The U.S. Defense Industrial Base: Background and Issues for Congress
Congressional research reportSep 23, 2024
Ask Donna
What actually matters in this document.
Text
The U.S. Defense Industrial Base:
Background and Issues for Congress
Updated September 23, 2024
Congressional Research Service
https://crsreports.congress.gov
R47751
SUMMARY
The U.S. Defense Industrial Base:
Background and Issues for Congress
The U.S. defense industrial base (DIB) is the network of organizations, facilities, and resources
that provides the U.S. government—particularly the Department of Defense (DOD)—with
defense-related materials, products, and services.
R47751
September 23, 2024
Luke A. Nicastro
Analyst in U.S. Defense
Infrastructure Policy
The DIB encompasses a wide variety of entities, including commercial firms operated on a forprofit basis, not-for-profit research centers and university laboratories, and government-owned
industrial facilities. It provides everything from large, technologically sophisticated weapon systems and highly specialized
operational support to general commercial products and routine services. By supplying and equipping the armed services, the
DIB enables the United States to execute national strategy and develop, maintain, and project military power.
Since World War II, the U.S. government has devoted considerable resources and attention to ensuring the DIB can meet the
requirements of national defense. Within DOD and the executive branch, a diverse array of organizations and programs exist
to monitor, protect, and strengthen the industrial base. Congress appropriates hundreds of billions of dollars annually to
acquire materials, products, and services from DIB suppliers, and has established and funded a number of programs intended
to assess or modify aspects of the DIB as a whole. Congress also routinely oversees the executive branch exercise of
industrial base-related functions.
In conducting its role in resourcing, overseeing, and legislating for the U.S. defense industrial base, Congress may consider a
number of questions, including
•
•
•
Do suppliers have adequate capacity to meet U.S. defense needs?
What is the appropriate degree of regulation for the commercial defense industry?
How resilient should defense supply chains be? What role should sourcing, content, and production
requirements play in government stewardship of the industrial base?
Congressional Research Service
The U.S. Defense Industrial Base: Background and Issues for Congress
Contents
Background ..................................................................................................................................... 1
Defining the U.S. Defense Industrial Base ............................................................................... 1
Historical Development ............................................................................................................ 2
Early Origins through the Cold War ................................................................................... 2
1991 to Today ..................................................................................................................... 5
Contemporary Overview ........................................................................................................... 6
Commercial Sector.............................................................................................................. 6
Nonprofit and Public Sector...............................................................................................11
Government Stewardship ........................................................................................................ 17
The Role of the Executive................................................................................................. 18
The Role of Congress........................................................................................................ 22
Issues for Congress ........................................................................................................................ 24
‘Right-Sizing’ the Industrial Base ........................................................................................... 24
Assessing and Managing Capacity ................................................................................... 24
The DIB and Great Power Competition ............................................................................ 25
An Arsenal of Democracy? ............................................................................................... 27
Regulating Private Industry..................................................................................................... 28
Competition and Consolidation ........................................................................................ 28
Business Practices and the Role of Government .............................................................. 32
Supply Chains and Sourcing Requirements ............................................................................ 34
Supply Chain Resilience ................................................................................................... 34
Onshoring and ‘Friendshoring’ ......................................................................................... 36
Domestic Content Requirements and Restrictions............................................................ 37
Figures
Figure 1. U.S. Defense Outlays, FY1940-FY2028 (Projected) ....................................................... 3
Figure 2. U.S. Defense Production, 1947-2024............................................................................... 4
Figure 3. DOD Contract Spending by State, FY2023 ..................................................................... 8
Figure 4. DOD Major Range and Test Facility Base ..................................................................... 15
Figure 5. Ammunition Facilities .................................................................................................... 16
Figure 6. Covered Depots .............................................................................................................. 17
Figure 7. ASD (IBP) Organizational Chart .................................................................................. 20
Figure 8. Consolidation in the Defense Industry ........................................................................... 30
Tables
Table 1. Five Largest U.S. Defense Contractors ............................................................................. 8
Table 2. DOD-sponsored FFRDCs ................................................................................................ 12
Table 3. DOD UARCs ................................................................................................................... 12
Table 4. DOD Science and Technology Reinvention Laboratories ............................................... 13
Table 5. Supply Chain Enablers and Recommendations ............................................................... 35
Table 6. Selected DIB Sourcing Requirements and Restrictions .................................................. 37
Congressional Research Service
The U.S. Defense Industrial Base: Background and Issues for Congress
Contacts
Author Information........................................................................................................................ 39
Congressional Research Service
The U.S. Defense Industrial Base: Background and Issues for Congress
Background
Defining the U.S. Defense Industrial Base
The term defense industrial base appears to have entered common parlance during the Korean
War.1 Usage may vary slightly by context, but today Congress, the executive branch, think tanks,
and media outlets frequently employ the term to refer to the organizations, facilities, and
resources that supply the U.S. government—principally, but not exclusively, the Department of
Defense (DOD)—with materials, products, and services for defense purposes.2 Government
acquisition from DIB entities is mainly managed through the use of contracts.3
As typically used, the DIB includes public and private owners and operators of relevant
productive capacity, to include some organizations that may not exclusively or predominantly
produce specialized defense equipment.4 When referring to private industry, the term
encompasses both those suppliers with a direct contractual relationship with the government
(referred to as prime contractors) and those that provide prime contractors with the goods and
services necessary to perform defense contracts (known as subcontractors).5
Definitions of the DIB and related concepts often have a geographic component, especially when
described in statute. The Defense Production Act of 1950 (DPA), for instance, defines the
domestic industrial base as consisting of “domestic sources which are providing, or which would
be reasonably expected to provide, materials or services to meet national defense requirements
during peacetime, national emergency, or war.”6 For the purposes of the DPA, these domestic
sources are further defined as businesses that perform contracted activities at, and source
contracted components and assemblies from, locations inside the United States, Canada,
Australia, and the United Kingdom.7
Similarly, 10 U.S.C. §4801 defines the national technology and industrial base (NTIB) as “the
persons and organizations that are engaged in research, development, production, integration,
1 The earliest use of the full phrase that CRS was able to identify was in an Associated Press article syndicated in May
1953. The article referred to industry as a ‘base’ upon which military power was built, detailing a debate between
former Truman Administration officials—who had favored a ‘broad’ base—and Eisenhower Administration officials—
some of whom favored a ‘narrower’ base. “House Group Opens Hearing on Weakened Controls Bill,” The Washington
Post, May 22, 1953. For another contemporaneous account of the ‘broad’ vs. ‘narrow’ debate, see Austin Stevens,
“Pentagon Aroused by Plan to Narrow ‘Defense Base,’” The New York Times, April 9, 1953.
2 Terms other than the defense industrial base have also been used by policymakers, analysts, and other participants in
defense policy discourse to express similar meanings (examples include the national technology and industrial base,
the national security industrial base, and the military-industrial complex). For consistency, this report uses defense
industrial base (abbreviated DIB or industrial base) throughout. The DIB also supports other federal agencies that
exercise defense-related functions (for example, the Coast Guard and the Central Intelligence Agency). For the
purposes of this report, consideration of the DIB will mainly concern its role in supporting DOD.
3 For a general overview of defense contracting, see CRS Report R44010, Defense Acquisitions: How and Where DOD
Spends Its Contracting Dollars.
4 The DOD Dictionary of Military and Associated Terms, for instance, defines the DIB as “the Department of Defense,
government, and private sector worldwide industrial complex with capabilities to perform research and development
and design, produce, and maintain military weapon systems, subsystems, components, or parts to meet military
requirements.” Department of Defense, DOD Dictionary of Military and Associated Terms, February 2023, p. 55.
5
See 41 U.S.C. §8701 for statutory definitions of prime contract, prime contractor, subcontract, and subcontractor.
6 50 U.S.C. §4552(7).
7 50 U.S.C. §4552(8).
Congressional Research Service
1
The U.S. Defense Industrial Base: Background and Issues for Congress
services, or information technology activities conducted within the United States, the United
Kingdom, Australia, New Zealand, and Canada.”8
Policymakers and analysts often divide the defense industrial base by key products. Thus, those
organizations and facilities that build submarines may be referred to as the “submarine industrial
base,” those that manufacture helicopters may constitute the “rotary-wing aircraft industrial
base,” and so on.9
Historical Development
Early Origins through the Cold War
Since the Revolutionary War, the United States has relied on a variety of organizations and
facilities to supply and equip its military forces. However, for the first 150 years of its existence,
the federal government devoted few resources to the management and maintenance of a
permanent defense industrial base.10 Although the Army and Navy operated several government
arsenals and shipyards, these had limited production capacity, and in times of conflict the armed
services depended heavily on private contractors.11 The rapid arms buildups that accompanied the
wars of this period were followed by corresponding capacity reductions, with the vast majority of
wartime contractors returning their focus to the commercial market when hostilities ended.12 As
the logistical and technological complexity of conflict grew, the U.S. government made larger
efforts to manage these aspects of warfighting—industrial mobilization during World War I, for
instance, was coordinated by several government bodies—but it wasn’t until the 1940s that the
foundations of the modern DIB were laid.13
America’s entry into World War II sparked an industrial mobilization effort of unprecedented
scale. The production of materiel ranging from basic commodities (like steel and rubber) to
specialized weapons systems (such as planes and tanks) expanded, and U.S. suppliers ultimately
provided over two-thirds of Allied equipment.14 This expansion created the present structure of
the DIB: the federal government worked with private firms to convert, expand, or construct
thousands of facilities for defense production, while also building smaller numbers of
8 For more on the national technology and industrial base, refer to the “Government Management of the DIB” section
of this report. See also CRS In Focus IF11311, Defense Primer: The National Technology and Industrial Base.
9 For respective examples of these usages, see Team Submarines Public Affairs, “U.S. Navy Submarine Industrial Base
Celebrates Growing Workforce,” U.S. Navy, June 29, 2023, https://www.navsea.navy.mil/Media/News/Article-View/
Article/3444392/us-navy-submarine-industrial-base-celebrates-growing-workforce/; and Section 163 of the FY2023
National Defense Authorization Act (P.L. 117-263).
10 For an overview of U.S. defense production in the 18th and 19th centuries, see Merritt Roe Smith, “Military Arsenals
and Industry Before World War I,” in War, Business, and American Society, ed. Benjamin Franklin Cooling (New
York: Kennikat Press, 1977), pp. 24-42.
11 Ibid.
12 Of the 48 major U.S. arms contractors active during the Civil War, for instance, 37 had exited the sector by 1870,
while 17 of the 19 U.S. plants built to manufacture artillery during World War I had closed by 1920. Ibid., p. 36, and
Benedict Crowell and Robert Wilson, Demobilization: Our Industrial and Military Demobilization after the Armistice,
1918-1920 (New Haven: Yale University Press, 1921), p. 167.
13 For an overview of the War Industries Board—the most important of these bodies—see Randall Kester, “The War
Industries Board 1917-1918: A Study in Industrial Mobilization,” The American Political Science Review, vol. 34, no.
4 (August 1940), pp. 655-684. Available at https://www.jstor.org/stable/1947819.
14 This included 86,000 tanks, 2.5 million trucks, 286,000 aircraft, 434 million tons of steel, and 41 billion rounds of
ammunition. Arthur Herman, Freedom’s Forge: How American Business Produced Victory in World War II (New
York: Random House, 2012), p. ix.
Congressional Research Service
2
The U.S. Defense Industrial Base: Background and Issues for Congress
government-owned plants to manufacture items considered difficult or unsuitable for private
industry to make (e.g., high explosives).15
Although some economic demobilization occurred after 1945, the wartime industrial base was not
entirely dismantled, and by the late 1940s the onset of the Cold War led to renewed investments
in military capabilities (see Figure 1).16 From 1948 to 1963, annual spending on defense
increased by an average of 8.4%, with annual outlays for research, development, test, and
evaluation (RDT&E) and procurement each growing by an average of 19.7%.17 The Korean War
provided another major impetus to industry, raising demand for defense equipment and leading
Congress to pass the Defense Production Act (DPA).18
Figure 1. U.S. Defense Outlays, FY1940-FY2028 (Projected)
Sources: Figure created by CRS using data from OMB Budget of the United States Government, Fiscal Year
2024, Historical Tables, Table 3.1 and Table 10.1, March 2023; and CBO, Budget and Economic Data, Spending
Projections, by Budget Account, February 2023.
Note: Figure originally developed for CRS Report R47582, FY2024 Defense Budget Request: Context and Selected
Issues for Congress, by Cameron M. Keys and Brendan W. McGarry.
As a result, the early decades of the Cold War were a dynamic period for the DIB, characterized
by rising production output (see Figure 2).19 Commercial firms played a critical role in this
expansion, developing and producing the sophisticated technologies and weapons systems on
which U.S. military power increasingly depended (although DOD continued to use government15 As a 1944 congressional study put it: “Prior to 1939, there were practically no powder-explosives, shell-loading, and
bag-loading plants in America compared with our tremendous future requirements. Private industry could not expand to
meet this tremendous need … the War Department had to build plants.” Rep. Albert Engel, “Ordnance Ammunition
Production,” Army Ordnance Report, no. 6 (August 1944), p. 4. Available at https://www.jstor.org/stable/45367625.
16 For an influential articulation of the strategic rationale informing these spending patterns, see National Security
Council, “A Report to the National Security Council—NSC 68,” April 12, 1950, pp. 64-65. Available via the Harry S.
Truman Presidential Library and Museum at https://www.trumanlibrary.gov/library/research-files/report-nationalsecurity-council-nsc-68.
17 CRS analysis of the “percent real growth” figures for DOD outlays between FY1948 and FY1963. See Office of the
Under Secretary of Defense (Comptroller), “National Defense Budget Estimates for FY2024,” DOD, May 2023, pp.
162-163. Available at https://comptroller.defense.gov/portals/45/documents/defbudget/fy2024/fy24_green_book.pdf.
18 For more information on the DPA, refer to the “Government Management of the DIB” section of this report; see also
CRS Testimony TE10092, Mission Critical: Restoring National Security as the Focus of Defense Production Act
Reauthorization, by Luke A. Nicastro.
19 See Figure 2 for historical production output figures.
Congressional Research Service
3
The U.S. Defense Industrial Base: Background and Issues for Congress
owned production facilities, their relative importance declined).20 The growing economic and
military importance of such firms led some policymakers to express concerns about their political
influence. President Dwight D. Eisenhower, for instance, observed in a 1961 address that the
“conjunction of an immense military establishment and a large arms industry is new in the
American experience” and cautioned against “the acquisition of unwarranted influence, whether
sought or unsought, by the military-industrial complex.”21
Figure 2. U.S. Defense Production, 1947-2024
Annualized Monthly Output of Defense and Space Equipment from January 1947 to June 2024
Source: CRS graphic based on data from the Board of Governors of the Federal Reserve System, “Industrial
Production: Equipment: Defense and Space Equipment,” at https://fred.stlouisfed.org/series/IPB52300S.
Notes: The Y-axis shows the Federal Reserve’s industrial production (IP) index for defense and space equipment,
which measures the monthly output of U.S.-based defense and space production facilities expressed as the percentage
of the average monthly real output for a base year (currently 2017). Figure is interactive in the HTML version of this
report.
