Defense contracting methods stifle innovation.

* The Pentagon's new industrial policy guidelines call for the Defense Department to tap the commercial sector and small niche businesses for new technologies.

The 2010 Quadrennial Defense Review calls for establishing requirements and pursuing programs that "take full advantage of the entire spectrum of the industrial base at our disposal: defense firms, purely commercial firms, and the increasingly important sector of those innovative and technologically advanced firms and institutions that fall somewhere in between."

Those "in between" companies offer many of the niche products and services that the Pentagon needs to counter the enemy's rapidly changing tactics and technologies. But it is not clear how the Pentagon plans to go about changing the status quo. Small businesses and commercial firms typically have been skeptical of the Pentagon's rhetoric because the procurement system remains stacked against those "in between" firms that were cited in the QDR.

"The reality is that the procurement process cannot be changed so dramatically as expressed in the QDR ... The utility and innovation of this unique sector of the...