Washington has a spending problem that is masking a serious weakness in national defense. Palmer Luckey, the billionaire founder of defense tech firm Anduril Industries, is sounding the alarm on how the U.S. military buys its weapons. He warns that the current system rewards companies for being slow and expensive rather than fast and effective.
This sharp critique comes at a critical moment for the Department of Defense. The Pentagon is trying to modernize its arsenal to face rising threats from global superpowers while managing a massive budget that critics say yields diminishing returns. Luckey argues that true military strength is not about how much money you spend, but how much capability you actually get.
The Broken Incentive Structure
The core of the issue lies in the contracts. For decades, the Pentagon has relied heavily on “cost-plus” contracts. This model reimburses defense contractors for all their allowable expenses and then pays them a guaranteed fee on top of that.
There is a major flaw in this logic. It means that if a project takes longer and costs more, the company makes more money. There is zero financial reason for a traditional defense contractor to finish a job early or under budget. In fact, efficiency would actually hurt their bottom line.
“Defense companies aren’t incentivized to innovate because military strength is measured by how much the government spends,” Luckey stated regarding the issue.
This creates a dangerous cycle. Large contractors lobby for massive, complex programs that take decades to build. By the time these systems reach the troops, the technology is often already outdated.
Palmer Luckey discussing defense procurement strategy
KEY STAT: The United States spends more on defense than the next nine countries combined, yet struggles to match the shipbuilding and manufacturing speed of rival nations.
Anduril and other Silicon Valley defense startups operate differently. They typically use fixed-price contracts. This means they tell the government exactly how much a system will cost upfront. If Anduril goes over budget, the company eats the cost, not the taxpayer. This forces them to be efficient.
Speed Versus Bureaucracy
The contrast between the new wave of defense tech and the old guard is stark. Traditional prime contractors like Lockheed Martin or Boeing have built incredible machines, but their timelines are often measured in decades.
Newer firms argue that modern warfare moves too fast for ten-year development cycles. Software updates happen daily. Drones evolve monthly.
The conflict in Ukraine has proven that speed is a survival skill.
Ukrainian forces have used cheap, commercial-grade technology to counter massive conventional armies. They iterate on software overnight to bypass electronic jamming. This is the model Luckey wants the Pentagon to adopt.
Here is how the two approaches differ:
| Feature | Traditional Defense Model | Modern Tech Model |
|---|---|---|
| Primary Goal | Reliability and Compliance | Speed and Adaptability |
| Contract Style | Cost-Plus (Risk on Taxpayer) | Fixed-Price (Risk on Vendor) |
| Timeline | 10 to 15 Years | 12 to 24 Months |
| Software | Hard-coded, rarely updated | Continuous over-the-air updates |
The Pentagon is stuck in a system designed for the Cold War. Back then, building a few hundred perfect fighter jets was the goal. Today, the goal is often to build thousands of autonomous systems that are smart and cheap.
The Valley of Death Problem
Even when the Pentagon finds a great new technology, it often fails to buy it. This phenomenon is known in the industry as the “Valley of Death.”
This happens when a startup wins a contract to build a prototype. They build it, test it and the military loves it. Then, the project dies. It dies because there is no fast way to transition a prototype into mass production.
Budget cycles in Washington take years to plan.
A startup cannot survive for three years waiting for a contract to be signed. They will run out of cash and go bankrupt. This effectively blocks new players from entering the market and protects the big established companies from competition.
Anduril has managed to survive this largely because of private venture capital backing. They have raised billions from investors who believe they can break the mold. Most smaller companies do not have that luxury.
Luckey points out that awarding small research grants is not enough. To truly change the system, the Pentagon must place large orders for production hardware. That is the only signal that will convince investors to fund defense technology.
A Shift Toward Attritable Warfare
The strategic vision behind this criticism is a shift toward “attritable” systems. These are weapons that are effective but cheap enough that commanders do not mind losing them in battle.
Current US military assets are precious. An F-35 fighter jet costs roughly $80 million. The military is terrified of losing even one. This makes commanders risk-averse.
If you are afraid to use your weapons, they lose their deterrent value.
The alternative is swarms of autonomous drones, underwater vehicles and sensors. If an enemy shoots down a $50,000 drone, it is a bad economic trade for them, not us. This imposes costs on the adversary.
The Pentagon has acknowledged this need with the new “Replicator” initiative. This program aims to field thousands of autonomous systems across multiple domains within two years. It is a direct test of whether the bureaucracy can move fast enough.
Critics of the new model worry about safety. They argue that rigorous, slow testing ensures that weapons work safely and do not harm friendly troops. They say that moving too fast breaks things.
However, supporters counter that the biggest risk to troops is losing a war because we were too slow to adapt. They argue that software-defined weapons can be fixed and improved constantly, making them safer over time.
While Washington debates, the technology gap continues to close. The question remains whether the Department of Defense can reform its buying habits before the next major conflict begins.
Money alone does not buy victory; only the right tools at the right time can do that.
