Defense Acquisition Reform: Victories and Next Steps for FY27 NDAA

Securing critical technology for warfighters, at the speed the moment demands

| America | Tech | Opinion | Culture | Charts |

Throughout history, America has been best served when it has leaned into the strengths of a bottom-up, free-market system to drive innovation. This was true during the industrial expansion of the late 19th century and again during the rise of Silicon Valley in the late 20th century. The same forces that produced the world-changing technologies of those eras can, and should, be applied as the Department of War seeks to modernize its capabilities.

Instead, for the last several decades, the Department’s acquisition system has produced the opposite outcome. Defense technology development has become increasingly oligopolistic: a small number of large corporations are deeply entrenched, while new entrants face overwhelming barriers to competition. The result is that many innovative capabilities and efficient solutions never make it to the warfighter. Thus, while the United States spends nearly a trillion dollars on military spending, both Pentagon and outside expert reporting has revealed that we “would largely exhaust [our] munitions inventories in as few as three to four weeks” in a conflict with China.

This concern is not merely hypothetical. During last year’s “12-day War” with Iran, the United States burned through roughly 25% of its total stockpile of Terminal High Altitude Area Defense (THAAD) interceptors defending Israel from Iranian missile barrages. In procurement terms, that represents years of purchases spent in less than two weeks of conflict against a non-peer adversary.

Thankfully, this dynamic is beginning to change. Both President Trump and Secretary of War Hegseth have signaled a clear desire to challenge the status quo and inject greater speed and innovation into the Department’s acquisition process. In the recently passed NDAA, Congressional leaders have likewise taken major steps towards unlocking the modernization tools needed for the next generation of American security. The bill, as enacted, pairs nearly $901 billion in defense funding with reforms that will give the Department the ability to adopt critical technology at the speed the moment demands and our warfighters deserve.

Many of the reforms in the bill reflect initiatives we’ve long advocated for – strengthening commercial pathways, accelerating acquisition, and broadening access for new entrants. Even so, more work remains to be done. We’re encouraged to see these ideas finally receive the urgency and attention they warrant, but completing the job will require faithful and robust implementation in the Pentagon, along with ongoing legislative efforts to reorient America’s defense strategy.

First, the Good News

Facilitating Commercial Acquisition

The first major shift in this year’s NDAA was toward a “Commercial First” approach, prioritizing commercial acquisition and creating more streamlined pathways for adoption of proven commercial technologies. Nearly all the core provisions of reform related to commercial first procurement made it into the final bill.

Specifically, these include expanded authority for the Pentagon to purchase commercial technologies, added support for startups through the BOOST program, and higher accounting thresholds that ease compliance for both non-traditional defense contractors and primes.

While Congress did not shift procurement language explicitly in favor of commercial technology acquisition, the foundation for a faster, leaner, and more dynamic commercially-oriented acquisition system is now firmly in place.

Portfolio Acquisition

Additional movement came in the form of portfolio-based acquisition reform, which groups related technologies and missions together. This shift allows the Department to make faster, more flexible decisions across an entire mission area, rather than locking itself into long, linear procurement cycles.

This pivot will help the Department shift away from the Soviet-style central planning they have used as their acquisition system for decades, a model widely criticized for locking the U.S. into rigid, slow-moving programs that are not structured for rapid adaptation.

Past Performance

One of the most persistent barriers for new entrants in defense technology has been the Department’s narrow definition of “past performance” – the evidence a company must show before the government can rely on it for critical missions.

Traditionally, only prior government defense contracts counted toward demonstrating performance, effectively shutting out commercially proven technologies and forcing innovative companies into a paradox: they could not win defense work without past performance, and they could not gain past performance without already having won defense work.

In this year’s NDAA, Congress changed that, explicitly including commercial usage and testing as valid performance metrics. This change is augmented by a related provision directing the Department to prioritize cost-efficiency and quality over the mere existence of prior government contracts. Together, these provisions effect a shift away from bureaucratic sclerosis and toward merit-based competition.

Additionally, Congress eliminated many burdensome regulations for non-traditional defense contractors (NTDCs) and reformed the procurement officer evaluation process to incentivize efficiency, speed, and innovative approaches.

Looking Forward

Securing Commercial First

While the FY26 NDAA introduced some of the most impactful commercial-friendly reforms in decades, it failed to enact Section 824 of the Senate’s version of the bill. This provision would have required the Department to procure commercial items using commercial procedures, absent the need for a defense-specific system. This would create far greater statutory certainty as to the Pentagon’s long-term acquisition strategy. While the President and Secretary of War have both spoken out strongly in favor of commercial solutions, the implementation details remain uncertain and risk changing from year to year based on changes in personnel and administrations.

The greatest catalyst of private sector investment is a durable demand signal. Therefore, absent clear, durable statutory direction, Commercial First risks being implemented unevenly across programs or applied in ways that fall short of its intended impact. Providing greater clarity and certainty would give program offices and startups the confidence to plan, invest, and execute accordingly. For these reasons, the FY27 bill should enshrine into law the requirement for the Department to procure commercial items using commercial procedures, absent the need for a defense-specific-system.

Redefining Defense Contractors

The FY2026 NDAA also failed to sufficiently expand the scope of who counts as a “non-traditional defense contractor” (NTDC), a category that is not subject to the same degree of onerous compliance and auditing requirements. This differentiation is critical for a startup company, which simply lacks the resources to both develop novel technological solutions and absorb accounting and administrative costs that in many cases would vastly exceed their entire operating budget.

Today, NTDC status is determined by a statutory definition that hinges almost entirely on a single factor: whether, during the one-year period preceding a solicitation, a company has performed a defense contract subject to full Cost Accounting Standards (CAS). While there are narrow exceptions, this framework treats exposure to a specific contracting mechanism as a proxy for whether a company is “traditional,” regardless of its size, business model, or reliance on government funding. As a result, companies that remain overwhelmingly commercial can lose NTDC status simply by participating in—or succeeding on—a single covered defense contract.

This approach is increasingly misaligned with how modern technology companies scale. CAS requirements were designed for large cost-reimbursement programs run by legacy defense primes, not for startups delivering commercial or dual-use technologies. Using CAS exposure as the sole gating criterion creates a cliff effect that discourages companies from expanding successful pilots. To address this misalignment, the FY27 NDAA should expand the NTDC definition to focus on whether a company relies on significant U.S. government reimbursement for R&D and bid and proposal costs rather than on its exposure to a single past contract. It is understandable for the Pentagon to want greater auditing and compliance requirements for a company that almost exclusively uses taxpayer dollars to fulfill a contract. It is not understandable and creates insurmountable barriers to entry to push the same requirements onto startups that want to spend their own money on researching, developing, and deploying a solution for the warfighter.

The Big Picture

Taken together, the FY 2026 NDAA’s reforms represent substantial, tangible progress. They won’t fix the system overnight, but they will make it materially easier both for innovators and for the companies building the industrial strength America needs to compete and win.

Still, there is work left to do. Modernizing America’s defense acquisition strategy and building the systems that will allow us to compete with global adversaries during the next generation of warfare require sustained legislative attention. a16z looks forward to partnering closely on implementation to ensure that these reforms deliver real capability, real speed, and real advantage to the American warfighter.

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