public finance, modular open systems, defense merger review, and repair infrastructure, before considering the narrower circumstances in which government equity may be justified. Together, these reforms would preserve the government’s ability to compete, repair, upgrade, and re-source military systems across their lifecycles. The argument rests on a simple premise: achieving those ends requires moving beyond fragmented procurement reform toward a more integrated defense-industrial policy architecture—one that links antitrust scrutiny, technical-data rights, second-source financing, and strategic public finance to the preservation of lifecycle contestability.

This sounds technical, but it is really a question of power. If the government buys a platform but cannot repair it without the original contractor, cannot access the data needed to complete future upgrades, cannot qualify a second source for critical parts, and cannot finance the upstream component base that makes production possible, then the state has not really bought military capability. It has bought dependence. The distinction matters because great-power competition will not be decided only by who invents the most advanced system. It will also be decided by who can produce, maintain, modify, and replace systems under pressure.

The current policy conversation often treats procurement speed as the main bottleneck. That is understandable. The Pentagon does move slowly, and slow contracting can kill promising firms before they ever reach scale. But speed at the front end can create lock-in at the back end if the government buys quickly without securing technical data, repair rights, modular interfaces, second-source plans, and sustainment leverage. A faster trap is still a trap.

The practical agenda should therefore begin with a different test. Every major defense acquisition should be asked: will the government retain credible alternatives over the life of the system? If the answer is no, then competition at initial award is not enough.

The Policy Problem: The State Has Lost Lifecycle Leverage

The U.S. defense market is not a normal market. It is a state-structured market in which the government often acts as a monopsonistic buyer, a small number of firms control critical capabilities, and security requirements make entry difficult. This gives the state enormous purchasing power in theory, but not always effective leverage in practice. When the government depends on a narrow supplier base, lacks technical data, or cannot credibly shift production or sustainment to alternative firms, monopsony can coexist with contractor power. That does not mean competition is impossible. It means competition has to be designed, financed, and preserved.

The official record is unusually clear on this point. A 2022 Department of Defense (DoD) report acknowledged that the number of major aerospace and defense prime contractors fell from fifty-one in the 1990s to five today. It also identified severe concentration in missiles, solid rocket motors, microelectronics, batteries, castings, and other strategic inputs. But firm count is only the surface-level problem. The deeper issue is that the government often lacks the technical data, software access, repair infrastructure, and alternative suppliers needed to keep systems contestable.

This is why sustainment has become the quiet center of defense-industrial policy. Sustainment is not glamorous. It does not produce ribbon-cutting ceremonies or dramatic prototype videos. But it determines whether a military can keep fighting. Spare parts, depots, repair tooling, software updates, maintenance data, component suppliers, and trained technicians are not peripheral to military power. They are military power.

The F-35 makes this painfully clear. U.S. Government Accountability Office (GAO) has estimated the program’s lifecycle cost at more than $1.7 trillion, with about $1.3 trillion tied to operations and sustainment. More recent GAO work found that F-35 sustainment costs have continued to rise while performance has deteriorated, with mission-capable rates declining from 67 percent in fiscal year 2021 to 44 percent in fiscal year 2025. That is not simply a story about one expensive aircraft; It is a warning about what happens when the government allows sustainment, data, and repair authority to become too dependent on contractor-controlled systems.

The lesson is not that every major platform should be avoided or that all contractor involvement is bad. The lesson is that the government must stop treating sustainment as an afterthought. If technical-data rights, repair rights, modular interfaces, and second-source pathways are not built into acquisition from the beginning, the state will pay later in higher costs, lower readiness, and weaker bargaining power.

This is where the policy agenda needs to move: from procurement reform to industrial statecraft.

Principle One: Buy Data Rights Before You Need Them

The first reform is simple but politically difficult: the Department of Defense should create a dedicated defense Industrial Contestability Fund (DICF) to buy technical data, software access, repair rights, manufacturing-process information, and qualification packages for second sources.

This should not be treated as an optional add-on. It should be treated as a core acquisition cost. When the government buys a strategically important system, it should not only ask: what does the platform cost? It should also ask: what would it cost to preserve the ability to repair, compete, upgrade, and re-source this system over twenty, thirty, or forty years?

