Defense Department Draft Memo Reveals Major Restructuring of Military Weapons Procurement and Contractor Accountability

A six-page draft memo obtained by multiple defense outlets lays out what could become the most extensive overhaul of Pentagon procurement in decades. The document, titled “Transforming the Warfighting Acquisition System to Accelerate Fielding of Capabilities,” centers on one priority: speed.

Defense Secretary Pete Hegseth is scheduled to address defense industry chief executives and senior military acquisition officials on November 7 at National Defense University. The leaked document arrived three days before that speech, though Pentagon officials declined to confirm whether Hegseth intends to announce the reforms publicly.

Pentagon Press Secretary Kingsley Wilson said the department “will not comment on leaked documents, pre-decisional or otherwise” when asked about the memo.

The draft departs from past reform efforts that emphasized cost reduction. Todd Harrison, budget and acquisition analyst at American Enterprise Institute, said the shift reflects a calculated decision to prioritize delivery schedules over financial considerations.

“What it does not acknowledge is that there’s always an inherent trade off between cost, schedule and performance,” Harrison said. “He’s saying, of those three, I want to prioritize speed. What he’s not saying is, ‘I’m willing to accept higher costs and lower performance.’ But that is the reality, that when you prioritize one, you’re making sacrifices in one or both of the others”.

The memo diagnoses three systemic failures behind what it calls “unacceptably slow acquisition fielding times.” Fragmented accountability that blocks single leaders from making tradeoffs between speed, performance and cost. Broken incentives that reward meeting every specification at the expense of timely delivery. Procurement patterns that discourage industry investment and leave industrial capacity unable to surge or adapt quickly.

Michael Duffey, undersecretary of defense for acquisition and sustainment, would oversee implementation under the plan. The memo directs him to issue detailed guidance within 45 days. Each military service must submit implementation plans within 60 days. Duffey would also chair monthly “acquisition acceleration reviews” that track delivery to combat units and competition health.

According to industry sources, the proposal could draw resistance from traditional defense contractors. The memo directs officials to “proportionally” penalize contractor delays and emphasizes “investable demand signals for private capital,” a language often associated with Silicon Valley-backed defense startups rather than established primes.

Pentagon Restructures Weapons Programs Under Portfolio Model

The most substantial organizational change replaces the Pentagon’s long-standing Program Executive Office structure with Portfolio Acquisition Executives. Instead of individual PEOs managing single weapons programs, PAEs would control multiple interrelated efforts and could shift funding among systems based on performance or schedule factors.

Portfolios could be organized by mission synergies, technological domains or operational integration needs. Each PAE would report directly to the service acquisition executive. The change mirrors proposals already included in the Senate Armed Services Committee’s version of the fiscal 2026 National Defense Authorization Act.

PAE appointments would last at least four years and could extend by two years. That targets a persistent complaint that program managers rotate out after two or three years, too little time to see major programs through development and production. The memo also states that PAEs would receive “incentive compensation” tied to capability delivery time, competition and mission outcomes, though it does not explain how such compensation would work for uniformed personnel.

Defense officials confirm the restructuring aims to eliminate what the memo calls “non-value added layers of bureaucracy.” PAEs would gain authority to make cost, schedule and performance tradeoffs that prioritize time to field, accepting “good enough” capability instead of waiting for products that meet every requirement.

The memo directs PAEs to target initial fielding dates, unit cost ceilings, and minimum mission effectiveness standards. All other attributes stay negotiable through development. That includes waiver authority for technical standards and environmental compliance where not mandated by statute or safety regulations.

PAEs would also enforce Modular Open System Architectures across their programs by asserting government purpose rights over critical software interfaces. That prevents “vendor lock,” where weapon systems can only be modified or repaired by the original manufacturer.

The memo requires at least two qualified sources for critical program content through initial production unless the service acquisition executive grants a waiver. That preserves government leverage and enables frequent recompetition of modular components based on demonstrated performance.

Harrison expressed skepticism about the dual source requirement. “What that means is you’re going to be paying extra to have that option, and it does not always make sense,” he said.

Each military service must submit a list of proposed portfolios within 60 days. Full implementation plans are due in 90 days. All acquisition activities must transition to the portfolio model within two years.

Pentagon Adopts Commercial Contracting Practices

The draft instructs the Pentagon to issue guidance within 90 days on expanded use of streamlined contracting mechanisms such as Other Transaction Authority and Commercial Solutions Openings “wherever feasible and appropriate.”

Companies that work with the Pentagon have long complained that reliance on the Federal Acquisition Regulation forces dual-use firms to maintain separate financial systems. The move toward commercial processes addresses that concern and aligns with proposals in the Senate Armed Services Committee’s FY26 NDAA version.

The memo also directs development of “a method to evaluate and accept alternative proposals” outside current contracting processes. That could allow major changes in how the department procures new technology.