Following lower output during the 1970s, the DIB experienced strong growth during the 1980s,
concurrent with the military buildup pursued by the Reagan Administration. According to one
study, defense-related private employment increased from approximately 1.9 million workers in
1977 to 3.2 million in 1985, and defense-related production rose across dozens of industrial
20 By the end of the 1950s, government-operated facilities produced less than 10% of U.S. defense equipment. Merton
Peck and Frederic Sherer, The Weapons Acquisition Process: An Economic Analysis (Boston: Harvard University,
1962), p. 98. The early Cold War period also saw the establishment of the first federally funded research and
development centers (FFRDCs) and a number of government-owned RDT&E facilities such as DOD and Department
of Energy laboratories (refer to the “Nonprofit and Public Sector” section of this report for more information).
21 For more on the genesis and impact of Eisenhower’s speech, see James Ledbetter, Unwarranted Influence: Dwight
D. Eisenhower and the Military-Industrial Complex (New York: Yale University Press, 2011).
Congressional Research Service
4
The U.S. Defense Industrial Base: Background and Issues for Congress
subsectors.22 At the same time, shifting macroeconomic conditions during this period also led to
output declines for several defense-relevant subsectors, including shipbuilding and explosives.23
1991 to Today
With the end of the Cold War, the U.S. government assessed that its military requirements had
diminished and began to reduce defense spending. Because many firms in the commercial DIB
were heavily reliant on the defense market, DOD determined that the sector’s continued viability
depended on restructuring. Accordingly, the government actively encouraged companies to
pursue consolidation, with the result that by the early 2000s the number of prime contractors had
diminished from 51 to 5.24 Another consequence of reduced defense spending was a decline in
production: over the course of the 1990s, the output of the commercial DIB decreased by
approximately 35%.25 The changing defense environment also affected government-owned
capabilities, leading DOD to close many of its industrial facilities and reduce employment and
activity at remaining sites.26
Defense production rose again in the 2000s with the commencement of the Afghanistan and Iraq
Wars (the importance of operational support—the use of contractor personnel to support military
operations—to the business model of many defense firms also grew during this period).27
Production stalled and declined beginning in the early 2010s, as defense outlays decreased in
response to developments like the Budget Control Act of 2011 and U.S. drawdowns in Iraq and
Afghanistan.28
As the United States’ strategic focus shifted from counterterrorism to great power competition
during the 2010s and early 2020s, industrial base matters began to feature more prominently in
defense policy discussions. Geopolitical developments such as intensifying U.S. competition with
the People’s Republic of China (PRC or China) and Russia’s 2022 invasion of Ukraine generated
concern among policymakers about the health of the DIB, and led to increases in relevant
appropriations as well as other executive and legislative actions.29 In terms of monthly output,
production began to expand steadily in the late 2010s, returning (after a sharp but brief dip during
22 David K. Henry and Richard P. Oliver, “The Defense Buildup, 1977-85: Effects on Production and Employment,”
Monthly Labor Review (U.S. Bureau of Labor Statistics), August 1987, pp. 6-8. For another estimate that cites a total
DIB workforce of 1.7 million in 1976 and 3.3 million in 1986, see Eugene Gholz and Harvey Sapolsky, “Restructuring
the U.S. Defense Industry,” International Security vol. 24 no. 3 (Winter 1999-2000), p. 9.
23 Ibid., p. 6. This decline in output may have had capacity implications: over the course of the 1980s, for example,
three major private shipyards closed. See Gholz and Sapolsky, “Restructuring the U.S. Defense Industry,” p. 19.
24 The remaining five are Lockheed Martin, Boeing, RTX (formerly Raytheon), Northrop Grumman, and General
Dynamics. DOD, “State of Competition within the Defense Industrial Base,” February 2022, p. 1,
https://media.defense.gov/2022/feb/15/2002939087/-1/-1/1/state-of-competition-within-the-defense-industrial-base.pdf.
25 In January 1990, monthly defense and space related output was measured at 107.99 on the IP index, while in
December 1999 it was 70.3. Federal Reserve, “Industrial Production,” at https://fred.stlouisfed.org/series/IPB52300S.
26 This was particularly true for Army industrial facilities. See W. Michael Hix et al., Options for Managing the Army’s
Arsenals and Ammunition Plants, (RAND Corporation: Santa Monica, 2003) and U.S. Army, “Ammunition Production
During the Cold War,” April 2009, https://aec.army.mil/application/files/1614/9505/0982/ammo-storage02.pdf.
27 Reliance on contractor personnel during the Global War on Terror and Overseas Contingency Operations (the term
used by the Obama Administration) drew considerable interest and controversy. See CRS Report R43074, Department
of Defense’s Use of Contractors to Support Military Operations: Background, Analysis, and Issues for Congress.
28 For more information on the budget enforcement mechanisms enacted as part of the Budget Control Act, see CRS
Report R44874, The Budget Control Act: Frequently Asked Questions.
29 These included the creation of new government organizations; invocations of the DPA; and authorizations of multiyear procurement. Refer to the “Government Stewardship” section of this report for more information.
Congressional Research Service
5
The U.S. Defense Industrial Base: Background and Issues for Congress
the COVID-19 pandemic) to a record high in June 2023 and continuing to rise through the time of
this writing.30
Contemporary Overview
The contemporary DIB encompasses a large number of organizations and facilities supporting a
diverse array of military requirements. DIB-related sites are spread across the United States and
range from sprawling corporate ‘campuses’ with multiple production lines to research
laboratories and office buildings.
There are many ways to conceptually divide the DIB—by platform supported (e.g., submarines,
combat aircraft), by public law title supported (i.e., RDT&E, Procurement, Operation and
Maintenance, Military Personnel, or Military Construction), by production function (testing, final
assembly, etc.), by the value or workforce size of constituent entities, or by ownership model (i.e.,
government-owned, government-operated; government-owned, contractor-operated; or
contractor-owned, contractor-operated). This report divides the DIB into two broad sectors: the
commercial sector, in which the chief actors are private firms operated on a for-profit basis, and
the nonprofit and public sector, in which the chief actors are government bodies and academic or
scientific institutions operated on a not-for-profit basis.
Commercial Sector
Compared to other parts of the U.S. economy, the commercial defense industry is unique in
several important ways. Because the federal government is effectively the only buyer for most
defense products and services, the commercial DIB may be described as a monopsony market
environment.31 Additionally, many firms in the commercial DIB focus primarily or even
exclusively on defense, leading some analysts to argue the sector as a whole is isolated from the
broader U.S. economy.32
The defense industry is also highly regulated, with many of its products and services subject to
restrictions on both domestic possession or usage and international import or export.33 In addition,
defense contractors are required to comply with an array of government requirements intended to
protect sensitive information and systems.34
30 Refer to Federal Reserve data presented in Figure 2. See also Matthew Boesler and Roxana Tiron, “U.S. Industrial
Production of Defense Equipment Hits Record High,” Bloomberg Government, July 18, 2023. Note that the Federal
Reserve dataset begins in 1947 and thus does not include World War II.
31 See, for instance, R. Carril and M. Duggan, “The Impact of Industry Consolidation on Government Procurement,”
National Bureau of Economic Research, October 2018, p. 28.
32 Gregory Allen and Doug Berenson, “Why Is the U.S. Defense Industrial Base So Isolated from the U.S. Economy?”
CSIS, August 20, 2024, https://www.csis.org/analysis/why-us-defense-industrial-base-so-isolated-us-economy.
33 See, for instance, 27 C.F.R. Part 479.
34 This may include obtaining and maintaining security clearances for contractor employees, constructing and
maintaining secure facilities, etc. According to the Defense Counterintelligence and Security Agency (DCSA), there
are approximately 12,500 contractor facilities cleared to handle classified information. See DOD, “National Industrial
Security Program,” DCSA, https://www.dcsa.mil/Industrial-Security/National-Industrial-Security-Program-Oversight/.
Congressional Research Service
6
The U.S. Defense Industrial Base: Background and Issues for Congress
Because of the sector’s unusually direct reliance on government spending, some contractors fund
extensive lobbying activities.35 Commercial defense firms also employ tens of thousands of
former DOD personnel, both military and civilian.36
The commercial sector constitutes the largest element of the DIB, both in terms of resources,
facilities, and personnel employed as well as the value of the products and services provided to
the U.S. government. According to a 2023 report by the National Defense Industrial Association
(a defense industry trade association), the defense industry employed 1.1 million U.S. workers
and encompassed 59,678 companies as of 2021.37 In FY2023, DOD spending on contracts with
DIB suppliers in the 50 states and the District of Columbia totaled $440.7 billion, or
approximately 1.61% of the total U.S. gross domestic product (GDP) for calendar year 2023.38
According to DOD, about 50% of FY2023 contract spending went toward supplies and
equipment, 37% went to services, 10% went to research and development., and 3% went to
construction.39 As Figure 3 shows, this spending was distributed across the country, with
contractors located in Texas, Virginia, California, Connecticut, and Florida receiving the largest
amounts.40
35 In 2022, for instance, the nonprofit group OpenSecrets claimed that defense contractors spent over $100 million on
lobbying activities. Taylor Giorno and Filip Timotija, “Defense Sector Spent $101 Million on Lobbying During the
First Three Quarters of 2022,” OpenSecrets, November 3, 2022. To characterize the relationship between defense
contractors and government more broadly, analysts have described the commercial DIB as part of an iron triangle—
that is, “a political relationship that brings together three key participants in a clearly delineated area of policymaking”—comprised of private industry, DOD, and Congress. See Gordon Adams, The Politics of Defense
Contracting: The Iron Triangle (New York: Council on Economic Priorities, 1981).
36 In 2019, the Government Accountability Office found that over 37,000 former DOD personnel were employed at 14
defense contractors whose employment figures the organization reviewed. U.S. Government Accountability Office,
Post-Government Employment Restrictions, GAO-21-104311, September 9, 2021.
37 Jennifer Stewart et al., “Vital Signs 2023: Posturing the U.S. Defense Industrial Base,” National Defense Industry
Association, February 2023, https://www.ndia.org/policy/publications/vital-signs.
38 DOD Office of Local Defense Community Cooperation (OLDCC), Defense Spending by State—Fiscal Year 2023
Executive Summary, May 2024, https://oldcc.gov/resource/fy23-defense-spending-state-executive-summary. Note that
OLDCC figures are estimates and may be subject to revision. Current-dollar GDP figure of $27.36 trillion from the
Bureau of Economic Analysis, https://www.bea.gov/news/2024/gross-domestic-product-fourth-quarter-and-year-2023second-estimate.
39 OLDCC, Defense Spending by State—Fiscal Year 2023 Executive Summary, p. 1.
40 OLDCC, Defense Spending by State—Fiscal Year 2023 Executive Summary, p. 1.
Congressional Research Service
7
The U.S. Defense Industrial Base: Background and Issues for Congress
Figure 3. DOD Contract Spending by State, FY2023
Source: CRS graphic based on DOD contract spending data provided in OLDCC, Defense Spending by State—
Fiscal Year 2023 Executive Summary, May 2024, https://oldcc.gov/resource/fy23-defense-spending-state-executivesummary.
Notes: OLDCC figures are estimates and may be subject to revision.
The ‘Big Five’
Considered in terms of both total market capitalization and annual DOD contract spending, the
commercial sector is dominated by five large, publicly traded U.S. firms, sometimes referred to as
the ‘Big Five’ (see Table 1 below).
Table 1. Five Largest U.S. Defense Contractors
Location of
Corporate HQ
FY2022 DOD
Contract Obligations
Total Market
Capitalizationa
Employees
Lockheed Martin (LMT)
Bethesda, MD
$44.5 billion
$136.39 billion
122,000
RTX (RTX)
Arlington, VA
$25.4 billion
$160.03 billion
185,000
General Dynamics (GD)
Reston, VA
$21.5 billion
$83.09 billion
111,600
Boeing Co (BA)
Arlington, VA
$14.2 billion
$98.63 billion
171,000
Northrop Grumman (NOC)
Falls Church, VA
$12.8 billion
$76.04 billion
101,000
Company
Sources: Annual DOD contract obligation figures are from OLDCC, Defense Spending by State—FY2022.
Market capitalization and employee figures are from The Wall Street Journal, “Market Data”
(https://www.wsj.com/market-data/quotes/company-list; information current as of September 11, 2024).
Notes: Each firm’s New York Stock Exchange ticker symbol is in parentheses.
Congressional Research Service
8
The U.S. Defense Industrial Base: Background and Issues for Congress
a.
As of September 11, 2024. Market capitalization refers to the total value of a publicly traded company’s
outstanding shares of stock and may vary considerably over time.
Over the past four fiscal years, these five firms have tended to receive about one-third of all
annual DOD contract obligations in the United States (the group received approximately 30.3%
of FY2022 obligations, 29.1% of FY2021 obligations, 34.6% of FY2020 obligations, and 31% of
FY2019 obligations).41 Of the 78 major weapons systems DOD identified in its FY2024 budget
materials, 58—over 74% of the total—featured at least one of the ‘Big Five’ as a prime
contractor.42 All five of these companies (or their predecessors) have been major recipients of
defense contracts since at least the 1950s.43 In addition to supplying the U.S. government with
defense articles and services, these companies also supply foreign governments through Foreign
Military Sales (FMS) and Direct Commercial Sales (DCS).44
Considered in an international context, these five firms also occupy dominant positions. In a 2024
Defense News ranking of global defense companies by annual revenues, Lockheed Martin, RTX,
Northrop Grumman, General Dynamics, and Boeing ranked first, third, fourth, fifth, and sixth,
respectively.45 Other firms in the global top 10 were the Aviation Industry Corporation of China
(PRC, #2), BAE Systems (United Kingdom, #7), China State Shipbuilding Corporation Limited
(PRC, #8), China North Industries Group Corporation Limited (PRC, #9), and L3Harris
Technologies (United States, #10).46
Other Large Firms
In addition to the ‘Big Five,’ the DIB includes numerous other large U.S. commercial firms.
These include industrial concerns specializing in the production of specific systems (such as the
shipbuilder Huntington Ingalls Industries or the automotive manufacturer AM General),
companies focused on providing services (such as Amentum, ManTech, or Booz Allen Hamilton),
and corporations that generate most of their revenue from the civilian market (such as Microsoft
or IBM).
41 CRS analysis of obligation information provided in OLDCC’s FY2022, FY2021, FY2020, and FY2019 “Defense
Spending by State” reports. Available at https://oldcc.gov/sites/default/files/defense-spending-rpts/
oldcc_dsbs_fy2021_final_web_revised.pdf (FY2021); https://oldcc.gov/sites/default/files/op-034-oldcc_dsbs_fy2020sm1.1_chax_r2.pdf (FY2020); and https://oldcc.gov/sites/default/files/defense-spending-rpts/
oldcc_dsbs_fy2019_final_web.pdf (FY2019).
42 CRS analysis of information provided in DOD, “FY2024 Program Acquisition Costs by Weapon System,” March
2023, https://comptroller.defense.gov/Portals/45/Documents/defbudget/FY2024/FY2024_Weapons.pdf.
43 For example, all five firms (or their predecessors) were in the top 25 defense contractors by DOD obligations for the
period FY1958-1960. Peck and Scherer, The Weapons Acquisition Process, p. 613.
44 The FMS process is managed by the U.S. government, whereas DCS allows U.S. companies to sell articles and
services directly to foreign customers. For more information, see CRS Report R46337, Transfer of Defense Articles:
U.S. Sale and Export of U.S.-Made Arms to Foreign Entities.
