CONTRIBUTED BY MATTHEW MADDISON
Matthew is Legal Counsel at NATO DIANA, where he advises on the challenge programme, procurement and contracting, and rapid adoption activities. Prior to DIANA, Matthew was at NATO on the inaugural edition of the Young Professionals Programme, where he advised on procurement, contracting and international law at the NATO Communications and Information Agency and Allied Command Operations.
SPOTLIGHT SERIES
This article is part of Karve’s Spotlight Series highlighting multinational initiatives accelerating defence innovation across allied nations.
Procuring for innovation has become an increasingly popular theme across all sectors of government. In defence, it is now conventional wisdom – bordering on cliché – that “organic” sources of innovation found on the commercial market are (and have been for many years) outpacing the rate of traditional R&D efforts. And yet, while no doubt exists about the availability of technological advancements to solve our most pressing defence and security challenges, there is great concern about the public sector’s (and in particular, the defence sector’s) ability to access this technological base. This reality, combined with a fast-changing geopolitical context, has turned the somewhat trendy cross-sectoral theme of “procuring for innovation” into a pressing need for the NATO alliance.
There is enormous commercial potential for key technologies to meet this need: from AI, to space technologies, to quantum, health, and energy breakthroughs. So how can the Alliance turn this pressing need into an actionable framework that entices innovators in the civilian markets to engage with the defence and security sector, and actually delivers new and improved capabilities into the hands of Allied end users?
At DIANA, we are working in close partnership with the broader NATO enterprise, military commands, academia, investors, commercial partners, and most importantly innovative start-ups and scale-ups, to deliver just this – the “rapid adoption” of innovation. To do this, we are pulling a golden thread through our entire pipeline – from our challenge calls to signing production contracts. It’s a framework we’ve developed off the back of many innovative efforts across the Alliance, and it’s a framework we believe can be replicated in other national, multinational and multilateral contexts.
BACKGROUND
The need for a new framework focused on innovation stems from what we call the “washing machine problem” of traditional defence procurement. Historically, most defence procurement models retain two fundamental assumptions: (1) I know exactly what I need; and (2) What I need is very unique. Traditional defence procurement works very well if these assumptions are correct. But if they’re wrong, the results can be extremely costly and time consuming.
For example, let’s say I’m a defence planner and I realise I need a way to clean clothes. Or, to put it in effects-based language (a direction defence planning processes are moving – which is a very good thing!); I have a volume of dirty clothes that need to be cleaned. Traditional defence procurement models – ones that start from the two assumptions above – are likely to lead to behaviour that would seem highly inefficient to those of us who are aware there are cutting edge ways to clean clothes – at a very affordable price – in the commercial market.
This behaviour would include: studies of how clothes might be cleaned, potentially months or even years of internal “requirements” gathering, and eventually the creation of a specification describing in vivid detail something very similar to a cutting-edge washing machine (if we’re lucky). The traditional model would then lead to the issue of a “Request for Proposals” seeking a supplier to build said bespoke machine to clean clothes. It is likely that a supplier would be found, but the cost, time, needed industrial capacity, and so on of the resulting contract would – we all know – result in a huge amount of waste over what we could have done in the first place: find available washing machines on the open market and buy them or, if necessary, buy and tweak them to, say, plug into a submarine (adapting from their usual installation in a kitchen or laundrette).
Even worse, it’s not clear that the process described above would result in the acquisition of a state-of-the-art washing machine. Appliance manufacturers have engaged in a tremendous amount of R&D and iteration on washing machine designs to clean clothes as efficiently and quickly as possible, with less and less water, power and detergent. So, using the traditional process above, we may have spent orders of magnitude more on a solution that is far less capable than what has already been innovated in the open market.
To be clear, there are certainly many times when the assumptions above are correct – when we’re buying certain exquisite capabilities or platforms. But very often, one or both of the assumptions are wrong. When it comes to being wrong about assumption #2 (that everything defence buys is unique) many efforts are underway to shift to streamlined purchasing of capabilities on a commercial basis that have traditionally been difficult and expensive to purchase in defence – in particular scalable software tools, cloud services, and “commoditised” capabilities like FPV drones and rocket launches.
What we are focused on at DIANA is how to shift to a better framework when it comes to being wrong about assumption #1 (that defence knows what it needs) – given the fast pace of innovation, defence planners and end users often know what they need in terms of effects, but they don’t know exactly what they need to deliver that effect. This is where DIANA, as one of many efforts across the Alliance, is working to open the aperture and reach into the commercial market to support the development of solutions to pressing defence and security challenges – not through prescription but through innovation.
Then, leveraging best practices and proven legal frameworks from across Allied nations, DIANA is taking the innovations fostered in our challenge programmes and providing a pathway to deliver them “rapidly” (which, to be clear, is a relative term given the pace of traditional defence procurement). To do this, DIANA is drawing on effective existing practices – such as the European Union’s “Competitive Dialogue” procedure and the United States’s “Other Transactions Authority” – when setting up its regulatory framework and programming.
NATO DIANA
The Defence Innovation Accelerator for the North Atlantic (DIANA) is a new NATO body focused on identifying dual use, deep tech innovations that solve complex defence, security and resilience challenges.
To identify these innovations, DIANA launches public challenge calls, which are open to companies based in the 32 countries of the Alliance. The past two challenge calls have received thousands of proposals. A new challenge call will be launched this June.
