Industry tees up policy issues for 2016.

• Author: Erwin, Sandra I.
• Position: Defense Watch

* The Beltway establishment is looking to a new administration to take on issues that have long been festering among defense contractors.

The industry is gearing up for a renewed push after the 2016 election in hopes that new leaders in the executive and legislative branches of government will tackle policy reforms in areas like foreign investment in U.S. companies, industry globalization and technology spending.

The defense sector faces daunting financial and political challenges and, meanwhile, the government continues as if it's business as usual, said John Hamre, president and CEO of the Center for Strategic and International Studies and a former deputy secretary of defense.

Industry concerns extend beyond the day-to-day budget battles that have hit most defense contractors' bottom lines. One of Washington's most influential think tanks, CSIS, wants to turn the spotlight on government behavior that industry CEOs believe is weakening the defense sector. "We want an industrial base that has all the energy and dynamism of the private sector," Hamre said, and yet national security policies continue to make it difficult for the industry to attract global investors and to partner with foreign suppliers.

The regulatory process for foreign investment in U.S. companies is one area that should be reviewed, said Hamre. "These are private entities that have to compete for capital in the global markets." The Defense Department apparently does not "understand this dynamic."

Pentagon contractors also are unhappy about the allocation of defense research-and-development dollars. The Defense Department spends "a hell of a lot of money in R&D, but it's funding institutions, not getting research developed," Hamre said. "We don't have a healthy balance between what we want done in laboratories versus what we want done in the private sector."

A new report by the Congressional Research Service shows why this is a big deal for the defense industry. Contractors' share of the Pentagon's R&D budget has been falling for almost 20 years, with R&D contracts dropping from 18 percent of total contract obligations in fiscal year 1998 to 10 percent of the $285 billion in contracts obligated in 2014.

Despite increased spending on R&D from 2000 to 2007, adjusted for inflation, DoD allocated less money to R&D contracts in 2014 ($28 billion) than it invested more than 15 years earlier ($31 billion in 1998), according to CRS. And more than half of the Defense Department's...