45 “Top 100 for 2024,” Defense News, August 6, 2024, https://people.defensenews.com/top-100/.
46 Ibid.
Congressional Research Service
9
The U.S. Defense Industrial Base: Background and Issues for Congress
Venture Capital and Start-Ups in the Defense Industry
Over the past several years, the role of venture capital (VC)—financing provided to new or small firms with high
growth potential (i.e., start-ups)—in the defense industry has increased considerably.47 Since 2021, VC investors
have provided defense companies with more than $130 billion in funding; according to The Wall Street Journal,
about 100 defense start-ups have been founded during this same period.48
Examples of VC investors active in the defense sector include the Founders Fund, Andreesen Horowitz, Scout
Ventures, Lux Capital, and the CIA-established fund IQT.49 Examples of defense firms that have received funding
from VC investors include Anduril Industries, Palantir Technologies, Shield AI, Epirus, Relativity Space, Saildrone,
and Hadrian.50
VC-backed companies are involved in the development and production of several high-profile weapon systems and
capabilities, including the Collaborative Combat Aircraft, the Maven Smart System, and the Replicator initiative.51
Within the last decade, DOD has established both the Defense Innovation Unit (which is charged with
accelerating the adoption of commercial and dual-use technology to solve operational challenges at speed and
scale) and the Office of Strategic Capital (which seeks to facilitate and scale private investment in critical supply
chain technologies), both of which have undertaken efforts to integrate more defense start-ups into DOD’s
supplier base.52 Despite this, VC-backed firms still represent a relatively small proportion of the DIB when
measured by contract obligations, reportedly receiving less than 1% of DOD contract awards in FY2023.53
Many analysts have suggested that VC support is facilitating the growth of a more diverse slate of defense
suppliers, especially start-ups.54 Some claim that this will catalyze innovation across a range of capability areas, and
expand both the capacity and the efficiency of the DIB as a whole.55 Others have questioned the ability of newer
firms to deliver, arguing that overreliance on such suppliers could introduce additional risk into the defense
ecosystem.56
Small Businesses
For the purposes of government contracting, small businesses are businesses that both meet the
statutory definition of a small business and fall below certain size standards, as determined by the
47 For more information on VC, see CRS In Focus IF12412, Venture Capital Operations and Regulation, by Eva Su.
48 Media reports suggest that annual VC investment in defense firms has increased fivefold since 2016. See Heather
Somerville and Sharon Weinberger, “Tech Bros Are Betting They Can Help Win a War with China,” The Wall Street
Journal, August 9, 2024; Heather Somerville, “Investors Are Betting on Defense Startups. The Pentagon Isn’t,” The
Wall Street Journal, January 25, 2024; Mark Sullivan, “Pitchbook Says Defense Tech Is a Stalwart in an Otherwise
Chilly VC Environment,” Fast Company, July 9, 2024, https://www.fastcompany.com/91152692/pitchbook-defensetech-investment-chilly-vc-environment; and Tabby Kinder, “Silicon Valley VCs Rush Into Defence Technology StartUps,” Financial Times, June 20, 2023.
49 For one overview of VC investors in the defense sector, see Camden Mead, “Venture Capital’s Return to Aerospace
and Defense,” 47G, April 12, 2024, https://www.47g.org/resources/venture-capital-return-aerospace-defense/.
50 Ibid. According to The Wall Street Journal, there are now more than twelve defense “unicorns,” or privately held
companies worth more than $1 billion. Somerville and Weinberger, “Tech Bros Are Betting They Can Help Win a War
with China,” The Wall Street Journal, August 9, 2024.
51 Anduril Industries, “Anduril Selected for U.S. Air Force Collaborative Combat Aircraft Program,” press release,
April 24, 2024, https://www.anduril.com/article/anduril-air-force-collaborative-combat-aircraft-CCA/; Courtney Albon,
“Palantir Wins Contract to Expand Access to Project Maven AI Tools,” C4ISRNet, May 30, 2024; and Defense
Innovation Unit, “Replicator,” https://www.diu.mil/replicator.
52 Defense Innovation Unit, “About,” https://www.diu.mil/about; and Office of Strategic Capital,
https://www.cto.mil/osc/.
53 Heather Somerville, “Investors Betting on Defense Startups,” The Wall Street Journal.
54 Ibid. See also Josipa Majic Predin, “VCs Fuel the Boom in Defense and Military Startups Amid Global Conflicts,”
Forbes, November 2, 2023.
55 See, for example, Brian Schimpf and Morgan Brennan, “Securing America’s Future: How Technology Companies
and Washington Are Building A Safer World,” Andreesen Horowitz, March 5, 2024, https://a16z.com/securingamericas-future-how-technology-companies-and-washington-are-building-a-safer-world/.
56 See, for example, Andrew Cockburn, “The Pentagon’s Silicon Valley Problem,” Harper’s, March 2024.
Congressional Research Service
10
The U.S. Defense Industrial Base: Background and Issues for Congress
Small Business Administration (SBA).57 Per the terms of the Small Business Act (P.L. 85-536), a
small business is “one which is independently owned and operated and which is not dominant in
its field of operation.”58 In addition, it must be “organized for profit, with a place of business
located in the United States, and … operate primarily within the United States or … make a
significant contribution to the U.S. economy through payment of taxes or use of American
products, materials or labor.”59 Across the federal government, small businesses are eligible for
preferential consideration with respect to certain categories of contracting actions (including the
exclusive reservation of certain contracts) as well as numerous assistance and investment
programs.60
Summarizing the role small businesses play in the DIB, Secretary of Defense Lloyd J. Austin III
has stated that they “keep [U.S.] military forces combat ready with critical parts, cutting edge
technology, and top-notch services, and fortify [U.S.] defense supply chains in times of crisis.”61
Although a majority of defense contractors are small businesses, they collectively receive a
minority of DOD contract obligations.62 DOD reports that, between FY2011 and FY2020,
between 25,000 and 30,000 small businesses have received direct contract obligations annually,
and that such entities constitute “over 70% of the companies that do business with the
Department.”63
Nonprofit and Public Sector
The nonprofit and public sector of the DIB is diverse, encompassing university and government
affiliated research centers, DOD laboratories and test facilities, and government-owned industrial
sites, among other entities. Considered in terms of military functions, this sector primarily
supports RDT&E activities, the production of conventional ammunition, and the maintenance,
repair, and overhaul of weapon systems.
FFRDCs and UARCs
DOD relies on federally funded research and development centers (FFRDCs) and university
affiliated research centers (UARCs) to conduct research, development, and related activities to
identify, assess, develop, and transition technologies and concepts for military use.
FFRDCs are government-owned research institutions operated or administered by universities,
not-for-profit organizations, or industrial firms. Per the Federal Acquisition Regulation (FAR),
they are intended to “meet some special long-term research or development need which cannot be
met as effectively by existing in-house or contractor resources.”64 Each FFRDC is sponsored by a
57 For more information on small businesses and government contracting generally, see CRS Report R45576, An
Overview of Small Business Contracting. SBA size standards are determined by NAICS code and updated regularly.
See Small Business Administration, “Table of Small Business Size Standards,” June 21, 2023, https://www.sba.gov/
federal-contracting/contracting-guide/size-standards.
58 15 U.S.C. §632(a).
59 13 C.F.R. §121.105.
60 See CRS Report R45576, An Overview of Small Business Contracting.
61 DOD, “Small Business Strategy,” January 2023, p. 5.
62 According to DOD, small businesses tended to receive between $50 billion and $80 billion in annual contract
obligation between FY2011 and FY2020. Ibid.
63 In FY2021, “73% of all companies that did business with DOD and 77% of all the research and development
companies that did business with DOD were small businesses.” Ibid.
64 FAR 35.017, “Federally Funded Research and Development Centers.”
Congressional Research Service
11
The U.S. Defense Industrial Base: Background and Issues for Congress
federal agency. According to the National Science Foundation, there were 43 active FFRDCs as
of February 2024, of which 10 were sponsored by DOD (see Table 2).65
Table 2. DOD-sponsored FFRDCs
FFRDC
Location
Administrator
Activity Type
Center for Communications
and Computing
Alexandria, VA
Institute for Defense Analyses
R&D Laboratory
Lincoln Laboratory
Lexington, MA
Massachusetts Institute of
Technology
R&D Laboratory
Software Engineering
Institute
Pittsburgh, PA
Carnegie Mellon University
R&D Laboratory
Arroyo Center
Santa Monica, CA
RAND Corporation
Study and Analysis Center
Project Air Force
Santa Monica, CA
RAND Corporation
Study and Analysis Center
National Defense Research
Institute
Santa Monica, CA
RAND Corporation
Study and Analysis Center
Center for Naval Analyses
Arlington, VA
CNA Corporation
Study and Analysis Center
Systems and Analyses
Center
Alexandria, VA
Institute for Defense Analyses
Study and Analysis Center
Aerospace FFRDC
El Segundo, CA
The Aerospace Corporation
Systems Engineering and
Integration Center
National Security
Engineering Center
Bedford, MA and
McLean, VA
MITRE Corporation
Systems Engineering and
Integration Center
Source: National Science Foundation, “Master Government List of FFRDCs,” February 2024,
https://ncses.nsf.gov/resource/master-gov-lists-ffrdc.
Notes: DOD reports that the total number of permanent technical staff employed by its sponsored FFRDCs is
approximately 6,000. See USD R&E, “DOD FFRDCs,” https://rt.cto.mil/ffrdc-uarc/.
UARCs are nonprofit research organizations affiliated with a university and possessing one or
more “core competencies” (which DOD defines as “areas of domain expertise or specialization”)
that relate to DOD’s engineering, research, or development needs.66 Established in 1996, DOD’s
UARC program currently includes 14 organizations, each of which is affiliated with a DOD
office that serves as a “primary sponsor” (see Table 3).
Table 3. DOD UARCs
UARC
University
Primary Sponsor
Georgia Tech Research Institute
Georgia Institute of Technology
Army
Institute for Soldier Nanotechnologies
Massachusetts Institute of Technology
Army
Institute for Collaborative Biotechnologies
University of California, Santa Barbara
Army
Institute for Creative Technologies
University of Southern California
Army
65 DOD further subdivides its FFRDCs by activity types: 3 are classified as research and development laboratories, 5
are study and analysis centers, and 2 are systems engineering and integration centers. In addition to DOD-sponsored
FFRDCs, Department of Energy FFRDCs—which include the U.S. National Laboratories—support numerous defense
applications, especially those connected with the nuclear enterprise. For more information on FFRDCs, see CRS Report
R44629, Federally Funded Research and Development Centers (FFRDCs): Background and Issues for Congress.
66 Under Secretary of Defense for Research and Engineering, “FFRDC/UARC,” https://rt.cto.mil/ffrdc-uarc/.
Congressional Research Service
12
The U.S. Defense Industrial Base: Background and Issues for Congress
UARC
University
Primary Sponsor
Applied Physics Laboratory (JHU)
Johns Hopkins University
Navy
Applied Physics Laboratory (UW)
University of Washington
Navy
Applied Research Laboratory (PSU)
Penn State University
Navy
Applied Research Laboratory (UH)
University of Hawaii
Navy
Applied Research Laboratories (UT-Austin)
University of Texas at Austin
Navy
Space Dynamics Laboratory
Utah State University
Missile Defense Agency
Systems Engineering Research Center
Stevens Institute of Technologya
DOD
Applied Research Laboratory for
Intelligence & Security
University of Maryland, College Park
Office of the Under
Secretary of Defense for
Intelligence & Security
National Strategic Research Institute
University of Nebraska
U.S. Strategic Command
Geophysical Detection of Nuclear
Proliferation
University of Alaska
Deputy Assistant
Secretary of Defense for
Threat Reduction and
Control
Research Institute for Tactical Autonomy
Howard University
Air Force
Source: Under Secretary of Defense for Research & Engineering, “FFRDC/UARC,” https://rt.cto.mil/ffrdc-uarc/
Note:
a. Stevens Institute of Technology is the lead university, but more than 20 other “collaborating universities”
also participate in the Systems Engineering Research Center.
DOD Laboratories
DOD operates a network of 20 science and technology reinvention laboratories, designated as
such by 10 U.S.C. §4121 (see Table 4). According to DOD’s FY2024 budget materials, these
laboratories “include dozens of facilities across 22 states and employ tens of thousands of
uniformed, civilian and contractor scientists, engineers, and support personnel;” their activities
range from “basic research to defense system acquisition support to direct operational support of
deployed forces.”67
Table 4. DOD Science and Technology Reinvention Laboratories
Laboratory
Military Department
Air Force Research Laboratory
Air Force
Joint Warfare Analysis Center
Joint
Army Research Institute for the Behavioral and Social Sciences
Army
Combat Capabilities Development Command (CCDC) Armaments Center
Army
CCDC Aviation and Missile Center
Army
CCDC Chemical Biological Center
Army
CCDC C5ISR Centera
Army
67 Office of the Under Secretary of Defense (Comptroller), “FY2024 Defense Budget Overview”, March 2023, p. 79
(4-20), https://comptroller.defense.gov/portals/45/documents/defbudget/fy2024/
fy2024_budget_request_overview_book.pdf.
Congressional Research Service
13
The U.S. Defense Industrial Base: Background and Issues for Congress
Laboratory
Military Department
CCDC Ground Vehicle Systems Center
Army
CCDC Soldier Center
Army
Engineer Research and Development Center
Army
Medical Research and Development Command
Army
Technical Center, US Army Space and Missile Defense Command
Army
Naval Air Systems Command Warfare Centers
Navy
Naval Facilities Engineering Command Engineering and Expeditionary Warfare Center
Navy
Naval Information Warfare Centers, Atlantic and Pacific
Navy
Naval Medical Research Center
Navy
Naval Research Laboratory
Navy
Naval Sea Systems Command Warfare Centers
Navy
Office of Naval Research
Navy
Source: 10 U.S.C. §4121
Notes: Some laboratories consist of multiple subordinate units with varying degrees of autonomy. For example,
the Naval Sea Systems Command Warfare Centers consist of 10 sites spread across the United States (see
NAVSEA, “Warfare Centers,” at https://www.navsea.navy.mil/Home/Warfare-Centers/Who-We-Are/).
a. C5ISR is a commonly used acronym that stands for Command, Control, Computers, Communications,
Cyber, Intelligence, Surveillance, and Reconnaissance.
DOD Ranges and Test Facilities
To test and demonstrate new technologies and capabilities, DOD operates a network of 23
“activities” that together constitute the Manufacturing Range and Test Facility Base (MRTFB).
According to DOD, this infrastructure functions as a “national asset to provide [testing and
evaluation] capabilities to support the DOD acquisition system.” As of 2023, the MRTFB was
supported by approximately 30,000 personnel, and encompassed about 18,000 square miles of
land and 180,000 square miles of airspace (see Figure 4).68
68 For a description of the MRTFB, see Department of Defense, “DOD Directive 3200.11”, October 15, 2018,
http://www.esd.whs.mil/Portals/54/Documents/DD/issuances/dodd/320011p.pdf. For more recent information on
personnel and area, see Office of the Under Secretary of Defense (Comptroller), “FY2024 Defense Budget Overview”,
March 2023, p. 79 (4-20), https://comptroller.defense.gov/portals/45/documents/defbudget/fy2024/
fy2024_budget_request_overview_book.pdf.
