War Secretary Announces Strategy Regarding Defense Acquisition Reform

Highlights

• U.S. Department of War (DOW) Secretary Pete Hegseth on Nov. 7, 2025, unveiled a memorandum and accompanying strategy on defense acquisition reform titled "Transforming the Warfighting Acquisition System."
• The strategy represents a fundamental shift in how the Pentagon intends to develop, procure and field new capabilities, and the reform centers on a shift in acquisition philosophy whereby "speed to capability" is now the guiding principle of the DOW.
• As further guidance is issued and implementation progresses, contractors should remain engaged and responsive to new opportunities and requirements introduced by the reform.

U.S. Department of War (DOW) Secretary Pete Hegseth on Nov. 7, 2025, unveiled a memorandum and accompanying strategy on defense acquisition reform titled "Transforming the Warfighting Acquisition System." The memo – rooted in a directive from President Donald Trump's Executive Order 14265, which was covered in a previous Holland & Knight alert – represents a fundamental shift in how the Pentagon intends to develop, procure and field new capabilities. The reform centers on a shift in acquisition philosophy whereby "speed to capability" is now the guiding principle of the DOW, and each element of the acquisition system is expected to demonstrate how it accelerates delivery to the warfighter.

Key Reform Themes

The memo outlines several core themes that will reshape the DOW acquisition landscape:

• speed and agility, moving from slower, traditional acquisition cycles to more rapid development, procurement and fielding
• risk acceptance, explicitly tolerating higher risk in order to get capabilities fielded faster
• commercial leverage, with greater use of commercial practices, rapid prototyping, modularity and incremental delivery
• strategic alignment, as procurement must be more tightly aligned with strategic threat realities, rather than only long-term programmatic planning
• department-wide accountability, offering clear, deadline-driven tasks for departments, increased oversight and metrics of progress

Implementation Deadlines and Accountability

The guidance set forth in the memo sets several key timelines:

• Within 45 days, the Under Secretary of War for Acquisition and Sustainment (USW(A&S)) must issue implementing guidance.
• Within 60 days, each military department is required to submit its own implementation plan.
• Within two years, all major defense acquisition activities must be transitioned to the new model.

These deadlines are reinforced by a requirement for portfolio scorecards within 180 days, tracking the time from validated need to operational fielding. Monthly Acquisition Acceleration Reviews will monitor progress, and performance will be tied to outcomes.

Structural and Procedural Changes

Several measures in the memo represent significant departures from current practice, including:

• Elimination of Program Executive Officers (PEOs) in Favor of Portfolio Acquisition Executives (PAEs). The memo directs the establishment of PAEs by reorganizing existing PEOs. PAEs will oversee consolidated portfolios aligned by mission, technology or operational integration. They will report directly to their Service Acquisition Executive, with no intermediate layers, and will have the authority to shift funding, waive standards not mandated by statute or safety concerns and make trade-offs to expedite delivery.
• Non-FAR-Based Instruments as Preferred Agreements. Other transaction authorities (OTAs) and other flexible funding mechanisms will become preferred contracting vehicles, enabling faster engagement with industry and bypassing traditional Federal Acquisition Regulation (FAR) constraints.
• Commercial Products as the Default. The DOW will prioritize commercial offerings, in whole or in part, as the default acquisition approach, which includes plug-and-play systems and modular components.
• Modernized Contracting Incentives. Within 180 days, new contracting guidelines will be issued to incentivize timely delivery, increased production capacity and demand signals that attract private capital.
• Creation of the Economic Defense Unit (EDU). The director of the new EDU will assist the DOW in deploying capital through grants, loans, options and purchase commitments. Drawing on successful models in critical minerals mining and processing, submarine shipbuilding and munitions acceleration, DOW will structure deals that unlock private capital through advance market commitments, risk-sharing mechanisms and commercial-like incentive structures.
• Aligning Contracting Officers With the Programs They Serve. The memo directs PAEs to align contracting officer accountability directly to the portfolio chain of command.
• Aggressively Seeking Intellectual Property (IP) and Data Rights. The memo directs PAEs to "Assert Unlimited or Government Purpose Rights" to specifications in machine-readable format.
• Performance-Based Personnel Management. PAEs and program managers will serve minimum four-year terms, with incentive compensation tied to delivery timelines, competition and mission outcomes, also tying removal from these positions to poor performance or chronic delays of a contract.
• Mobilization of Specialized Talent. The DOW will bring in commercial and operational experts (operators) to provide expertise or diligence to program activities.
• Budget Structure Reform. Program elements and other budget structures will be revised to the minimum number necessary to ensure alignment and flexibility within portfolios.

Acquisition Transformation Strategy

The DOW's Acquisition Transformation Strategy appended to the memo is comprised of the following five pillars, each of which consist of nested actions designed to achieve the President's direction to overhaul procurement processes.

