Defense Procurement Reform: A New Frontier for Non-Traditional Defense Companies

The U.S. defense sector is on the cusp of a paradigm shift. For decades, procurement processes have been bogged down by bureaucratic inertia, favoring legacy contractors who mastered the art of navigating labyrinthine regulations. But with bipartisan momentum behind reforms like the FoRGED Act, the playing field is leveling—creating a golden opportunity for agile, technology-driven non-traditional defense companies (NTDCs). This is not merely a policy adjustment; it's a structural reallocation of power, capital, and innovation. For investors, the question is clear: How do you position yourself to profit from this seismic shift?

The Case for Reform: Why the Old System Failed

The Department of Defense (DOD) has long been criticized for its outdated acquisition processes. Legacy primes—think Lockheed Martin (LMT) and Raytheon (RTX)—dominated contracts through sheer institutional heft, while smaller innovators were sidelined by requirements for lowest-price bids and rigid compliance. The result? A bloated industrial base, delayed projects, and a defense tech gap widening against adversaries like China and Russia.

Enter the FoRGED Act (S.5618), a legislative blueprint to modernize DOD procurement. Though stalled in committee since its December 2024 introduction, its provisions reflect a growing bipartisan consensus: the DOD must adopt commercial-sector agility or risk obsolescence. Key reforms include:
- Best Value Acquisitions: Contracting officers can now prioritize innovation, lifecycle costs, and delivery—not just price—when awarding orders.
- Elimination of the Price Reductions Clause (PRC): A relic that forced contractors to lower MAS contract prices based on commercial sales, the PRC's removal slashes compliance costs for NTDCs.
- Expanded Other Transaction Authority (OTA): A tool enabling rapid, unclassified deals for cutting-edge tech, now broadly applicable to NTDCs.

The NTDC Opportunity: Where Innovation Meets Policy

Non-traditional defense companies—think Anduril (known for AI border surveillance) and Saronic (specializing in autonomous systems)—are poised to disrupt legacy primes. Their strengths? Speed, cost efficiency, and commercial-grade tech stacks.

Take Anduril: Its Lattice software, already deployed on the U.S.-Mexico border, integrates AI, drones, and sensors to detect threats in real time. Under the old system, such a solution would have been buried under requirements for lowest-price bidding and Pentagon-specific compliance. Now, FoRGED's best-value framework lets Anduril compete head-to-head with legacy firms, leveraging its agility and lower overhead.

Similarly, Saronic—a leader in autonomous maritime drones—can now bid on DOD contracts using OTA authority, bypassing the years-long procurement cycles that stifle innovation. The result? A “high-low mix” strategy, where NTDCs provide low-cost, high-tech solutions to offset the exorbitant prices of legacy systems (e.g., F-35 jets).

Data-Driven Momentum: Why the Market is Already Aligning

The market is pricing in reform expectations, even before legislative passage.

While legacy primes have stagnated, defense tech ETFs have surged, reflecting investor faith in innovation-driven growth. Meanwhile, venture capital flows to NTDCs hit a record $2.1 billion in 2024, per CB Insights—a sign that private markets are already backing this transition.

Geopolitical Urgency: The Catalyst for Rapid Change

The FoRGED Act isn't just policy—it's a response to existential threats. China's military modernization and Russia's hybrid warfare tactics demand faster, smarter U.S. systems. With the Biden administration proposing a $921 billion defense budget for FY2026, and Congress prioritizing “agility over austerity,” NTDCs are the logical beneficiaries.

Investment Strategy: How to Play the Shift

1. Target NTDCs with DOD Traction: Look for companies already collaborating with the Pentagon. Anduril's border tech is a case study, but also consider firms like Maxar Technologies (MAXR) (satellite tech) or Palantir (PLTR) (data analytics).
2. Sector ETFs for Diversification: The SPDR S&P Aerospace & Defense (XAR) offers exposure to both legacy primes and emerging innovators, though investors should overweight the latter.
3. Monitor FoRGED's Legislative Timeline: The bill's inclusion in the 2026 NDAA process ensures it will resurface. Track Senate Armed Services Committee (SASC) hearings—its passage could trigger a sector-wide revaluation.

Risks and Reality Checks

No investment is risk-free. Legislative delays or a pivot to austerity could slow the pace of reform. NTDCs also face execution risks—they must scale while maintaining innovation. Yet the bipartisan support behind FoRGED, combined with geopolitical urgency, makes this a high-conviction, long-term play.

Conclusion: The Dawn of a New Defense Era

The FoRGED Act isn't just about streamlining paperwork—it's about redefining national security through innovation. For investors, the message is clear: NTDCs are the future of defense contracting. With budgets shifting toward tech, policy backing agility, and legacy primes struggling to adapt, now is the time to position portfolios for this disruptive wave. The next F-35 won't be a fighter jet—it'll be an AI system developed by an NTDC, and the market will reward those who see it first.

The clock is ticking. The reforms are coming. And the winners will be those who bet on the disruptors.