Congressional Research Service
14
The U.S. Defense Industrial Base: Background and Issues for Congress
Figure 4. DOD Major Range and Test Facility Base
Source: CRS graphic developed from DOD, “DOD Directive 3200.11,” October 15, 2018.
Notes: To allow for their inclusion in this map, Alaska, Hawai’i, and the Bahamas are not depicted to scale. Note
that AUTEC is located in the Bahamas, outside the territory of the United States.
a. Acronyms: NAWCAD stands for Naval Air Warfare Center, Aircraft Division; NAWCWD stands for
Naval Air Warfare Center, Weapons Division; JITC stands for Joint Interoperability Test Command;
and AUTEC stands for Atlantic Undersea Test and Evaluation Center.
Government-Owned Production and Maintenance Facilities
DOD also maintains a network of industrial facilities that produce certain kinds of equipment
(mainly conventional ammunition) and conduct repair, maintenance, and overhaul activities for
various weapons systems. Often referred to as the organic industrial base, this network includes a
variety of government-owned sites, including Army ammunition plants (AAPs) and related
facilities as well as covered depots.69 These facilities may be either contractor-operated (as in the
case of AAPs) or government-operated (as in the case of covered depots).
DOD maintains five government-owned, contractor-operated (GOCO) AAPs, as well as at least
nine other industrial sites that support ammunition-related activities (see Figure 5). The GOCO
AAPs produce most of the military’s conventional ammunition, propellants, and explosives.70 In
69 The organic industrial base may also include other government-owned facilities that are not specifically identified in
this section. See 10 U.S.C. §2476 regarding covered depots. AAPs are not statutorily defined.
70 For more information on ammunition production facilities, see CRS In Focus IF12251, Defense Primer:
Conventional Ammunition Production Industrial Base.
Congressional Research Service
15
The U.S. Defense Industrial Base: Background and Issues for Congress
May 2024, the Army also opened a new Universal Artillery Projectile Lines facility to produce
metal parts for large caliber ammunition in Mesquite, TX.71
Figure 5. Ammunition Facilities
Army Ammunition Plants and Related Facilities
Source: CRS analysis of Joint Munitions Command data as of 2023.
Notes: The Universal Artillery Projectile Lines facility in Mesquite, TX is not depicted.
DOD owns and operates 21 government-owned, government-operated (GOGO) maintenance
locations statutorily designated as “covered depots”.72 These depots conduct depot-level
maintenance and repair, which is defined as “material maintenance or repair requiring the
overhaul, upgrading, or rebuilding of parts, assemblies, or subassemblies, and the testing and
reclamation of equipment.”73 Each military department (MILDEP) resources and manages the
facilities that service its equipment; depending on the MILDEP and function, these may be called
depots, arsenals, shipyards, fleet readiness centers, air logistics centers, or logistics bases (see
Figure 6).74
71 U.S. Army Public Affairs, “Army Inaugurates Universal Artillery Projectile Lines Facility,” May 29, 2024,
https://www.army.mil/article/276727/army_inaugurates_universal_artillery_projectile_lines_facility.
72 10 U.S.C. §2476.
73 10 U.S.C. §2460.
74 For more information on covered depots, see CRS In Focus IF11466, Defense Primer: Department of Defense
Maintenance Depots.
Congressional Research Service
16
The U.S. Defense Industrial Base: Background and Issues for Congress
Figure 6. Covered Depots
DOD Facilities Designated as “Covered Depots” by 10 U.S.C. §2476
Source: CRS graphic based on 10 U.S.C. §2476.
Stockpiles
To ensure the availability of resources in emergency or wartime conditions, the U.S. government
stockpiles certain defense-related products and materials. One such stockpiling program is the
National Defense Stockpile (NDS), a DOD-managed reserve of strategic and critical materials
intended to reduce or eliminate U.S. dependence on foreign or unreliable sources for materials
vital to national defense.75 As of March 2023, the NDS contained over 49 materials collectively
valued at over $912.3 million.76 Other DIB-relevant stockpiles include the Strategic Petroleum
Reserve, which contains crude oil, and the Strategic National Stockpile, which contains medical
supplies.77
Government Stewardship
Owing to the DIB’s national security importance—as well as its dependence on government
action—the executive and legislative branches devote significant attention to matters of
resourcing, management, and oversight. Executive branch officials and organizations conduct
administrative and assessment activities intended to accomplish a variety of purposes, including
ensuring the DIB can meet military requirements. Congress considers and passes legislation
(including the establishment or modification of industrial base statutes, programs, and policies, as
well as relevant appropriations) and conducts oversight and public information activities.
75 For more information, see CRS Report R47833, Emergency Access to Strategic and Critical Materials: The National
Defense Stockpile, by Cameron M. Keys.
76 CRS Report R47833, Emergency Access to Strategic and Critical Materials: The National Defense Stockpile.
77 For more information on the Strategic Petroleum Reserve, see CRS Report R46355, The Strategic Petroleum
Reserve: Background, Authorities, and Considerations; for more information on the Strategic National Stockpile, see
CRS Report R47400, The Strategic National Stockpile: Overview and Issues for Congress.
Congressional Research Service
17
The U.S. Defense Industrial Base: Background and Issues for Congress
The Role of the Executive
The President and the executive branch exercise a broad range of powers and responsibilities
relating to the DIB. The President, as Commander in Chief, determines many of the objectives
and requirements that the industrial base must support. Whether directly (as in the case of
government entities) or indirectly (as in the case of private industry), the structure and output of
the DIB are shaped by presidential priorities regarding national strategy, military requirements,
and DOD policies and practices. Statutorily identified policy documents that reflect and articulate
these priorities include:
•
•
•
The National Security Strategy;78
The National Defense Strategy;79 and
The Future-Years Defense Program (FYDP).80
The President may also set policy and issue direction relating to the DIB through executive
orders, presidential memoranda, and other administrative mechanisms, and possesses other
statutorily conferred authorities relating to the management of defense production under the
Defense Production Act of 1950 (described in a separate section below).81
Within the executive branch, DOD has primary responsibility for management of the DIB. Within
DOD, the Under Secretary of Defense for Acquisition and Sustainment (USD (A&S)) is
statutorily designated as the official responsible for “establishing policies for access to, and
maintenance of, the defense industrial base and materials critical to national security.”82 The
Assistant Secretary of Defense for Industrial Base Policy (ASD (IBP)) executes many of USD
(A&S)’s industrial base responsibilities on a day-to-day basis.
In January 2024, DOD published its first ever National Defense Industrial Strategy, setting forth
the Department’s priorities for managing the DIB (see shaded textbox below).83
National Defense Industrial Strategy (NDIS)
In January 2024, DOD issued the National Defense Industrial Strategy. According to ASD (IBP) Dr. Laura TaylorKale, the aim of the strategy is to “guide the Department’s engagement, policy development and investment in the
industrial base over the next three to five years.” To do this, the NDIS identifies DOD’s four “long-term
priorities” for the DIB:
•
Resilient supply chains;
•
workforce readiness;
•
flexible acquisition; and
•
economic deterrence.
The NDIS also provides details on risks and “illustrative outcomes” associated with each priority, as well as ten
“systemic challenges” facing the industrial base (these are underutilization of multi-use technologies, an inadequate
workforce, inadequate domestic production, non-competitive practices, long lead times, subtier supplier fragility,
78 Prepared pursuant to Section 108 of the National Security Act of 1947 (codified at 50 U.S.C. §3043).
79 Prepared pursuant to 10 U.S.C. §113(g).
80 Prepared pursuant to 10 U.S.C. §221.
81 Recent examples include Executive Order 13806 (issued in 2017), which directed DOD to assess the DIB and its
supply chains as a whole, and Executive Order 14017 (issued in 2021), which directed DOD to, inter alia, assess supply
chains for critical minerals and strategic materials.
82 10 U.S.C. §133b (3).
83 For more information on the NDIS, see also CRS Insight IN12310, The 2024 National Defense Industrial Strategy:
Issues for Congress, by Luke A. Nicastro.
Congressional Research Service
18
The U.S. Defense Industrial Base: Background and Issues for Congress
lack of DOD market share, procurement instability, funding uncertainty, and limited knowledge of ally/partner
requirements).
In July 2024, DOD released the NDIS Interim Implementation Report, intended to characterize its progress
implementing the actions identified in the NDIS. This report identified a number of recent actions that the
Department claims support its four long-term priorities. Some of the most significant include:
•
Multiple DPA Title III and Industrial Base Fund (IBF) awards;84
•
The opening of a new GOCO facility to manufacture modular metal parts for artillery munitions;85
•
The establishment of a Defense Industrial Base Consortium (DIBC) Other Transaction Authority (OTA);86
•
The execution of multi-year procurements for six munitions;87
•
The announcement of multiple vehicles and strategies for international defense industrial collaboration;88
•
The publication of the Defense Industrial Base Cybersecurity Strategy;89 and
•
The release of the Office of Strategic Capital’s first Investment Strategy.90
The NDIS may raise several questions for congressional consideration, including: whether or not to enact
additional appropriations; whether or not to create or modify industrial base authorities; how to prioritize among
competing NDIS recommendations; and how to oversee NDIS implementation. For further discussion, see CRS
Insight IN12310, The 2024 National Defense Industrial Strategy: Issues for Congress, by Luke A. Nicastro.
Assistant Secretary of Defense for Industrial Base Policy
The Assistant Secretary of Defense for Industrial Base Policy (ASD (IBP)) serves as the principal
advisor to USD (A&S) on matters related to the DIB. ASD (IBP)’s organizational remit includes:
•
•
•
•
•
•
•
•
Developing DOD policies for the maintenance of the U.S. DIB;
Executing small business programs and policy;
Conducting geo-economic analysis and assessments;
Providing recommendations on budget matters related to the DIB;
Anticipating and closing gaps in manufacturing capabilities for defense systems;
Assessing impacts related to mergers, acquisitions, and divestitures;
Monitoring and assessing impact of foreign investments in the United States; and
Executing authorities under 10 U.S.C. §4811 and §4852.91
The office of the ASD (IBP) is structured by function (see Figure 7 below). The Deputy Assistant
Secretary of Defense for Industrial Base Resilience is responsible for assessing and managing
DIB vulnerabilities, developing relevant acquisition and investment strategies, managing
84 DOD, National Defense Industrial Strategy: June 2024 Interim Implementation Report, June 2024, p. 2,
https://www.businessdefense.gov/docs/ndis/National%20Defense%20Industrial%20Strategy%20Interim%20Report%2
0-%20FINAL%20-%2003JUL.pdf.
85 Ibid., p. 2
86 Ibid., p. 4.
87 Ibid., p. 4.
88 Ibid., p. 5
89 Ibid., p. 2.
90 Ibid., p. 2.
91 DOD, “About Industrial Base Policy,” accessed September 8, 2024. Available at https://www.businessdefense.gov/
about-us.html.
Congressional Research Service
19
The U.S. Defense Industrial Base: Background and Issues for Congress
vulnerabilities posed by adversarial capital, and supporting the DIB workforce.92 The Deputy
Assistant Secretary of Defense for International & Industry Engagement is responsible for
managing partnerships and engaging with domestic DIB entities as well as foreign governments
and industry.93 The Office of Small Business Programs (OSBP) manages policy, administers
funding, and coordinates programs intended to increase small business participation in the DIB.94
Finally, the Director of the CHIPS Coordination Cell oversees DOD activities related to the
CHIPS and Science Act (P.L. 117-167), the Defense Microelectronics Cross-Functional Team,
and certain efforts involving microelectronics acquisition.95
Figure 7. ASD (IBP) Organizational Chart
Source: ASD (IBP), “About Industrial Base Policy,” https://www.businessdefense.gov/about-us.html, Accessed
September 23, 2024.
Other DOD Organizations
Given the size, complexity, and military importance of the DIB, many other DOD organizations
are also involved in industrial base matters. At the Office of the Secretary of Defense (OSD)
level, these include the Offices of the Under Secretaries of Acquisition and Sustainment (A&S)
and Research and Engineering (R&E), the Defense Logistics Agency (DLA), the Office of
Strategic Capital (OSC), the Defense Contract Management Agency (DCMA), the Defense
92 To execute these functions, DASD (IBR) conducts industrial base assessments, monitors and advises on foreign
investment risks, and administers DPA Title III, Industrial Base Fund, and related activities. ASD (IBP), “DASD
Industrial Base Resilience,” https://www.businessdefense.gov/ibr/index.html.
93 ASD (IBP), “DASD International and Industry Engagement,” https://www.businessdefense.gov/icie/index.html.
94 OSBP-managed programs include the Mentor-Protégé Program and the Indian Incentive Program. Relevant policy
documents relating to OSBP’s role include DOD Instructions 5134.04 (“Director of Small Business Programs”) and
4205.01 (“DOD Small Business Programs.” For more information, see Office of Small Business Programs, “About,”
https://business.defense.gov/About/.
95 ASD (IBP), “Molly Just Official Bio,” https://www.businessdefense.gov/leadership/docs/Just-official.pdf.
Congressional Research Service
20
The U.S. Defense Industrial Base: Background and Issues for Congress
Counterintelligence and Security Agency (DCSA), the Defense Security Cooperation Agency
(DSCA), and others. Each military department (MILDEP) also manages organizations that
routinely handle industrial base policy, programs, and engagement in the course of executing their
assigned RDT&E, procurement, logistics, planning, and related functions.96 Publications and
administrative mechanisms used to manage DIB issues include DOD forms, directives,
instructions, and other issuances.97 In addition, DOD uses several forums and working groups to
coordinate and share information on certain DIB issues.98
Other Executive Branch Agencies
In addition to DOD, a number of other agencies and organizations in the executive branch play a
role in managing the DIB. The Department of Commerce (DOC) Bureau of Industry and Security
(BIS), for example, routinely assesses defense-related technologies, surveys aspects of the
broader industrial base, and monitors DIB-related economic and trade developments.99 DOCDOD collaboration has also been formalized through a number of interagency agreements,
including recent Memoranda of Agreement (MOAs) concerning semiconductors and spacerelated technologies.100 Other agencies and organizations with DIB-related roles and
responsibilities include the Department of Homeland Security, the members of the Intelligence
Community, the Department of Justice and the Federal Trade Commission, and others.
The Defense Production Act of 1950
The Defense Production Act of 1950 (P.L. 81-774; codified as 50 U.S.C. §§4501 et seq.),
provides the President with an array of authorities to “shape national defense preparedness
programs and to take appropriate steps to maintain and enhance the domestic industrial base.”101
Over the past seven decades, successive administrations have used the DPA as a tool to manage
the nation’s defense-related productive capacity, invoking its authorities to increase the domestic
supply of goods and materials.
These authorities are grouped into titles: Title I allows the President to require private businesses
to preferentially accept certain contracts and orders, as well as allocate materials, services, and
facilities; Title III allows the President to provide loan guarantees, loans, purchases and purchase
commitments, grants, and other financial assistance directly to private businesses (these are paid
for by monies appropriated by Congress to the DPA Fund); and Title VII provides the President
96 As an example, the MILDEPs operate various Program Executive Offices (PEOs) to manage the acquisition of
particular weapons systems or categories of equipment.
97 Industrial base matters tend to be addressed by DOD instructions in the ‘5000 series’ (that is, those with issuance
numbers between 5000 and 5100). For active DOD issuances, see Washington Headquarters Service, “DOD
Issuances,” at https://www.esd.whs.mil/DD/DoD-Issuances/.