1. Rebuild the Defense Industrial Base (DIB)

• Expand the supplier base and stabilize demand signals with multi-year contracts
• Attract private capital through advance market commitments and risk-sharing
• Increase direct-to-supplier contracting, including bypassing prime contractors when beneficial to mission accomplishment

2. Empower the Acquisition Workforce to Rapidly Deliver Capabilities

• Offer longer leadership tenures and incentivize risk-taking
• Transition the Defense Acquisition University (DAU) to the Warfighting Acquisition University (WAU), emphasizing immersive, scenario-based experiential learning focused on portfolio management competencies
• Create Capability Portfolio Management (CPM) to assign a single leader accountable for success or failure
• Accelerate Planning, Programming, Budgeting and Execution (PPBE) reforms in order to foster innovation and improve alignment of defense budgets to strategy

3. Maximize Flexibility Through Reduced Regulations and Processes

• Eliminate the Joint Capabilities Integration and Development System (JCIDS), and streamline Middle-Tier Acquisition
• Digitize acquisition using artificial intelligence (AI), reduce FAR/Defense Federal Acquisition Regulation Supplement (DFARS) burden and move toward Generally Accepted Accounting Principles (GAAP)-based accounting
• Replace Analysis of Alternatives with experimentation and prototyping

4. Develop High-Performance Systems Through Rigorous Enterprise Technical Execution Excellence

• Modernize systems engineering with digital and model-based approaches
• Maximize use of Modular Open Systems Approach (MOSA)

5. Improve Life Cycle Risk Management

• Ensure organic depot-level maintenance capabilities
• Map supply chains for proactive risk mitigation
• Tailor Life Cycle Sustainment Plans for short-lived systems

These five pillars and their component nested actions are designed to produce the intended cultural shift from compliance-based to risk-based decision-making, as well as prioritize speed and mission outcomes over exhaustive specification compliance.

Impact on Defense Contractors

Secretary Hegseth's acquisition reform memo is expected to have significant impacts on the defense sector, particularly in how companies engage with the DOW on procurement, contracting and program execution. The elimination of PEOs in favor of PAEs restructures the acquisition hierarchy, giving portfolio leads direct authority over funding, standards and trade-offs. This flattening of decision-making is intended to change industry's points of contact and accelerate timelines for approvals and program launches. Contractors should anticipate a faster tempo, with potentially compressed response windows and more frequent performance evaluations tied to delivery speed and mission outcomes. Streamlined processes are designed to enable quicker paths from prototype to production and fielding, though the pace of change will depend on implementation across the military departments over the next two years.

The memo also shifts the contracting landscape toward commercial-first practices and flexible instruments, notably prioritizing OTAs over traditional FAR-based agreements. This change will encourage contractors to reorient their businesses toward modular, plug-and-play solutions and become proficient in non-standard contracting mechanisms. It is expected to produce lower barriers to entry for nontraditional vendors and small businesses, subject to further guidance and the effectiveness of mentorship and compliance simplification initiatives. The establishment of the EDU to deploy capital through grants, loans and purchase commitments introduces new financing pathways and requires alignment with performance metrics and strategic priorities. Overall, the DIB will need to operate with greater agility, risk tolerance and responsiveness to remain competitive under the new acquisition regime.

Though the change in strategy could be beneficial to many defense contractors, they will need to contend with time-indexed incentives and penalties that reward early delivery and penalize delays. Regarding data rights and IP, contractors may be required to provide machine-readable interface specifications and could be asked to accept broader government rights to enable modularity, subject to negotiation. While documentation burdens are expected to shrink, risk tolerance will also likely rise. Contractors should be prepared to adapt to iterative development cycles, flexible requirements and accelerated testing protocols. Defense contractors should also expect heightened scrutiny on supply chain resilience.

Legislative Considerations

Secretary Hegseth's memo and the accompanying Acquisition Transformation Strategy acknowledge that many of the DOW's proposed reforms will require coordination with the U.S. Congress and, in many cases, new legislative authorizations. Areas requiring congressional engagement and support include numerous PPBE reform efforts, increased use of multi-year procurements and other industrial base demand signals, changes to the bid protest process and the funding of new monetary incentive awards for acquisition professionals. With regards to PPBE reforms related to revising program elements and other budget structures, Secretary Hegseth directed the DOW to prepare a PPBE reform package for inclusion in the fiscal year (FY) 2027 budget request.

Some similar, earlier reform efforts have already received a chilly reception from Congress. Defense appropriators in their FY 2024 Joint Explanatory Statement rejected numerous proposed PPBE reforms, noting that many financial controls and oversight mechanisms were put in place to address past systemic failures. Further, the U.S. Senate Committee on Appropriations in its FY 2026 report (released in July 2025) rejected many of the U.S. Army's proposals for new budget flexibility. Securing the blessing of Congress in these areas will require a significant level of engagement from the administration.

The DOW will also begin to implement its new Acquisition Transformation Strategy as the Senate and U.S. House of Representatives Armed Services Committees conference their own respective acquisition reform proposals. The Senate's National Defense Authorization Act (NDAA) included many provisions of Chair Roger Wicker's (R-Miss.) Fostering Reform and Government Efficiency in Defense (FoRGED) Act, and the House bill included Chair Mike Rogers' (R-Ala.) and Ranking Member Adam Smith's (D-Wash.) Streamlining Procurement for Effective Execution and Delivery (SPEED) Act. Both bills have similar aims in restructuring and modernizing defense acquisitions in order to deliver capabilities to warfighters more quickly. Congressional defense leaders aim to complete the FY 2026 NDAA conference by the end of November 2025, which will further shape the contours of the DOW's acquisition reform efforts.

Conclusion

The new directive and strategy represents a substantial paradigm shift from a slow, compliance-heavy system to a more portfolio-driven, commercially integrated acquisition ecosystem. Contractors that adapt to increased speed, modularity and commercial practices are well positioned to benefit as the DOW implements these changes over the coming months and years. Those maintaining legacy models may face challenges in the evolving environment, but the transition will occur in phases, allowing time for adjustment and strategic planning. As further guidance is issued and implementation progresses, contractors should remain engaged and responsive to new opportunities and requirements introduced by the reform.

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