The reason this requires a dedicated fund is that program managers face short-term incentives. Contractors may also resist arrangements that weaken the proprietary control central to their business models. Buying additional data rights upfront can look expensive and increase near-term program costs. Yet the long-term cost of foregoing those rights is often much higher: the government may save at the point of purchase only to lose leverage across the lifecycle.

This fund should focus first on the most lock-in-prone programs: aircraft, missiles, satellites, command-and-control systems, software-intensive weapons, and ageing platforms with sole-source sustainment chains. It should finance priced options for additional data rights during source selection, require lifecycle intellectual-property strategies before major milestones, and create a secure escrow system for critical technical data that can be activated if suppliers fail, prices become abusive, or wartime production requires alternative sources.

These policy changes need not confiscate private intellectual property. Contractors should be compensated for rights the government needs. But the government should stop pretending that data rights are a legal technicality. They are a strategic asset. A military that cannot access the information needed to repair its own systems is not fully sovereign over the capability it has purchased.

Principle Two: Fund Second Sources Before the Crisis

The second reform is to finance second sources before they are needed.

In normal market logic, redundant capacity can look inefficient. Why pay to qualify a second supplier if the incumbent can meet today’s demand? Why sustain extra tooling if peacetime production is stable? Why support spare capacity if budgets are tight? These questions make sense in commercial efficiency terms. They make less sense in national-security terms.

defense industrial resilience depends on options. If there is only one qualified supplier for a critical part, that supplier is not merely a vendor. It is a choke point. If there are only two domestic producers of a key input, the system may function in peacetime but fail under surge conditions. If the government waits until a crisis to qualify new suppliers, it will discover that certification, tooling, workforce development, and production learning curves cannot be improvised overnight.

A serious policy agenda should therefore create standing “contestability capital” for second-source qualification. This money should finance tooling, process certification, testing, bridge demand, and low-rate production for alternative suppliers in known bottlenecks: solid rocket motors, missile components, batteries, castings and forgings, trusted microelectronics, energetics, secure communications hardware, and selected legacy spares.

This is not about creating idle factories for every part. It is about identifying the components where supplier concentration would become strategically dangerous in a conflict or prolonged mobilization. The government already knows many of these bottlenecks. What it lacks is a routine financing mechanism to relieve them before they become emergencies.

The performance metrics should be concrete: how many critical components have at least two qualified suppliers? How quickly can monthly production rates rise under surge conditions? How long does it take to repair or replace key parts? What percentage of sustainment work is dependent on a single original equipment manufacturer? These measures matter more than abstract claims about competition.

Principle Three: Treat Strategic Finance as defense Policy

The third reform is to scale strategic finance.

The creation of the Office of Strategic Capital (OSC) reflects an admission by the Pentagon that procurement contracts alone cannot build the industrial base the United States needs. Some technologies and supply chains are essential to national security but unattractive to ordinary private capital because they require heavy upfront investment, long repayment timelines, uncertain demand, and technical risk.

That is especially true below the prime-contractor level. Batteries, motors, semiconductors, advanced materials, rare-earth processing, machine tools, test facilities, secure hardware, and manufacturing equipment do not always fit the venture-capital model. They are capital-intensive and slower. They often require facilities, permitting, workforce training, and demand certainty. Yet without them, software-heavy defense innovation remains fragile. The United States can have brilliant autonomy companies and still lack the batteries, sensors, motors, and manufacturing depth needed to scale drones in wartime.

OSC’s framework is therefore the right starting point: components, not capabilities; finance, not innovation; lending, not spending. The state does not need to replace private capital. It needs to shape the risk-return profile so private capital flows into strategically necessary industrial layers that markets underfund on their own.

Congress should expand OSC-style lending, loan guarantees, and fund-level leverage for defense-critical component manufacturing. A reasonable medium-term target would be $5–10 billion in loan and guarantee authority over five years, paired with professional credit review, supply-chain resilience metrics, and clear restrictions against offshoring subsidized capacity. The goal should not be to scatter grants across fashionable technologies. It should be to crowd in private investment where the national-security case is clear and the market failure is specific.