98 According to a 2022 GAO report, these include the Industrial Base Council, the Joint Industrial Base Working
Group, and the Supply Chain Resiliency Working Group. See GAO, DOD Should Take Actions to Strengthen its Risk
Mitigation Approach, July 2022, pp. 5-6.
99 Department of Commerce, “Industrial Base Assessments,” Bureau of Industry and Security, accessed August 9,
2023, https://www.bis.doc.gov/index.php/other-areas/office-of-technology-evaluation-ote/industrial-base-assessments.
100 DOD, “Department of Commerce and Department of Defense Sign Memorandum of Agreement,” press release,
July 26, 2023, https://www.defense.gov/News/Releases/Release/Article/3470881/department-of-commerce-anddepartment-of-defense-sign-memorandum-of-agreement-t/; and Department of Commerce, “Department of Commerce
and Department of Defense Sign Memorandum of Agreement,” Press Release, September 9, 2022,
https://www.commerce.gov/news/press-releases/2022/09/department-commerce-and-department-defense-signmemorandum-agreement.
101 50 U.S.C. §4502.
Congressional Research Service
21
The U.S. Defense Industrial Base: Background and Issues for Congress
with a variety of authorities, including the power to establish voluntary agreements with industry,
block certain corporate transactions, and obtain industrial base information.
DOD is the executive department most commonly associated with the DPA, and has been
consistently involved in the majority of both Title I and Title III actions.102 However, successive
presidential administrations have delegated DPA-related roles and responsibilities to a variety of
executive departments and agencies (the current pattern of delegation was largely established by
Executive Order 13603 of March 2012).103 DOD utilizes the Defense Priorities and Allocations
System (DPAS) to exercise Title I authorities, and Title III actions are overseen by ASD (IBP)’s
Manufacturing Capability Expansion and Investment Prioritization (MCEIP) office.
The number and variety of DPA actions increased significantly beginning in 2020. The Trump
and Biden Administrations used Title I and Title III authorities extensively to respond to the
COVID-19 pandemic, including through the prioritization of vaccine-related contracts and the
provision of financial assistance and incentives to domestic producers of medical supplies.104 The
Biden Administration has also used Title III authorities to respond to the 2022 Russian invasion
of Ukraine (through assistance to munitions and strategic/critical materials producers), as well as
to accomplish other policy priorities such as investing in clean energy technologies and
expanding the production of strategic/critical materials.105 By way of historical illustration, the
number of Title III projects reported as active by DOD—the largest user of Title III authorities—
was 4 in 1994, 37 in 2013, and 56 in 2024.106
The Role of Congress
Congress makes appropriations for both acquisition contract actions and the direct funding of
government facilities and organizations, meaning that it exercises a high degree of influence over
the resourcing of the entire DIB. It also considers and passes legislation to establish or modify
statutes, programs, and policy related to industrial base matters. Additionally, Congress oversees
both the DIB itself—through hearings, studies, etc.—and the DIB-related actions of DOD and the
executive branch as whole.
Resourcing the DIB
The congressional armed services committees and the congressional appropriations committees
(particularly the subcommittees on defense) play the largest roles in authorizing and appropriating
102 The Secretary of Defense is also designated by E.O. 13603 as the DPA Fund manager. Executive Order 13603 of
March 16, 2012, available online at https://www.federalregister.gov/documents/2012/03/22/2012-7019/nationaldefense-resources-preparedness.
103 Executive Order 13603 of March 16, 2012, available online at https://www.federalregister.gov/documents/2012/03/
22/2012-7019/national-defense-resources-preparedness.
104 Government Accountability Office, COVID-19: Agencies Are Taking Steps to Improve Future Use of Defense
Production Act Authorities, December 2021. Available online at https://www.gao.gov/assets/gao-22105380.pdf.
105 DOD, “DPA Title III Status of Funds,” February 6, 2024; and Department of Energy, “President Biden Invokes
DPA to Accelerate Domestic Manufacturing of Clean Energy,” June 6, 2022, available online at
https://www.energy.gov/articles/president-biden-invokes-defense-production-act-accelerate-domestic-manufacturingclean.
106 The 1994 figure comes from GAO; the 2013 figure comes from testimony by Frank Kendall, then-Under Secretary
for Acquisition, Technology, and Logistics, given before the Senate Committee on Banking, Housing, and Urban
Affairs on July 16, 2013; and the 2024 figure comes from information provided to the author by DOD’s Manufacturing
Capability Expansion and Investment Prioritization office. GAO, “Defense Production Act: Foreign Involvement in
Title III;” Senate Committee on Banking, Housing, and Urban Affairs, “Oversight of the Defense Production Act:
Issues and Opportunities for Reauthorization,” July 16, 2023; and DOD, “DPA Title III Status of Funds,” February 6,
2024.
Congressional Research Service
22
The U.S. Defense Industrial Base: Background and Issues for Congress
funds related to the DIB.107 Taken in the aggregate, congressional funding decisions for thousands
of individual DOD programs and activities constitute a critical factor in determining the size,
composition, and function of the industrial base.
Historically, there has been a positive correlation between changes in top-line defense budgets
and changes in overall industrial base production. When annual defense spending, especially for
RDT&E and Procurement, is trending upward in real terms, DIB output tends to rise as well;
conversely, flat or shrinking defense budgets tend to correlate with static or declining industrial
output.108 This has been attributed not only to the short-term impact of providing more funds to
suppliers, but also to the perception of budget increases as a longer-term ‘demand signal’ for the
commercial DIB: if contractors believe Congress will continue to raise spending, they may
choose to invest in expanding their ability to provide materials, products, and services.109
Beyond funding individual acquisition programs, Congress also makes appropriations intended to
support the broader DIB. Examples include
•
•
•
Production Base Support, a budget activity under the Procurement of
Ammunition, Army appropriation that funds capital projects at public and private
industrial facilities performing ammunition-related functions;110
The DPA Fund, which funds DPA Title III activities,111 and;
The Industrial Base Fund, which funds efforts to monitor and expand the DIB,
address urgent operational needs, and mitigate supply chain vulnerabilities by
resourcing DOD’s Industrial Base Analysis and Sustainment (IBAS) program
element.112
Statute, Programs, and Policy
Congress routinely considers and passes legislation focused on managing the DIB. This may
involve the creation, modification, or elimination of statutory authorities (e.g., multi-year
procurement for certain weapons), programs (e.g., expanding the functions of the Industrial Base
Fund), or policies (e.g., issuing a statement of policy regarding the shipbuilding industrial base).
The legislation Congress uses to manage the industrial base varies widely in scope, purpose, and
form. The annual National Defense Authorization Act (NDAA) is frequently used as a vehicle for
DIB-related provisions, and typically features a subtitle devoted to “industrial base matters” (in
the enacted FY2024 NDAA, this was listed as Subtitle E of Title VIII). The topics of industrial
base provisions are diverse: recent enacted and proposed NDAA legislation has included
provisions intended to incentivize investment in expanding DIB capacity, strengthen supply chain
107 For more information on the defense appropriations process generally, see CRS In Focus IF10514, Defense Primer:
Defense Appropriations Process.
108 For a visual illustration of this trend, compare the depiction of historical defense outlays in Figure 1 with that of
historical DIB production output in Figure 2.
109 They may, for instance, hire more workers, expand facilities, or devote more of their own resources to developing
new products or improving existing ones.
110 Such capital projects may include construction, land acquisition, and the procurement and installation of equipment,
appliances, and machine tools. For more information, see DOD, “FY2024 Budget Estimates: Procurement of
Ammunition, Army,” March 2023, p. 1-748. Available at https://www.asafm.army.mil/Portals/72/Documents/
BudgetMaterial/2024/Base%20Budget/Procurement/Procurement%20of%20Ammunition%20Army.pdf.
111 The DPA Fund is established and described at 50 U.S.C. §4534.
112 The Industrial Base Fund is established and described at 10 U.S.C. §4817. It is administered by the Innovation
Capability and Modernization (ICAM) office within ASD (IBP). ASD (IBP), “Innovation Capability and
Modernization,” https://www.businessdefense.gov/ibr/mceip/icam/index.html.
Congressional Research Service
23
The U.S. Defense Industrial Base: Background and Issues for Congress
resilience and domestic sourcing requirements, and promote competition and diversification
among the defense industry.113
Oversight
To oversee the DIB, Congress convenes hearings and commissions reports and studies.114 These
serve to furnish Congress with information regarding both the industrial base itself and executive
branch management. They also provide opportunities for Members to signal their priorities and
intent to DOD, other executive agencies, and private industry.
Issues for Congress
‘Right-Sizing’ the Industrial Base
Assessing and Managing Capacity
One of the most fundamental DIB-related matters for Congress to consider is the level of
industrial capacity required to meet the defense needs of the United States. As defined by the
Federal Reserve, industrial capacity is a measure of “the amount of resources available to enable
an industry to produce goods.”115 Such resources may include production facilities and
equipment, labor, and raw materials; some definitions also include less tangible assets such as
intellectual property.116 One issue for Congress is whether or not the current defense industrial
capacity of the United States is sufficient to meet U.S. national security goals.
Because productive output is ultimately a function of capacity, an appropriately sized industrial
base is essential to the United States’ ability to supply and equip its military forces. In addition to
supporting current military needs, the resources available to the DIB must be able to
accommodate future demand. This latter requirement makes surge capacity—the ability to
quickly expand output in response to sudden upticks in demand—an important dimension of
broader industrial capacity.
If the DIB is too small, it will be unable to supply all of the materials, products, and services
necessary to accomplish U.S. strategic objectives, and the military may lack the ability to execute
its assigned missions. On the other hand, an industrial base with excess capacity could impose
unnecessary financial costs on the U.S. government, requiring cuts to other programs, increased
113 For discussion of industrial base provisions in recent NDAAs, see CRS Insight IN12221, FY2024 NDAA: Defense
Industrial Base Policy and CRS Insight IN12406, FY2025 NDAA: Defense Industrial Base Policy.
114 For an example of a recent DIB-focused hearing, see House Armed Services Committee, “State of the Defense
Industrial Base,” February 8, 2023, video and statements available at https://armedservices.house.gov/hearings/fullcommittee-hearing-state-defense-industrial-base.
115 Board of Governors of the Federal Reserve System, “Industrial Capacity: Total Index,” August 15, 2023 at
https://fred.stlouisfed.org/series/capb50001sq#. Another Federal Reserve publication defines capacity as “the maximum
sustainable output of an industry.” Charles Steindel, “Industrial Capacity & Industrial Investment,” Federal Reserve
Bank of New York, May 1995, https://www.newyorkfed.org/medialibrary/media/research/staff_reports/
research_papers/9510.pdf
116 One analysis of the defense industry cited six major “factors of production”: (1) production buildings, machinery,
and equipment; (2) RDT&E buildings, machinery, and equipment; (3) hourly production labor; (4) scientists, engineers,
and technicians; (5) management; and (6) entrepreneurship. Peck and Scherer, The Weapons Acquisition Process,
p. 160.
Congressional Research Service
24
The U.S. Defense Industrial Base: Background and Issues for Congress
borrowing, or higher taxes.117 An oversized DIB may also distort the functioning of the country’s
market economy by diverting resources from other commercial applications.118
If Congress assesses that the DIB is undersized, a number of measures are possible. It could
appropriate more funds to acquisition programs for specific capabilities, for instance, or to more
general industrial base programs like the IBF or DPA Title III. Congress could also establish or
modify programs to provide direct economic assistance to defense firms, incentivize private
investment, or facilitate workforce recruitment, retention, and job training programs. It could also
change DOD contracting and acquisition practices, or expand government-owned capacity
directly through the creation or expansion of organic industrial base facilities.
If, conversely, Congress views DIB capacity as excessive, it might enact spending cuts, reduce
the scope and resourcing of industrial base programs, modify DOD contracting and acquisition
strategies, and close or shrink government-owned entities.
The DIB and Great Power Competition
Some analysts and policymakers have argued that the current capacity of the industrial base is
insufficient for the demands of great power competition.119 As Seth Jones of the Center for
Strategic and International Studies (CSIS) framed the issue in a 2023 study:
The U.S. defense industrial base is not adequately prepared for the competitive security
environment that now exists. It is currently operating at a tempo better suited to a peacetime
environment. In a major regional conflict—such as a war with China in the Taiwan Strait—
the U.S. use of munitions would likely exceed the current stockpiles of the U.S. Department
of Defense, leading to a problem of “empty bins.”120
Some think tanks, periodicals, DOD officials, and Members of Congress have voiced similar
concerns.121 These arguments often center on the role the industrial base would play in a great
power war, and make reference to studies, wargames, and forecasts suggesting the United States
could run short of critical defense equipment in a conflict (especially one involving China).122
Industrial capacity could help determine the outcome of such a contingency in two broad ways:
(1) enabling production in advance, so equipment could be stockpiled and prepositioned; and (2)
allowing materiel to be replenished after hostilities have begun. In addition to conditioning U.S.
military performance during a conflict, advocates of expanding industrial capacity have touted it
117 For one perspective on the potential costs of excess capacity, see “The Rising Costs of Militarism Fact Sheet,”
Quincy Institute, April 2023, https://quincyinst.org/wp-content/uploads/2023/04/CrossOfIronFactSheet.pdf.
118 See, for instance, Gholz and Sapolsky, “Restructuring the Defense Industry,” pp. 12-16.
119 For more information on great power competition, see CRS Report R43838, Great Power Competition: Implications
for Defense—Issues for Congress.
120 Seth G. Jones, Empty Bins in a Wartime Environment, CSIS, January 2023, p. 1, https://csis-websiteprod.s3.amazonaws.com/s3fs-public/2023-01/230119_Jones_Empty_Bins.pdf.
121 See for example, Caroline Coudriet, “Lawmakers Worry About Weapons-Makers’ Ability to Meet Demand,” Roll
Call, February 6, 2023, https://rollcall.com/2023/02/06/lawmakers-worry-about-weapons-makers-ability-to-meetdemand/.
122 In one of the most frequently cited wargames simulating a U.S.-China conflict, the U.S. military used all of its
LRASMs [long range anti-ship missiles] in the initial days of the conflict, and tended to expend “about 5,000 longrange precision missiles, primarily JASSMs [joint air-to-surface standoff missiles] and LRASMs.” Mark Cancian et al.,
“The First Battle of the Next War,” CSIS, January 2023, p. 136, https://csis-website-prod.s3.amazonaws.com/s3fspublic/publication/230109_Cancian_FirstBattle_NextWar.pdf.