DIANA’s unique position as an agent of 32 nations and NATO, solely focused on dual use innovations, means it places significant importance on the formation of its challenges. DIANA therefore undertakes extensive stakeholder engagements to understand the capability needs of NATO and Allies. The information gathered on capability needs is combined with horizon scanning of technology trends within NATO’s emerging and disruptive technologies and assessments of civilian and defence and security markets. Non-prescriptive, outcome focused challenge statements are formed that enable companies to propose innovative dual-use solutions.
The capability needs that feed into each challenge are fundamental, and act as the golden thread through DIANA’s complete “Challenge Programme”. This golden thread starts at challenge formation, and runs through the competitive selection of DIANA innovators, innovator participation in the DIANA accelerator programme, testing, evaluation, validation, and verification activities, operational experimentation, participation in defence days and exercises, and ultimately through the adoption pathways described below.
ITERATIVE COMPETITION
DIANA innovators selected through the challenge calls have gone through a highly rigorous, three step competitive selection process. This process is a significant investment by NATO to find the best innovators across Allied nations and includes thousands of hours of expert effort.
The selected innovators sign contracts with DIANA, join the Challenge Programme, which involves participation in DIANA’s Phase 1 Accelerator Programme, whilst continuing to iterate their solution in response to the challenge (and the underlying capability needs). The innovators are provided contractual funding to support this continued iteration.
However, the competitive process does not stop here. Through the accelerator programme, testing opportunities and engagement with Allied end users and buyers, DIANA innovators obtain information on, and understanding of, the capability needs underlying their challenge. Based on this, they refine their solutions, increasing the technology readiness level in a manner that meets end user needs, and become equipped to sell into defence.
At the end of Phase 1, a competitive down-selection process takes place to select a smaller number of innovators to continue into DIANA’s Phase 2 Accelerator Programme, where they continue in the same manner but with increased focus, support and connections.
Throughout each phase, there is dialogue between the innovators, DIANA, NATO, Allied end users and buyers, covering technical aspects (including the underlying capability needs), commercial aspects, and legal/procurement aspects, of potential further engagements and contracts.
Whether a DIANA innovator goes through Phase 1, or Phase 1 and Phase 2, they continue to be DIANA innovators that the Alliance has expended significant resource in selecting and then exposing to defence needs and procurement. DIANA maintains a network of DIANA alumni, who continue to work collaboratively and leverage the connections made in the programme. This is all aimed at enabling Allied adoption of these dual use, deep tech solutions.
RAPID ADOPTION
DIANA innovator solutions range in their technology readiness levels and their potential defence and security applications. DIANA is mandated not only to identify innovators and their solutions, but also to set up contractual mechanisms that enable their co-development, prototyping and production for NATO and Allies. This is where we integrate best innovation practices.
In particular, when developing the regulatory framework and processes to deliver on our rapid adoption framework, DIANA has been conscious to draw from and where appropriate mirror, best practices from across the Alliance of challenge-based or outcome-based competitions with dialogue and iteration, instilling rigour and commonly accepted principles of procurement into the entire frame.
For example, under the European Union’s Classical Directive, where, for instance, there is a particularly complex project and the contracting authority cannot objectively define the means of satisfying its needs or of assessing what the market can offer in the way of solutions, then subject to certain conditions, it can utilise the “Competitive Dialogue” procedure. In this procedure, the contracting authority shares information on its objectives and through dialogue and iteration, refines its specification, inviting final tenders thereafter. For EU procurement lawyers, much of DIANA’s process should look familiar in this regard.
Similarly, in the United States, innovation focused elements of the Department of Defense and beyond, including the Defense Innovation Unit (“DIU”) utilise “Commercial Solutions Openings,” which have at their heart the “Other Transactions Authority” embedded in modernised U.S. procurement rules. This permits the taking of innovations all the way from prototype to production without delay.
Thus, drawing on these models and others, where one or more DIANA innovator solution is identified (during Phase 1 or Phase 2, or after) by NATO and/or Allies as potentially meeting their capability needs, DIANA’s Rapid Adoption Service provides an opt-in pathway for NATO and/or Allies to engage with DIANA innovator solutions.
Where this opt-in pathway is requested by NATO or Allies, DIANA innovators in the same cohort, working towards the same underlying capability needs – relying on the golden thread – are invited to submit final tenders setting out how their solution meets the specific identified need, undergoing a further component of the transparent and competitive process on a very short timeline.
Through these final tenders, depending on the requesting entities needs and the technology readiness level of the solutions, DIANA innovators may be awarded a “Research and Development Follow-On Contract”, a “Prototype Follow-On Contract”, and/or a “Follow-On Production Contract” (in the latter case, through one of DIANA’s partner agencies in NATO, including the NATO Communications and Information Agency (NCIA) and the NATO Support and Procurement Agency (NSPA).
Key to enabling rapid iteration and purchasing at the speed of relevance are the provisions within DIANA’s regulatory framework that enable NATO and/or Allies, if a prototype has been achieved through DIANA’s Challenge Programme, to award a Follow-On Production Contract to a DIANA innovator without the need for a further competition (and all the time, complexity and expense involved).
In this regard, NCIA and NSPA are crucial partners in getting DIANA innovator solutions into production, on behalf of other NATO bodies and/or Allies.
In addition, DIANA is working with Allies to identify pathways through which DIANA innovator solutions can be delivered at the national level – utilising the time, rigor, and expense that each Ally has already invested in the iteration of these solutions – without having to open up more process. The infamous “valley of death” in defence innovation is often nothing more than a canyon between identification and delivery of solutions formed by the glacier of excessive process.
DIANA’s golden thread is designed to span that chasm, and in the process, deliver on the promise that procurement for innovation can bring to our collective safety and security.
