“Adversarial Capital” Threatens Small Business Industrial Base

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FCW

“The Defense Department is concerned that foreign investment will take advantage of small businesses in the defense industrial base reeling from the COVID-19 pandemic.

The defense industrial base, which consists of more than 300,000 companies, is “vulnerable to adversarial capital,” and DOD wants them to “stay in business without losing their technology” or be subject to intellectual property theft.

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“Ellen Lord, DOD’s top acquisition executive: “The foreign investment issue is something that I have been tracking for the last couple years. There is no question that we have adversarial capital coming into our markets through nefarious means,” Lord said.

“So what we are doing, on the defense side, looking at [the Committee on Foreign Investment in the United States], on the offensive side, we’re looking at our Trusted Capital mechanisms.”

DOD has been conducting periodic Trusted Capital Marketplace virtual events to pre-empt CFIUS concerns and ensure companies’ access to “clean capital.”

Lord said the global outbreak of COVID-19 has created instability and uncertainty, especially for small businesses that aren’t sure if government contracts will continue.

“I think it presents a greater attack surface as there is greater uncertainty, especially to small businesses as to whether their contract will continue,” Lord said. “So we want to basically mitigate that uncertainty.”

DOD under the Trump administration has been pushing for more domestic manufacturing and reducing foreign investments, namely with drone production. It has also been adamant about finding U.S.-based solutions for telecommunications services and hardware production, barring the use of Huawei and ZTE products because those companies have ties to the Chinese government and military.

These moves, especially as the global health crisis persists, could have broader implications and shrink direct foreign investment up 15%, according to a United Nations report.

The Defense Department has also created a new task force to synchronize its COVID-19 efforts led by Stacy Cummings, the principal deputy assistant defense secretary and leader of the Acquisition Enablers office.

The Joint Acquisition Task Force will coordinate with military services and agencies’ acquisition resources and field requests from the Federal Emergency Management Agency, the Departments of Health and Human Services and  Homeland Security and other federal agencies for medical resources and personal protective equipment.

The task force aims to identify weak points in workforce and industrial capability and ultimately reduce companies’ reliance on foreign supply sources. It will also direct use of Defense Production Act authorities, which include being able to use economic incentives and priority-rate defense contracts to best serve the need of troops in the field and team with industry to boost commercial capabilities.”

https://fcw.com/articles/2020/03/25/defense-china-cfius-corona-lord.aspx?oly_enc_id=

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