Congressional Research Service
25
The U.S. Defense Industrial Base: Background and Issues for Congress
as a means of strengthening deterrence. If potential adversaries believe U.S. industry can sustain a
war effort indefinitely, this argument runs, they may be less likely to risk conflict.123
Among advocates of expanding capacity, some have called for prioritizing precision-guided
munitions, citing their military importance, technological complexity, and high expenditure
rates.124 Some commentators and policymakers have also identified production issues for less
sophisticated munitions (e.g., 155 mm artillery rounds).125 According to DOD, the munitions that
are “most relevant for deterring and, if necessary, prevailing over aggression in the Indo-Pacific”
include the Tomahawk cruise missile (together with its maritime strike variant), the ExtendedRange Joint Air-to-Surface Standoff Missile (JASSM-ER), the Long Range Anti-Ship Missile
(LRASM), and the SM-6 naval missile.126 Beyond munitions, some policymakers and analysts
also advocate expanding the capacity to produce larger weapons platforms, such as nuclearpowered attack submarines, as well as other items ranging from rocket motors to microchips.127
Other analysts and policymakers maintain that existing capacity more than suffices to deter or
win a great power conflict. Some cite the economic and production advantages the United States
enjoys over its potential adversaries, and assert that, when it comes to defense industrial capacity,
“the overall picture is one of stability and health, not decline.”128 Still others argue that calls to
drastically increase production reflect the incentives of defense contractors, rather than
independently existing military requirements, and caution that the establishment of new DIB
facilities inherently creates “pressure to keep them open in perpetuity, at a cost of untold billions
of dollars.”129
123 For an example of this argument, see remarks made on March 22, 2022 by Under Secretary of Defense for
Acquisition and Sustainment William LaPlante during a Senate Armed Services Committee hearing (“I believe we
need multiple hot production lines, whether it be munitions, [unmanned aircraft systems], and the like. They, by
themselves, are a deterrent.”). Video available at https://www.armed-services.senate.gov/hearings/nominations_laplante-raven-johnson-adams.
124 See, for instance, Tyler Hacker, “Money Isn’t Enough: Getting Serious About Precision Munitions,” War on the
Rocks, April 24, 2023, https://warontherocks.com/2023/04/money-isnt-enough-getting-serious-about-precisionmunitions/.
125 See Patrick Tucker, “Army Aims to Make 1 Million Artillery Shells a Year,” Defense One, August 7, 2023,
https://www.defenseone.com/technology/2023/08/army-aims-make-1-million-artillery-shells-year-starting-fiscal-2025/
389202/.
126 Deputy Secretary of Defense Kathleen Hicks, “Press Briefing on President Biden’s Fiscal 2024 Defense Budget,”
DOD Press Briefing, March 13, 2023, transcript available at https://www.defense.gov/News/Transcripts/Transcript/
Article/3327914/deputy-secretary-hicks-and-vice-chairman-adm-grady-hold-a-press-briefing-on-pre/.
127 See, for example, Senator Roger Wicker (MS), “The U.S. Navy Needs More Attack Submarines,” The Wall Street
Journal, July 16, 2023. Available at https://www.wsj.com/articles/the-u-s-navy-needs-more-attack-submarines-chinaaukus-missile-repair-9f5965f, and Senator Blumenthal (CT), “Blumenthal Applauds Wins for Connecticut in Senatepassed NDAA,” Press Release, July 27, 2023, https://www.blumenthal.senate.gov/newsroom/press/release/blumenthalapplauds-wins-for-connecticut-in-senate-passed-national-defense-authorization-bill.
128 Scott Lincicome, “Manufactured Crisis: ‘Deindustrialization,’ Free Markets, and National Security,” Cato Institute,
January 27, 2021, https://www.cato.org/publications/policy-analysis/manufactured-crisis-deindustrialization-freemarkets-national-security. For another assessment of the defense industry as “financially healthy,” see DOD, “Contract
Finance Study Report,” April 2023, https://www.acq.osd.mil/asda/dpc/pcf/docs/finance-study/FINAL%20%20Defense%20Contract%20Finance%20Study%20Report%204.6.23.pdf.
129 William Hartung, “New Spending Bill Squanders Billions on Dysfunctional Weapons Systems,” Responsible
Statecraft, December 9, 2022, https://responsiblestatecraft.org/2022/12/09/new-pentagon-bill-squanders-opportunityto-rein-in-the-military-industrial-complex/.
Congressional Research Service
26
The U.S. Defense Industrial Base: Background and Issues for Congress
An Arsenal of Democracy?
Providing large-scale support for U.S.-aligned governments—as the DIB is currently doing for
Ukraine—is also frequently cited as a rationale for increasing capacity (for discussion of defense
production for Ukraine specifically, see CRS Report R48182, Defense Production for Ukraine:
Background and Issues for Congress).
Some analysts and policymakers argue that, rather than just supplying U.S. needs, the DIB should
function as an ‘arsenal of democracy.’130 To accomplish this, the industrial base would need
enough capacity to produce a wide array of defense equipment for allies and partners: in addition
to Ukraine, Taiwan and Israel are also frequently identified as high-priority recipients of U.S.
security assistance.131 While certain advocates of integrating partner requirements into industrial
planning maintain that the United States has the ability to “both arm Ukraine and bolster
deterrence in Asia,” others argue that capacity constraints require the prioritization of one partner
or region over others.132
Conversely, some lawmakers and commentators take the position that the industrial base should
focus primarily or exclusively on supplying U.S. forces. In an April 2023 letter to President
Biden, three Senators and 16 Representatives asserted that the production and delivery of defense
equipment for use by Ukraine was leaving the U.S. military “woefully unprepared” for a potential
conflict.133 Other analysts have also argued that the best way to support U.S. partners would be to
“use existing defense industrial bandwidth more efficiently,” rather than to expand capacity.134
Some observers have viewed the performance of existing security assistance programs (especially
efforts to arm Ukraine) as a ‘stress test’ for the DIB. A number of stakeholders have claimed that
U.S. efforts to supply Ukraine have exposed capacity shortfalls; from this premise, some have
made the further claim that resourcing Ukraine assistance may therefore provide an effective
means of strengthening the U.S. industrial base more generally.135
130 See, for example, “The West is Struggling to Forge a New Arsenal of Democracy,” The Economist, February 19,
2023, https://www.economist.com/briefing/2023/02/19/the-west-is-struggling-to-forge-a-new-arsenal-of-democracy.
131 For more information, see CRS In Focus IF12481, Taiwan: Defense and Military Issues, by Caitlin Campbell and
CRS Report R47828, Israel and Hamas Conflict In Brief: Overview, U.S. Policy, and Options for Congress, by Jim
Zanotti and Jeremy M. Sharp.
132 For an example of the first argument, see Michael Allen and Connor Pfeiffer, “The U.S. Can Help Ukraine and
Deter China,” The Wall Street Journal, July 18, 2023, https://www.wsj.com/articles/the-us-can-help-ukraine-and-deterchina-javelin-stinger-nat-sec-taiwan-9779ada5?; for an example of the second, see Elbridge Colby and Alex VelezGreen, “To Avert War with China, the U.S. Must Prioritize Taiwan over Ukraine,” The Washington Post, May 18,
2023 at https://www.washingtonpost.com/opinions/2023/05/18/taiwan-ukraine-support-russia-china/.
133 Sen. Mike Lee (UT) et al., “Letter to President Biden,” April 20, 2023, https://www.lee.senate.gov/services/files/
582d6601-a680-45a0-90e4-a92e91b4e2b3.
134 Jennifer Kavanagh, “Why the United States Doesn’t Need An ‘Arsenal of Democracy,’” Georgetown Journal of
International Affairs, May 22, 2023, https://gjia.georgetown.edu/2023/05/22/why-the-united-states-doesnt-need-anarsenal-for-democracy-and-what-to-do-instead/.
135 For an example of the first claim, see House Armed Services Committee Chairman Rep. Mike Rogers’ 2023
assertion that arming Ukraine had “laid bare many of our vulnerabilities, especially with respect to our ability to rapidly
produce and field munitions.” Rep. Mike Rogers (AL-03), “Opening Statement At Hearing on U.S. Defense Industrial
Base,” February 8, 2023, https://armedservices.house.gov/news/press-releases/rogers-opening-statement-hearing-usdefense-industrial-base. For an example of the second, see Elizabeth Hoffman, Audrey Aldisert, Cynthia Cook,
Gregory Sanders, and Shivani Vakharia, “How Supporting Ukraine is Revitalizing the U.S. Defense Industrial Base,”
CSIS, April 18, 2024, https://www.csis.org/analysis/how-supporting-ukraine-revitalizing-us-defense-industrial-base.
Congressional Research Service
27
The U.S. Defense Industrial Base: Background and Issues for Congress
Other commentators have argued that the efficacy with which Ukraine has used U.S.-origin
equipment to inflict losses on Russian forces is proof that leveraging existing capacity can
achieve outsized results.136
Regulating Private Industry
Competition and Consolidation
Another issue for congressional consideration is the prevalence of competition and consolidation
within the defense industry. Some Members of Congress and successive presidential
administrations have viewed the existence of economic competition within the commercial DIB
as an important policy priority. Proponents of competition have noted that it may produce a
number of desirable outcomes for the customer (i.e., the U.S. government), frequently citing the
following three in the context of defense:
•
•
•
Lower costs, accelerated schedules, and improved performance;
Expanded capacity; and
Technological innovation.137
Because consolidation concentrates the supply of defense products and services among fewer
entities, some experts maintain that it weakens competition and thus creates adverse outcomes for
the U.S. government.
Addressing competition and consolidation in the DIB poses unique challenges as compared to
other industries. As a former chairman of the Federal Trade Commission put it in a 1997 SASC
hearing
The analysis of mergers in the defense industry is challenging because of [its] many special
characteristics.... [DOD] is often the only buyer for the products and services of the
merging firms, and its procurement processes are different from those in most industries.
The products (e.g., weapons systems) being procured are often complex and heterogeneous
systems that are frequently purchased on a winner-take-all basis. Finally, national security
may be implicated in a defense industry merger.138
Beginning in the early 1990s, the defense industry underwent significant consolidation,
decreasing the number of firms competing for DOD contracts. As noted in the “Historical
Development” section of this report, the primary cause was a shift in U.S. defense spending:
given the changing geopolitical conditions of the post-Cold War era, Congress made fewer
resources available to DOD for defense contracts.139 Both government and industry saw
136 See, for example, Timothy Ash, “It’s Costing Peanuts for the U.S. to Defeat Russia,” Center for European Policy
Analysis, November 18, 2022, https://cepa.org/article/its-costing-peanuts-for-the-us-to-defeat-russia/.
137 See, for example, DOD, “State of Competition within the Defense Industrial Base,” February 2022, p. 1. Available
at https://media.defense.gov/2022/feb/15/2002939087/-1/-1/1/state-of-competition-within-the-defense-industrialbase.pdf. For a similar summary of the benefits of competition, see also the opening statement of Sen. Jack Reed (RI)
in “The Health of the Defense Industrial Base,” SASC Hearing, April 26, 2022, video available at https://www.armedservices.senate.gov/hearings/to-receive-testimony-on-the-health-of-the-defense-industrial-base.
138 Robert Pitofsky, “Mergers and Acquisitions in the Defense Industry,” Statement delivered before the SASC
Subcommittee on Acquisition and Technology, April 15, 1997, text available at https://www.ftc.gov/news-events/news/
speeches/mergers-acquisitions-defense-industry.
139 Other contributing factors include the prevalence of low interest rates, which can make mergers and acquisitions
more attractive, and an intellectual property regime that allows suppliers of defense equipment and services to retain
rights to data without which those products cannot be produced or maintained. See DOD, “State of Competition within
the DIB,” pp. 4-5.
Congressional Research Service
28
The U.S. Defense Industrial Base: Background and Issues for Congress
consolidation as a way of limiting the economic impacts of budget cuts while preserving capacity.
Through engagement with industry and targeted policies, DOD encouraged mergers and
acquisitions, with the result that the number of private businesses active in the DIB decreased
markedly.140 Consolidation was particularly pronounced among suppliers of certain weapons
system categories (e.g., tactical missiles, fixed-wing aircraft, and satellites), and ultimately
reduced the number of major U.S. defense prime contractors from 51 to 5 (see Figure 8 for a
visual representation of this process).141 As of 2023, these 5 companies (Lockheed Martin,
Boeing, RTX, General Dynamics, and Northrop Grumman) were prime contractors on over 74%
of DOD’s major defense acquisition programs.142
Although DOD policy changed and the pace of consolidation began to slow in the late 2000s,
defense mergers and acquisitions have continued through the present. Some high-profile
corporate combinations concluded in the past five years include
•
•
•
The acquisition of Aerojet Rocketdyne by L3Harris (2023);
The merger of Raytheon (now RTX) with United Technologies (2020); and
The acquisition of Orbital ATK by Northrop Grumman (2018).
140 Perhaps the most famous engagement between government and industry on this topic was a 1993 dinner known as
“The Last Supper,” at which the Secretary of Defense told the executives of more than 12 large defense firms that DOD
could not support the existing number of major defense suppliers, and advised them to pursue consolidation. DOD also
encouraged mergers and acquisitions through policies that, among other things, allowed contractors to be reimbursed
by the federal government for certain corporate restructuring costs incurred under merged contracts. Jonathan Chang
and Mghna Chakrabarti, “‘The Last Supper’: How a 1993 Pentagon Dinner Reshaped the Defense Industry,” WBUR,
May 29, 2023 at https://www.wbur.org/onpoint/2023/05/29/the-last-supper-rebroadcast-1993-pentagon-dinnerreshaped-defense-industry; and Gholz and Sapolsky, “Restructuring the U.S. Defense Industry,” p. 24.
141 DOD, “State of Competition within the DIB.”
142 CRS analysis of information provided in DOD, “FY2024 Program Acquisition Costs by Weapon System,” March
2023, https://comptroller.defense.gov/Portals/45/Documents/defbudget/FY2024/FY2024_Weapons.pdf.
Congressional Research Service
29
The U.S. Defense Industrial Base: Background and Issues for Congress
Figure 8. Consolidation in the Defense Industry
Corporate Mergers and Acquisitions, 1980-2015
Source: Graphic from DOD, “State of Competition within the Defense Industrial Base,” February 2022,
https://media.defense.gov/2022/feb/15/2002939087/-1/-1/1/state-of-competition-within-the-defense-industrialbase.pdf.
The impact of this process on the performance of the DIB remains unclear. Some analysts have
argued that it led to a real decline in industrial capacity, weakened the resilience of defenserelated supply chains, and—by decreasing competition—negatively affected the cost, schedule,
and performance of defense acquisition projects.143 Others have held that the capacity impacts of
these mergers and acquisitions were minimal, as the capital assets and workforces of acquired
firms were often retained by their new owners, and that consolidation has not been proven to have
led to increases in acquisition costs.144
Following the reorientation of U.S. strategy around great power competition in the 2010s and
early 2020s, the extent of industry consolidation has attracted attention from defense officials. In
a 2022 report, DOD found that consolidation had made it “increasingly reliant on a small number
of contractors for critical defense capabilities,” and observed that further “consolidations that
reduce required capability and capacity and the depth of competition would have serious
143 See, for example, Michael Brenes, “How America Broke Its War Machine,” Foreign Affairs, July 3, 2023,
https://www.foreignaffairs.com/united-states/how-america-broke-its-war-machine.
144 For an example of this argument regarding capacity, see Gholz and Sapolsky, “Restructuring the U.S. Defense
Industry,” pp. 26-28. For an assessment of consolidation’s effect on acquisition costs, see Rodrigo Carril and Mark
Duggan, “The Impact of Industry Consolidation on Government Procurement: Evidence from Department of Defense
Contracting,” National Bureau of Economic Research, October 2018. Available at https://www.nber.org/system/files/
working_papers/w25160/w25160.pdf.