“That leaves so much open to new defense companies to come in and disrupt big acquisition programs,” Harrison said. “That is the kind of thing where it’s like the Air Force puts out an RFP to buy a new bomber, and someone comes in with a missile. And they’re basically saying you still need to evaluate and at least consider these out of the box alternatives”.

The plan calls for updating DoD Instruction 5000, which establishes Pentagon acquisition policy, within 150 days. Revisions should shift decision authority to the services and PAEs whenever possible, reduce required documentation, eliminate redundant reviews and consolidate milestones.

A newly referenced “Economic Defense Unit” would develop what the memo describes as “a playbook of modern commercial contract and agreement structures and defining performance benchmarks for industry partners.” The unit would also deploy capital through grants, loans and other investments to defense technology firms.

How the Economic Defense Unit differs from the existing Office of Strategic Capital remains unclear. OSC, established in December 2022, already works with private investors to expand funding for critical technologies and had nearly $1 billion available for fiscal 2025 investments.

Army Secretary Dan Driscoll said earlier this month that “the Silicon Valley approach is absolutely ideal for the Army.” He echoed the administration’s stated interest in emphasizing new defense industrial base entrants over established contractors.

Time-Indexed Incentives Reward Speed, Penalize Delays

Portfolio scorecards would track acquisition performance under the proposed system. The memo directs publication of scorecards within 180 days containing “primary measures” that assess delivery schedules, prototypes, initial operational capability and production ramps.

Secondary metrics would include percentage of commercial content, number of dual-sourced components and production lines, instances of successful third-party technology integration and mission capable rates.

The scorecard language references “successful models in critical minerals mining and processing, submarine shipbuilding, and munitions acceleration,” a signal that the department plans to structure deals that unlock private capital through advance market commitments, risk-sharing mechanisms and commercial-like incentive structures.

Defense officials confirm the memo tells acquisition officials to use “time-indexed incentives” for contracts. Companies that deliver early would receive financial rewards. Delays would trigger proportional penalties. The document provides no additional specifics on how penalties would be calculated or applied.

Within 180 days, the Pentagon plans to publish contracting guidelines that set clear incentives for timely delivery, increased production capacity and investable demand signals for private capital.

Harrison said large legacy defense contractors will likely object to several provisions, particularly the push to own critical interfaces. “I think a lot of the big primes are going to be skeptical of this, but probably quiet in their skepticism,” he said. “I think they’ll probably start quietly communicating, these are the problems we have with this. And they’ll probably do that directly to the Hill, because they’re not going to change this within the building”.

Defense Acquisition University Redesigned for Rapid Delivery

The Defense Acquisition University would face significant restructuring to match the emphasis on rapid delivery. Within 180 days, Duffey’s office must prepare options to “immediately cease DAU’s compliance focused training operations and transform remaining resources into a competency-based education institution that identifies and develops high-potential acquisition leaders”.

The plan would rename it “Warfighting Acquisition University”. The institution would establish selective cohort-based programs. These would combine experiential and project-based learning on real portfolio challenges, industry-government exchanges and case method instruction that develops critical thinking and rapid decision making.

The move away from compliance-focused training marks a substantial change for an organization that has traditionally emphasized adherence to federal procurement regulations. DAU’s current framework centers on certification training for skills and knowledge needed by everyone in specific career fields.

According to industry sources, the broader reform package mirrors themes in an April 2025 executive order titled “Modernizing Defense Acquisitions and Spurring Innovation in the Defense Industrial Base.” The order required DoD to submit a reform plan within 60 days. The plan had to emphasize commercial item purchases, Other Transaction Authority and streamlined routes.

The Government Accountability Office reported in June 2025 that major defense acquisition programs now require almost 12 years from program start to provide warfighters with initial capability. GAO stated these timeframes are incompatible with emerging threats and that “more radical change is needed”.

The draft memo obtained this week aligns with that assessment. Attention now turns to Hegseth’s November 7 speech and to Congress, where both the House and Senate Armed Services Committees have proposed legislation that would repeal portions of federal acquisition law.

Our analysis shows the memo compresses several major policy shifts into a six-month window. The 45-day deadline for Duffey to issue implementation guidance falls in mid-December 2025. Service-specific plans are due in early January 2026. Major guideline publications are required in April and May 2026.

Defense Department Draft Memo Reveals Major Restructuring of Military Weapons Procurement and Contractor Accountability

Pentagon Restructures Weapons Programs Under Portfolio Model

Pentagon Adopts Commercial Contracting Practices

Time-Indexed Incentives Reward Speed, Penalize Delays

Defense Acquisition University Redesigned for Rapid Delivery

REFERENCE SOURCES

Don't Miss

Denmark Donates 13-th Military Equipment Package for Ukraine

DARPA Cancels Liberty Lifter WIG Seaplane Project Over Cost and Certification Hurdles