This kind of finance should be judged by industrial outcomes: domestic capacity added, supplier count increased, production timelines shortened, private capital crowded in, and bottleneck dependence reduced. The metric is not how many start-ups receive support. The metric is whether the United States becomes more capable of producing and sustaining military systems under stress.

Principle Four: Make Modular Open Systems a Competition Policy

The fourth reform is to treat modular open systems not merely as an engineering preference but as a competition policy.

A Modular Open Systems Approach (MOSA) can reduce lock-in by designing systems around severable modules, open interfaces, and standards that allow components to be replaced or upgraded without redesigning the entire platform.⁶ In practical terms, it means the government should not allow one proprietary subsystem to control the future of an entire weapons system.

This matters most for software-intensive systems, avionics, sensors, electronic warfare, command-and-control networks, and autonomous platforms. These systems will need constant updates. If each update depends on the incumbent prime or a closed proprietary architecture, the government will struggle to integrate new technology quickly. Worse, it will pay monopoly prices for the privilege of being slow.

MOSA should therefore be built into acquisition strategy from the beginning. Programs should be required to produce interface-control documents, identify which modules must remain open to competition, and explain where proprietary control is justified. Contractors should still be rewarded for performance, integration, and reliability. But they should not be allowed to convert integration into permanent control over future upgrades.

Not every system can be made fully open without trade-offs. Too much modularity can create integration burdens, cybersecurity risks, and unclear accountability. The government must distinguish between legitimate technical integration and business models that use technical complexity to protect lifecycle monopoly power.

Principle Five: Use Antitrust to Protect Capacity, Not Just Prices

The fifth reform is to modernize defense merger review.

Traditional antitrust review often focuses on prices, market share, and consumer welfare. In defense, those measures are insufficient. The issue is not only whether a merger raises prices next year. It is whether it removes a future supplier, consolidates repair authority, reduces access to technical data, weakens surge capacity, or gives one firm control over a critical subsystem.

defense merger review should therefore include a national-security supplier-map annex. Before approving major transactions in defense-critical markets, DoD, the Federal Trade Commission, and the Department of Justice should ask: how many qualified suppliers exist today? How many would remain after the merger? Does the deal increase vertical control over repair, certification, data, or components? Does it reduce the possibility of second sourcing? Would it make wartime surge production easier or harder?

This is not an anti-business position. Some consolidation may preserve capabilities that would otherwise disappear. Some mergers may create scale needed for complex production. The point is not that big is always bad, the issue is that concentration should be judged by its effect on contestability, capacity, and strategic resilience—not only by peacetime pricing.

The United States made a historic bet after the Cold War that a smaller, consolidated defense industry would be more efficient. The costs of that bet are now visible. A modern competition policy that understands defense markets as strategic systems rather than ordinary consumer markets is necessary.

Principle Six: Build a Repair State, Not Just an Innovation State

The sixth reform is cultural as much as institutional: the United States needs to value repair.

Too much of the defense innovation conversation is organized around the new: new platforms, new start-ups, new autonomy tools, new space systems, new AI applications. These matter. But a military that cannot repair what it already has will not be saved by prototypes. Readiness is built in depots, maintenance facilities, spare-parts inventories, software-support teams, and supplier networks that rarely receive the prestige given to frontier technologies.

A practical agenda should therefore fund depot modernization, digital maintenance infrastructure, secure technical-data repositories, additive manufacturing for qualified spares, workforce training, and public-private repair ecosystems. The goal should be to reduce components awaiting repair, shorten maintenance turnaround time, and move more sustainment work into contestable arrangements where the government is not wholly dependent on a single contractor.

This is especially important because repair capacity is also surge capacity. In a prolonged conflict, the ability to return systems to service quickly may matter as much as the ability to produce new ones. A defense-industrial base that can manufacture exquisite platforms but cannot maintain them at scale is brittle.

The United States should think of repair as a strategic function. It is not merely an operational support issue. It is an industrial capability.

The Hard Case: Government Equity

The most controversial tool is government equity or quasi-equity in defense-critical firms. The attraction is clear. Some projects may be too risky for debt and too strategically important to leave unfunded. Equity can support capacity that ordinary loans cannot. It can also allow the public to share in upside when taxpayers help de-risk strategically important firms.