Congressional Research Service
30
The U.S. Defense Industrial Base: Background and Issues for Congress
consequences for national security.”145 The current Under Secretary of Defense for Acquisition
and Sustainment has also identified consolidation as an enduring area of concern.146
The issue has also been the subject of congressional deliberation. In a February 2023 hearing, for
instance, Representative Chris Deluzio (PA-17) stated that consolidation is “leaving us
unprepared and harming our national security and readiness.”147 And in an April 2022 hearing
Senate Armed Services Committee chairman Senator Jack Reed (RI) stated that he was
“concerned by the impact of the consolidation of private [defense] companies,” while Senator
Mike Rounds (SD) made reference to “a very disturbing trend of consolidation within the defense
industrial base over the last 20 to 30 years.”148
Members of Congress also have cited potentially deleterious effects of consolidation in
opposition to specific mergers and acquisitions. In a July 2023 letter opposing the acquisition of
Aerojet Rocketdyne by L3Harris, for instance, four Members argued that “waves of merger
activity and consolidation have transformed our nation’s defense industry from a competitive
market … into an oligopoly,” and alleged that this was partly responsible for the solid rocket
motor sector “failing to meet U.S. national security needs.”149
Not all experts agree that consolidation has exclusively negative effects, or that its current extent
among the defense industry represents a crisis. As former Secretary of the Army Eric Fanning put
it in a recent congressional hearing
I don't think consolidation is what’s to blame for the shrinking number of companies doing
business with the Department of Defense … consolidation can be a very important tool for
growth for large companies. It can be an important tool for small companies to access
capital, to access workforce processes, expertise or so forth to continue to develop what it
is that they're growing. And it’s an important part of every industry’s evolution.150
Some analysts have also argued that consolidation improves the efficiency of the defense
industry, lowering costs by eliminating excess capacity and enabling economies of scale.151
If Congress assesses that consolidation is a problem within the commercial DIB, it may consider
a number of options. Congress could statutorily establish new requirements for merger oversight
within the commercial DIB, or direct DOD and the antitrust agencies (the Federal Trade
Commission and the Department of Justice) to change the criteria they use to assess proposed
mergers and acquisitions by defense firms. Congress could also create or modify programs
intended to incentivize new entrants into the DIB—including small businesses and nontraditional
defense suppliers—or modify the legal and policy governance of DOD contracting practices to
145 DOD, “State of Competition within the DIB,” p. 1.
146 “Stenographic Transcript—SASC Hearing,” March 22, 2022, p. 63, https://www.armed-services.senate.gov/imo/
media/doc/22-15_03-22-2022.pdf.
147 “State of the Defense Industrial Base,” HASC Full Committee Hearing, February 8, 2023, video available at
https://armedservices.house.gov/hearings/full-committee-hearing-state-defense-industrial-base. Comments start at
1:58:00.
148 “Stenographic Transcript—SASC Hearing,” April 26, 2022, pp. 3 and 73, https://www.armed-services.senate.gov/
imo/media/doc/22-28_04-26-2022.pdf.
149 Senator Elizabeth Warren and Representatives Chris Deluzio, John Garamendi, and Mark Pocan, “Letter to
Secretary Austin”, July 9, 2023, https://www.warren.senate.gov/oversight/letters/senator-warren-representativesdeluzio-pocan-garamendi-urge-dod-to-tighten-up-the-merger-review-process-and-publicly-disclose-merger-risks.
150 “State of the Defense Industrial Base,” HASC, February 8, 2023. Comments start at 2:00:00.
151 See, for instance, Maiya Clark, “Promoting Defense Industry Competition for National Security’s—Not
Competition’s—Sake,” Heritage Foundation, October 19, 2022, https://www.heritage.org/defense/report/promotingdefense-industry-competition-national-securitys-not-competitions-sake.
Congressional Research Service
31
The U.S. Defense Industrial Base: Background and Issues for Congress
require or incentivize more competition for contract awards.152 Finally, Congress could consider
broader changes to DOD acquisition strategies, such as encouraging the development of servicespecific weapons systems over joint acquisition programs.153
Business Practices and the Role of Government
Congress may also consider the relationship between other defense industry practices and the
performance of the DIB, as well as the public interest more generally. Two particular aspects of
corporate behavior—the pricing of goods and services, and investment in capital projects—have
attracted particular attention from Congress and other stakeholders. Each is discussed in detail
below.
Pricing
Because many of the goods and services provided by the defense industry have no analogues in
the broader commercial market, it can be difficult for DOD to determine fair market value for its
purchases. To get around this, analysts and policymakers typically examine things like operating
margins, competitor pricing, and historical data mapped against broader economic trends such as
inflation (for more information on the processes used by the U.S. government to address contract
pricing, see CRS Report R47879, Department of Defense Contract Pricing, by Alexandra G.
Neenan).
Pricing is also closely connected to the issue of profits, with some critics of industry pricing
practices alleging that an undue emphasis on profits drives overcharging on the part of
contractors.154 Although rates of profit vary across individual firms and DIB subsectors, several
studies have found that the average margins for defense contractors range from 7-13%.155 At least
one such study has also suggested that margins have increased over the past 20 years.156
Some stakeholders have alleged that defense firms have charged the U.S. government more than
fair market value. A May 2023 broadcast by CBS News alleged that defense contractors had
overcharged DOD for a wide array of defense equipment, potentially costing the U.S. government
152 As an example, intellectual property rights are often cited as an area of contracting with wide implications for
competition; Congress may consider modifying statute or policy governing the data rights which contractors and the
government respectively possess. For more information, see DOD, “State of Competition Within the DIB,” pp. 7-13.
153 Some analysts suggest that allowing the Services to procure their own versions of weapon systems—fighter jets, for
example—could provide a demand-side stimulus to competition and reduce the likelihood of dominance by a single
supplier. See, for instance, John Ferrari and Charles Rahr, “The Pentagon is to Blame for Industrial Base Failures,”
Defense News, June 5, 2023; see also Gholz and Sapolsky, “Restructuring the Defense Industry,” pp. 50-51.
154 For examples, see the sources identified in Footnotes 152, 156, and 157.
155 For example, in 2014 the Defense Business Board cited an average margin of 12.2% for the five largest defense
contractors between 2010 and 2014, and a professor at New York University found an average margin of 9.71% for 70
aerospace and defense firms surveyed in 2023. Defense Business Board, “Innovation: Attracting and Retaining the Best
of the Private Sector,” July 24, 2014, Slide 34, https://dbb.defense.gov/Portals/35/Documents/Meetings/2014/201407/DBB%20Innovation%20presentation%20-%2024%20July%202014%20-%20FINAL.pdf; and Aswath Damodaran,
“Operating and Net Margins by Industry Sector,” New York University, January 2024,
https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datacurrent.html.
156 According to this study: “the performance of the [defense] industry, in aggregate, has improved over the past 20
years. Operating margins (profit as a percent of revenues) for the Defense companies in our analysis have increased
from a range of 7% to 9% to a range of 11% to 13%.” Martin Bollinger et al., “Examination of the Financial Health of
the Defense Industry,” University of Virginia, February 25, 2023, https://www.acq.osd.mil/asda/dpc/pcf/docs/financestudy/DoD%20Study%20Appendix%20A%20-%20E.pdf.
Congressional Research Service
32
The U.S. Defense Industrial Base: Background and Issues for Congress
billions of dollars.157 DOD’s Inspector General has also found numerous instances of
overcharging, including a pattern of behavior by the contractor TransDigm that the House
Committee on Oversight and Accountability summarized in 2021 as “rampant price gouging on
mission-critical aircraft parts.”158 Some experts have linked overcharging by defense companies
to consolidation, claiming that the reduction of competition and suppliers among the DIB has
reduced government leverage in negotiating contracts.159 Overcharging has also been a subject of
congressional concern: in May 2024, for instances, four Senators sent a letter to the Secretary of
Defense expressing concern that DOD “is not obtaining timely cost and pricing information
necessary to negotiate fair prices with DoD contractors because of these contractors’ abusive
practices;” similarly, in May 2023, five Senators alleged that some companies (including
Lockheed Martin, Boeing, RTX, and TransDigm) had “abused the trust government has placed in
them, exploiting their position as sole suppliers for certain items to increase prices far above
inflation or any reasonable profit margin.”160
On the other hand, a number of defense firms and analysts have argued that not all price increases
amount to overcharging. Some claim that higher prices are partly the result of increased costs for
suppliers stemming from broader economic trends, such as elevated inflation and supply chain
issues.161 Other have contested profiteering allegations by arguing that profit margins for defense
firms are relatively low compared to those prevailing in other industries.162
Capital Investment
Capital investment refers to the acquisition of assets like land, buildings, or equipment to improve
the long-term performance of a business. In the context of the defense industry, this may entail
the construction of industrial facilities or the purchase of specialized machinery to expand
production capacity or efficiency.
Some analysts and policymakers have claimed that defense firms tend to prioritize maximizing
short-term financial returns over paying for capital investment projects, resulting in a weaker DIB
and higher costs for the U.S. government. One 2023 study found that:
157 More specifically, CBS News cited a 2015 DOD review that “discovered Lockheed Martin and its subcontractor,
Boeing, were grossly overcharging the Pentagon and U.S. allies by hundreds of millions of dollars for the Patriot’s
PAC-3 missiles.” It also pointed to vast increases in pricing for the same equipment over time (for instance, an
individual Stinger missile, which the report claims cost $25,000 in 1991 and $400,000 in 2023) as evidence of
overcharging. Bill Whitaker, “Weapons Contractors Hitting Defense Department with Inflated Prices,” 60 Minutes,
CBS News, May 21, 2023.
158 House Committee on Oversight and Accountability, “After Oversight Committee Inquiry, Inspector General Finds
Rampant Price Gouging by TransDigm in DOD Contracts,” Press release, December 13, 2021.
159 According to the former director of DOD’s Defense Pricing and Contracting office: “In the ‘80s, there was intense
competition amongst a number of companies. And so the government had choices…. We have limited leverage now.”
Whitaker, “Weapons Contractors Hitting Defense Department with Inflated Prices,” 60 Minutes.
160 Senators Charles Grassley (IA), Elizabeth Warren (MA), Mike Bruan (IN), and John Fetterman (PA), “Letter to
Secretary Austin,” May 28, 2024,
https://www.grassley.senate.gov/imo/media/doc/warren_grassley_braun_fetterman_to_dod__contractor_sweeping_practice.pdf; and Senators Bernie Sanders (VT), Charles Grassley (IA), Elizabeth Warren (MA),
Mike Braun (IN), and Ron Wyden (OR), “Letter to Secretary Austin,” May 24, 2023, https://www.sanders.senate.gov/
wp-content/uploads/Letter-to-Secretary-Austin_5.24.2023.pdf.
161 See, for instance, Joe Gould, “Defense Industry to Launch Inflation Relief Push in Congress,” Defense News,
September 1, 2022.
162 See, for instance, William C. Greenwalt, “The Navy Secretary’s Misguided War on Profits,” Breaking Defense, May
14, 2024.
Congressional Research Service
33
The U.S. Defense Industrial Base: Background and Issues for Congress
Despite the increased profit and cash flow [experienced from 2010-2019], defense
contractors chose to reduce the overall share of revenue spent on internal research and
development and capital expenditures while significantly increasing the share of revenue
paid to shareholders in cash dividends and share buybacks.163
For some, this trend reflects a systemic issue. One commentator has characterized the major
prime contractors as “cash management machines,” more concerned with channeling profits to
shareholders than improving their ability to make and deliver products.164 And in 2024, Secretary
of the Navy Carlos del Toro said that many defense contractors were “making record profits,” and
“prioritiz[ing] stock prices that drive executive compensation rather than making the needed
fundamental investments in the industrial base.”165 Such behaviors could complicate attempts to
grow industrial capacity: if suppliers respond to increased cashflow by diverting ever larger
percentages of revenue to shareholder remuneration, boosting government investment in the DIB
may not translate effectively into capacity expansion.
Other stakeholders have argued that consistently increasing revenues will increase industry’s
willingness to accept the risks and costs of funding capital investment activities.166 According to
one commentator:
The profit motive and our national defense should go together. It allows our capitalist
system to spur innovation in defense, leading to new platforms, new products, and new
ways of doing business. Take profit out of the equation and you’d have a military with little
innovation, unable to face threats today and badly underprepared for the conflicts of the
future.167
If Congress assesses that practices such as overcharging and insufficient capacity investment are
problems that require action, a number of options are available. Congress could consider
requiring more cost and pricing data from contractors, or modifying acquisition policies and
strategies to use approaches (such as progress payments) that may reduce incentives to
overcharge. To encourage contractors to invest more of their own funds into capacity expansion,
Congress could modify contracting policies or strategies that allow companies to bill the
government for activities such as internal research and development.
Supply Chains and Sourcing Requirements
Supply Chain Resilience
The strength and security of supply chains—the networks of processes and entities required to
make and deliver products—is another defense industrial base issue that Congress may
consider.168 According to DOD, the United States needs “healthy, resilient, diverse, and secure
supply chains to ensure the development and sustainment of capabilities related to national
163 Office of the Under Secretary of Defense for Acquisition and Sustainment, “Contract Finance Study Report,” DOD,
April 2023, pp. 19-20. Available at https://www.acq.osd.mil/asda/dpc/pcf/docs/finance-study/FINAL%20%20Defense%20Contract%20Finance%20Study%20Report%204.6.23.pdf.
164 Matt Stoller, “The Military-Industrial Stock Buyback Complex,” BIG Newsletter, April 15, 2023,
https://www.thebignewsletter.com/p/the-military-industrial-stock-buyback.
165 Patrick Tucker, “Navy Secretary Blasts Defense Industry’s Stock Buybacks,” Defense One, February 15, 2024.
166 “Contract Finance Study Report,” p. 33.
167 William C. Greenwalt, “The Navy Secretary’s Misguided War on Profits,” Breaking Defense, May 14, 2024.
168 For one framework used by DOD to approach supply chain management, see “Supply Chain Management
Framework,” Office of the Assistant Secretary of Defense for Sustainment, February 2023, https://www.acq.osd.mil/
log/LMR/.scrm_report.html/DoD_SCRM_Framework_Report_Phase_I.pdf.
Congressional Research Service
34
The U.S. Defense Industrial Base: Background and Issues for Congress
security.”169 In a 2023 report, the Office of the Assistant Secretary of Defense for Sustainment
summarized the issue in the following way:
Supply chain risks are not unique to the Department, but such risks take on greater urgency
when considered in light of national security. For example, to keep aging weapon systems
operational, [DOD] depends on a finite number of repair parts suppliers, some of which
are precariously close to fiscal collapse. The proliferation of counterfeit items (particularly
for microelectronics) increases the risk of mission delay or imperiled safety. Intellectual
property vulnerabilities and lowered integrity of sensitive data and secure networks
undermine the protections around weapon system designs. Dependence on foreign entities
for critical items and cyber disruptions to the manufacturing and transportation domains
likewise jeopardize mission support and success.170
Numerous observers have expressed concerns about vulnerabilities and inefficiencies within
defense-critical supply chains. Some have highlighted an alleged lack of redundancy for certain
kinds of equipment, arguing that dependence on a small number of private firms—or even a
single source—leaves the United States highly vulnerable to supply disruption. The production of
solid rocket motors, for instance, has attracted scrutiny from analysts and policymakers due to the
small number of suppliers.171 Others have criticized the extent to which DOD depends upon
products and materials originating from strategic competitors (i.e., China and Russia). This
dependence has been alleged to be particularly acute for certain strategic and critical materials,
including antimony, lithium, and rare-earth minerals.172
As part of a 2022 action plan to secure defense-critical supply chains, DOD identified four
“strategic enablers” and eight “cross-cutting recommendations” (provided as Table 5 below).
