Mighty Pentagon can't deny market forces.

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

Top defense contractors are merging or looking to buy up their competitors. Key suppliers are exiting the military market, leaving the Pentagon with fewer options. And while innovation flows freely in the civilian economy, the Pentagon struggles to exploit commercial technology as it seeks to modernize Reagan-era weapons and protect military networks from cyber attacks.

Market forces are such that the Defense Department could be headed toward a future of greater dependence on fewer and increasingly more powerful monopolies, and the likelihood that it may have to pay higher prices if there are fewer competitors. An even greater concern for the Pentagon is how to ensure access to the cutting edge talent it needs to compete in a globalized arms race, where advanced disruptive technologies are available to rival militaries, terrorist groups and other adversaries.

Pentagon procurement chief Frank Kendall for years has championed the cause of increasing competition and injecting innovation into the defense market. He has frowned on mergers of top-tier contractors and has called on defense firms to step up investments in research and development.

But as much as the Defense Department would like to "manage" the defense industrial base, it has relatively few tools to do so, says former Pentagon acquisition official Andrew Hunter, now at the Center for Strategic and International Stuthes.

The recent U.S. government approval of Lockheed Martin's acquisition of Sikorsky Aircraft was too much to take for Kendall. He let it be known that diis was bad news for the Pentagon, as it would invite other prime contractors to follow suit. Even though the merger passed the federal antitrust review process, it would not have met Kendall's threshold. Current antitrust rules do not provide "tools to manage the defense industrial base in the way Kendall might like to," says Hunter. The Defense Department often wishes it could more effectively shape the decisions made by major corporations, but there are limits to what it can do.

With its buying decisions, though, the Pentagon has been the primary catalyst of industry consolidation even if it doesn't like the end result. "There has been contraction, there has been less competition and I think we've come to an era of really big platforms, which made winners and losers out of industry," says Paul Francis, managing director for acquisition and sourcing management at the Government Accountability Office.

It is doubtful...