But the risks are equally clear. Government equity can blur the line between investor, customer, and regulator. It can politicize investment decisions. It can distort competition if one firm appears to have official favor. It can also create governance confusion if the state holds financial interests in firms whose contracts it awards.

For that reason, equity should be a narrow exception, not a routine tool. It should be limited to clearly identified bottlenecks where debt is inappropriate, private capital is insufficient, and national-security need is explicit. It should avoid board control, avoid preferential contracting treatment, require transparent pricing, include sunset or divestment provisions, and be reviewed for competition effects before approval.

The principle should be straightforward: use credit first, offtake second, equity only when necessary.

Answering the Objections

The first objection is cost. Buying data rights, funding second sources, expanding OSC, modernizing depots, and supporting component manufacturing will require billions of dollars. That is true. But the relevant comparison is not zero. The relevant comparison is the cost of sustainment lock-in, delayed repairs, munitions shortages, emergency procurement, and readiness failures. A few billion dollars spent preserving competition and repair autonomy is modest compared with trillion-dollar lifecycle programs whose costs become unmanageable because the government failed to secure leverage early.

The second objection is that these policies risk slowing procurement. That concern should be taken seriously. Requirements can become bureaucratic. Data-rights negotiations can become endless. Modular-system rules can become compliance exercises. But the solution is not to ignore lifecycle issues. It is to standardize them. Programs should have model contract language, pre-priced data-rights options, clear MOSA templates, and acquisition professionals trained to negotiate IP and sustainment terms. Good rules can reduce friction if they are built into the process rather than added late.

The third objection is that the government should not pick winners. But the government already picks winners every time it awards a major defense contract, protects a sole-source supplier, or allows a proprietary sustainment pathway to persist. The real question is whether the state will pick winners passively through inertia or actively through a strategy that preserves competition and resilience. Strategic finance should not become corporate welfare. But refusing to act is also a choice, and in defense markets it often benefits incumbents by default.

The fourth objection is that private firms need profit incentives to innovate. The goal is not to punish firms for succeeding. The goal is to prevent success from becoming permanent dependency. A healthy defense-industrial system should reward innovation while preserving the state’s ability to repair, compete, and scale. That balance is difficult, but it is not optional.

A Sequenced Agenda

In the near term, DoD should create a defense Industrial Contestability Fund focused on data rights, repair rights, second-source qualification, and sustainment leverage for the most lock-in-prone programs. At the same time, DoD and the antitrust agencies should build a live supplier-mapping cell to evaluate mergers and identify fragile submarkets before they become crises.

In the medium term, Congress should scale OSC-style financing for component manufacturing and critical supply chains. It should also require lifecycle contestability plans for all major defense acquisition programs, including IP strategies, repair plans, MOSA implementation, and second-source assessments. Commercial acquisition should remain available, but not as a loophole for avoiding sustainment planning.

In the long term, the United States should consider a permanent national-security industrial finance institution that combines lending, guarantees, allied co-financing, and narrow equity authority under strict governance rules. Such an institution should not become a political slush fund or a substitute for procurement discipline. It should be a professional public-finance body designed to solve a specific problem: the market underfunds the industrial layers that make military innovation usable at scale.

Conclusion

The United States does not lack innovation. It lacks the industrial and financial architecture to turn innovation into durable military power.

A defense system that produces brilliant prototypes but cannot finance critical components such as batteries and motors—or the repair capacity, technical data, second sources, and surge manufacturing needed to sustain them—is not prepared for great-power competition. A procurement system that competes a contract once but then allows decades of proprietary creates dependency.

The practical policy agenda should therefore be organized around lifecycle contestability. Buy the data before it is needed. Fund second sources before the crisis. Use strategic finance for components and supply chains, not just prototypes. Treat modular open systems as competition policy. Review mergers for their effect on capacity, not just prices. Build a repair state alongside an innovation state.

This is not a call for the government to replace the private sector but to govern the market it has already created. defense is not an ordinary marketplace, and military resilience will not emerge automatically from private incentives. It has to be financed, structured, and preserved.

The old defense-industrial bargain rewarded concentration in the name of efficiency. The next bargain should reward contestability in the name of resilience.