Table 5. Supply Chain Enablers and Recommendations
DOD Findings from “Securing Defense-Critical Supply Chains”
Strategic Enablers
Workforce (Trade skills through doctoral-level)
Cyber posture (Industrial security,
counterintelligence, and cybersecurity)
Manufacturing (Current manufacturing practices,
as well as advanced technology like additive
manufacturing)
Small business (The role of key members of
DOD supply chains)
Cross-Cutting Recommendations
1.
2.
3.
4.
5.
6.
7.
Build domestic production capacity
Engage with partners and allies
Mitigate Foreign Ownership, Control, or
Influence (FOCI) and safeguard markets
Conduct data analysis
Aggregate demand
Develop common standards
Update acquisition policies
Source: DOD, “Securing Defense-Critical Supply Chains,” February 2022.
If Congress assesses that the resilience of defense supply chains is inadequate, it has a number of
options. It could consider whether or not to increase use of industrial base programs, such as DPA
Title III, to incentivize the expansion of existing U.S. sources or the establishment of new ones. It
could also consider whether or not to expand or create partnerships with foreign suppliers to
169 DOD, “Securing Defense-Critical Supply Chains,” February 2022, p. 2, https://media.defense.gov/2022/feb/24/
2002944158/-1/-1/1/dod-eo-14017-report-securing-defense-critical-supply-chains.pdf.
170 “Supply Chain Management Framework,” DOD, p. iv.
171 See, for example, Doug Cameron, “Rocket Motor Shortage Curbs Weapons for Ukraine,” The Wall Street Journal,
April 18, 2023.
172 Bryant Harris, “The U.S. is Heavily Reliant on China and Russia for Its Ammo Supply Chain,” Defense News, June
8, 2022; and “Securing Defense-Critical Supply Chains, p. 19.
Congressional Research Service
35
The U.S. Defense Industrial Base: Background and Issues for Congress
secure access to materials and products, such as certain critical minerals, that domestic suppliers
are unable to provide. If Congress determines that it does not possess sufficient information
regarding the condition of existing supply chains, it may also direct DOD or other entities to
conduct further studies or reporting.
Onshoring and ‘Friendshoring’
Some analysts and policymakers have identified onshoring (the transfer of production activities
from abroad to the United States) and ‘friendshoring’ (the transfer of production activities from
adversarial or non-aligned countries to U.S. allies and partners) as potential means of
strengthening supply chain resilience.173 Although both onshoring and friendshoring represent
attempts to respond to supply chain and sourcing problems, they are distinct policy approaches,
and actions taken in support of one approach may not align with the goals of the other.174
Advocates of onshoring defense production maintain that locating defense industrial capacity
within the United States provides greater assurance that the federal government will be able to
access critical materials and products during a conflict or national emergency, and may act to
stimulate the domestic economy more broadly.175 Opponents criticize onshoring for its alleged
potential to increase costs and exacerbate inefficiencies by requiring businesses to locate as many
activities as possible within the United States, irrespective of market incentives.176
Defense-specific onshoring has been the focus of a number of recent NDAA provisions, and is
frequently cited as a goal by DOD officials.177 In addition, Congress and the executive branch
have recently pursued several major policy and legislative initiatives intended to encourage a
‘whole-of-government’ approach to onshoring, including Executive Order 14005 of January 25,
2021 (“Ensuring the Future is Made in All of America by All of America’s Workers”) and the
CHIPS Act of 2022 (Division A of P.L. 117-167).178
173 For a recent treatment of these topics in the U.S. media, see Sarah Kessler, “What is ‘Friendshoring’?” The New
York Times, January 3, 2023.
174 For example, removing domestic procurement restrictions for defense equipment from friendly countries—as
supporters of friendshoring might advocate—could lead some defense production to stay (or move) outside the United
States, which may not be a desirable outcome for advocates of onshoring (especially if the latter count stimulating the
U.S. economy among their objectives). On the other hand, strengthening domestic procurement practices or
requirements could lead to less defense production in friendly countries, which might be seen as a negative outcome by
advocates of friendshoring. For one discussion of this distinction (as well as related concepts such as ‘nearshoring,’ see
Stefan Ellerbeck, “What’s the Difference Between ‘Friendshoring’ and Other Global Trade Buzzwords?” World
Economic Forum, February 7, 2023, https://www.weforum.org/agenda/2023/02/friendshoring-global-trade-buzzwords/.
175 See, for instance, Mike McCormack, “Americanize the Defense Industry Supply Chain,” National Defense,
September 30, 2022.
176 See, for example, Scott Lincicome, “Everything You Think You Know About ‘Offshoring’ Is (Probably) Wrong,”
Cato Institute, August 9, 2023.
177 See Table 6 for a summary of selected NDAA provisions relating to onshoring. For DOD discussion of the issue,
see, for example, David Vergun, “DOD Official Discusses Strengthening the Industrial Base,” DOD News, April 6,
2023, https://www.defense.gov/News/News-Stories/Article/Article/3354413/dod-official-discusses-strengthening-theindustrial-base/.
178 E.O. 14005 established a new Made in America Office within the Office of Management and Budget, introduced
new restrictions on agency use of waivers from domestic procurement laws, and directed the Federal Acquisition
Regulations Council to consider strengthening domestic procurement regulations. See E.O. 14005 of January 25, 2021,
https://www.federalregister.gov/documents/2021/01/28/2021-02038/ensuring-the-future-is-made-in-all-of-america-byall-of-americas-workers. The CHIPS Act of 2022 contained provisions to incentivize the domestic manufacture of
semiconductors; for more information, see CRS Report R47523, Frequently Asked Questions: CHIPS Act of 2022
Provisions and Implementation.
Congressional Research Service
36
The U.S. Defense Industrial Base: Background and Issues for Congress
Friendshoring is frequently identified as a tool to help accomplish the goals of multilateral
security pacts such as AUKUS or NATO.179 To encourage friendshoring, DOD is reportedly
expanding the scope and scale of industrial collaboration with foreign governments and
companies, including the co-development and co-production of weapons systems and other
defense equipment.180 Such cooperation may occur as part of institutionalized multilateral
partnerships or on a narrower bilateral basis.
Domestic Content Requirements and Restrictions
Intertwined with the issues of supply chain resilience and onshoring/friendshoring are the
statutory and policy authorities that apply to federal sourcing. At present, defense procurements
are subject to numerous requirements intended to a) restrict the foreign sources from which the
government may acquire goods and services; and b) encourage procurement from domestic
sources. These requirements may be established by statute—for example, the Buy American Act
of 1933 (codified at 41 U.S.C. §§8301–8305) and the Berry Amendment (10 U.S.C. §4862)—or
by regulation or policy—for example, the enhanced domestic content threshold established
pursuant to Executive Order 14005. Table 6 provides a summary of selected sourcing
requirements relevant to the DIB.181
Lawmakers have cited numerous reasons for sourcing and content requirements, including
•
•
•
Ensuring that the United States has secure access to critical services, products,
and materials during a war or national emergency;
Avoiding the provision of financial or material support to entities working against
U.S. interests, such as strategic competitors or terrorist organizations; and
Supporting domestic producers and stimulating the U.S. economy.
Table 6. Selected DIB Sourcing Requirements and Restrictions
Authority
Organization(s)
Covered
Requirement/Restriction
The Buy American Act (41 U.S.C.
§§8301–8305); E.O. 14005; 87 FR
12780.a
All federal
agencies
The U.S. government must apply a price preference for
domestic end products and use domestic construction
materials for covered contracts.b
Sec. 889 of the FY2019 NDAA
(P.L. 115-232)
All executive
agencies
No executive agency may acquire telecommunications
and video equipment, systems, or services produced or
provided by certain foreign suppliers.c
Sec. 5949 of the FY2023 NDAA
(P.L. 117-263)
All executive
agencies
No executive agency may acquire semiconductor
products or services produced or provided by certain
foreign suppliers.d
179 See, for example, Jerry McGinn and Michael Roche, “A ‘Build Allied’ Approach to Increase Industrial Base
Capacity,” Baroni Center for Government Contracting (George Mason University), June 22, 2023,
https://business.gmu.edu/news/2023-06/build-allied-approach-increase-industrial-base-capacity.
180 See, for example, Doug Cameron, “U.S. Arms Makers Look Overseas to Boost Stockpiles,” The Wall Street
Journal, September 2, 2023, https://www.wsj.com/politics/national-security/u-s-arms-makers-look-overseas-to-booststockpiles-1e1d6eac. For more information on DOD’s international partnerships, see CRS In Focus IF12425, Defense
Primer: International Armaments Cooperation.
181 For more information on existing federal sourcing requirements, see CRS Report R46748, The Buy American Act
and Other Federal Procurement Domestic Content Restrictions.
Congressional Research Service
37
The U.S. Defense Industrial Base: Background and Issues for Congress
Authority
Organization(s)
Covered
Requirement/Restriction
Berry Amendment (10 U.S.C.
§4862)
DOD
Textiles, clothing, footwear, food, hand or measuring
tools, stainless steel flatware, or dinnerware procured
by DOD must be 100% domestic in origin.
Specialty Metals Restriction (10
U.S.C. §4863)
DOD
DOD may not acquire certain weapons systems that
contain any amount of a specialty metal not melted or
produced in the United States (as defined by 10 U.S.C.
§4863).
Sensitive Materials Restriction
(10 U.S.C. §4872)
DOD
Sensitive materials or products containing sensitive
materials (as defined by 10 U.S.C. §4872) may not be
sourced from Russia, Iran, the PRC, or the DPRK.
Sec. 1211 of the FY2006 NDAA
(P.L. 109-163), Sec. 1243 of the
FY2012 NDAA (P.L. 112-81), and
Sec. 1296 of the FY2017 NDAA
(P.L. 114-328)
DOD
DOD may not acquire items covered by the U.S.
Munitions List or the 600 series of the Commerce
Control List from any Chinese military company.e
10 U.S.C. §2279
DOD
DOD may not contract for satellite services with
certain foreign entities.
10 U.S.C. §4871(b)
DOD
DOD may not contract with a firm owned or
controlled by a state sponsor of terrorism.
Sec. 855 of the FY2023 NDAA
(P.L. 117-263)
DOD
DOD may not procure goods mined, produced, or
manufactured by forced labor from China’s Xinjiang
Uyghur Autonomous Region.
Kissell Amendment (6 U.S.C.
§453b)
DHS
Textiles, clothing, or footwear procured for national
security purposes by DHS must be 100% domestic in
origin.
Source: CRS analysis of relevant statutory and regulatory provisions.
Notes: Exceptions to the domestic content restrictions of the Buy American Act, the Berry and Kissell
Amendments, and the Specialty Metals and Sensitive Materials Restrictions are possible under certain
circumstances (e.g., the Trade Agreements Act of 1979 allows the President to waive restrictions on eligible
items, and procuring agencies may waive restrictions under certain circumstances). See CRS products on these
statutory restrictions for more information.
a. General ‘Buy American’ requirements are statutorily established (41 U.S.C. §§8301–8305), but the threshold
for goods to qualify and other specific implementation requirements have been set by a rule (RIN 9000AO22, published at 87 Federal Register 12780, March 7, 2022) implementing an Executive Order (E.O.
14005).
b. For a good to qualify as a domestic end product, a certain proportion of its value must be mined, produced,
or manufactured in the United States. For products consisting mainly or wholly of steel and/or iron, this
threshold is 95%; for non-steel/iron manufactured products, this threshold is 60% (unless it is a
commercially available off-the-shelf item); and non-steel/iron unmanufactured products must be mined or
produced in the United States. The content threshold for non-steel/iron manufactured products increased
to 65% in 2024 and is scheduled to rise to 75% in 2029, consistent with 97 FR 12780 and Sec. 835 of the
FY2024 NDAA (P.L. 118-31).
c. Including Huawei or ZTE.
d. Including Semiconductor Manufacturing International Corporation, ChangXin Memory Technologies, or
Yangtze Memory Technologies Corporation.
e. Defined at 50 U.S.C. §1701.
There is considerable variance as to which sources may be considered domestic. The National
Technology and Industrial Base (NTIB), for instance, is defined as “the persons and organizations
that are engaged in research, development, production, integration, services, or information
Congressional Research Service
38
The U.S. Defense Industrial Base: Background and Issues for Congress
technology activities conducted within the United States, the United Kingdom of Great Britain
and Northern Ireland, Australia, New Zealand, and Canada.”182 Such persons and organizations
receive preference for certain limited procurement actions and some NTIB entities may be
exempted from certain Foreign Ownership, Control or Influence (FOCI) requirements.183
However, for the purposes of other requirements—such as those created by the Buy American
Act—sources must be located within the United States to qualify as domestic.184
Congress may consider the extent to which these content requirements suffice to meet its goals
regarding the DIB. If it determines that further preferences are necessary to encourage
procurement from U.S.-based suppliers, it may, for instance, consider raising the threshold
required for a product to qualify as American for the purposes of the Buy American Act, or
implement additional restrictions covering specific products or materials. If Congress assesses
that current requirements are excessively restrictive, it may consider actions such as lowering
domestic content thresholds or expanding the membership of the NTIB. If procurement—whether
by the government or by prime contractors—from particular entities, countries, or regions of
concern is determined to be an issue, Congress may also consider passing restrictions that
specifically apply to those sources.
Author Information
Luke A. Nicastro
Analyst in U.S. Defense Infrastructure Policy
182 10 U.S.C. §4801. In addition, “domestic sources,” for the purposes of Title III of the DPA, are defined as business
concerns that “perform substantially all of the research and development, engineering, manufacturing, and production
activities required of such business concern under a contract with the United States relating to a critical component or a
critical technology item in the United States or Canada; or, subject to [certain limitations], Australia or the United
Kingdom.” 50 U.S.C. §4552(7)(B)(i).
183 Procurement of conventional ammunition can be restricted to NTIB sources and must be from the NTIB in certain
circumstances (10 U.S.C. Ch. 223 note proceeding); fire-resistant rayon fiber in uniforms may only be procured from a
non-NTIB member if NTIB sources are not available (10 U.S.C. §4862 (note)); and buses, chemical weapons antidotes,
ball and roller bearings, satellite “star trackers,” and certain components for naval vessels may only be procured from
NTIB manufacturers, unless the Secretary of Defense waives this restriction (10 U.S.C. §4864). For more information,
see CRS In Focus IF11311, Defense Primer: The National Technology and Industrial Base.
184 For discussion of the Buy American Act and other domestic content restrictions, see CRS Report R46748, The Buy
American Act and Other Federal Procurement Domestic Content Restrictions, by David H. Carpenter and Brandon J.
Murrill.
Congressional Research Service
39
The U.S. Defense Industrial Base: Background and Issues for Congress
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan
shared staff to congressional committees and Members of Congress. It operates solely at the behest of and
under the direction of Congress. Information in a CRS Report should not be relied upon for purposes other
than public understanding of information that has been provided by CRS to Members of Congress in
connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not
subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in
its entirety without permission from CRS. However, as a CRS Report may include copyrighted images or
material from a third party, you may need to obtain the permission of the copyright holder if you wish to
copy or otherwise use copyrighted material.
Congressional Research Service
R47751 · VERSION 3 · UPDATED
40
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.