DOD's Dual-Use Strategy

CRS Report for Congress
Received through the CRS Web
DOD's Dual-Use Strategy
John D. Moteff
Specialist in Science and Technology
Science Policy Research Division
Summary
As part of its effort to reduce the costs of its military systems and gain greater
access to state-of-the-art technologies, the Department of Defense (DOD) is pursuing
what it calls a "dual-use" strategy. This strategy seeks to make greater use of the
commercial sector in developing and manufacturing military goods. The strategy has two
principal elements: acquisition reform to remove the regulatory and administrative
barriers that inhibit greater use of commercial technology, and "dual-use" technology
programs that actively seek to (a) develop new dual-use technology in cooperation with
the commercial sector, (b) insert or "spin-on" existing commercial technology into
military systems, and (c) "spin-off" existing military technology into the commercial
sector. Acquisition reform has proceeded apace with bipartisan support. "Dual-use"
technology programs, however, have generated much debate. While critics have been
supportive of the dual-use strategy in principle, they felt the specific program initiatives,
with their explicit concern with commercial markets, strayed too far from DOD's
traditional programs. The 104th Congress eliminated the most visible of these programs,
the Technology Reinvestment Project, but supported two new programs proposed by
DOD. How best to pursue DOD's dual-use strategy will remain an issue in the 105th
Congress.
What Is Dod's Dual-use Strategy?
The term "dual-use" refers to the character of a technology and/or product that has
both military and commercial application. DOD's dual-use strategy is an attempt by DOD
to integrate the military technology and industrial base with that of the commercial sector
by using more commercially available components in its systems or using commercial
production lines to manufacture unique military components. Over the years, DOD has
come to rely (the extent to which is matter of some debate) on a dedicated technology and
industrial base for the design, development, and production of systems and many of the
components that go into those systems. For some systems, the reason for this is clear:
there is no parallel demand in the commercial sector (e.g., tanks, submarines, nuclear
warheads). However, for other systems (e.g., communications), there is a parallel

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commercial demand. Furthermore, even in unique military systems, there are components
that are "dual-use" in nature.
What Are the Goals of Dod's Dual-use Strategy?
The primary goals of DOD's dual-use strategy are to reduce the cost of military
systems and to gain better access to commercially-driven technology.
There is evidence that certain products designed, developed, and manufactured
specifically for DOD cost more than comparable commercial products.¹ Proponents of
integration often blame more expensive overhead associated with government acquisition
regulations, unique military specifications and production standards, a lack of incentives
to employ cost-saving production techniques and, in some cases, lower economies of scale
associated with military-dedicated production. Proponents believe that by relying more
on the commercial sector and standard commercial business practices, DOD can
"piggyback" on the commercial sector's economies of scale and the market's incentives for
productivity.
Besides saving money by taking greater advantage of commercial production,
proponents of integration believe DOD could also save money by relying more on the
commercial sector to develop or co-develop new technologies and products of interest to
both sectors. Whereas military needs drove development in certain technologies and
products in the past (especially in electronics and aerospace), commercial demands have
now become the driving force in some of these areas. For DOD to field the latest
technology in these areas, it must try to develop similar technology itself or have access
to the commercial technology. While DOD could, and often has, sought to pursue its own
parallel development, it does not always keep pace with commercial developments nor
does the investment always represent a socially efficient expenditure of resources.²
While DOD is primarily interested in lowering costs and gaining access to technology,
dual-use proponents also believe that better integration can contribute to better national
economic growth. Even though DOD accounts for an increasingly smaller share of the
total U.S. investment in research and development, it still is the single largest investor.

¹Some estimates range as high as 15 times more expensive for particular items and up to 25%
higher for total systems costs (CSIS Steering Committee on Security and Technology. Integrating
Commercial and Military Technologies for National Strength: An Agenda for Change. Center for
Strategic and International Studies. Washington, 1991. 101 p.). A study by Coopers and Lybrand
estimated average cost premiums of 18% for the examples it studied. Some analysts, however,
caution about making direct comparisons between military and commercial products.
²An often-cited example of this is integrated circuits. Although integrated circuits (IC) were
initially developed with private capital, military applications drove further development and
provided a critical early market. In the early 1960s, military and space procurement accounted for
90% of IC production. However, by the late 1960s, the commercial market began expanding much
more rapidly. By the end of the 1970s, military procurement accounted for less than 10%. During
this time, the ICs going into commercial products were faster and more reliable than those going
into military systems. A report entitled "Barriers to the Use of Commercial Integrated Circuit
Technology in Defense Systems", provides DOD's latest set of recommendations on how to increase
the use of commercial ICs in its systems.

According to some, DOD should do what it can to maximize the social benefits of that
investment. While DOD may acknowledge economic growth as an additional benefit of
a dual-use strategy, its primary goals remain cost reduction and technology access. The
Clinton White House, however, does view the dual-use strategy as an integral part of its
overall economic growth policies. This linkage to general economic policy raised
suspicion among some that the dual-use efforts were addressing broader policy issues at
the expense of national security.
Principal Elements of Dod's Dual-use Strategy
There are two principal elements to DOD's effort to integrate the military and
commercial technology and production base: acquisition reform and technology programs
that emphasize dual-use. Acquisition reform seeks to remove those regulatory barriers and
internal DOD practices that inhibit program managers and contract officers from acquiring
commercially available products, or from producing military unique products on
commercial production lines.³ Dual-use technology programs actively seek to (a) develop
new dual-use technology in cooperation with the commercial sector in such a way that
commercial and military application can be pursued in parallel, (b) insert or "spin-on"
commercial technology into military systems, and (c) "spin-off" military technology to the
commercial sector.
Reform: Efforts to reform acquisition rules and regulations to encourage greater use
of commercial technology in military systems have been around for at least 20 years.
Congress has shown a great deal of interest in this issue, enacting legislation to make
changes and/or instruct the Secretary of Defense to review, establish, and eliminate
regulations inhibiting the use of commercial items. Proponents of reform suggest that
these past efforts have been largely unsuccessful due to a lack of high-level support (or
attention). These regulations have evolved over time to meet various other policy goals
(e.g., assuring standardization and quality of military products, protecting the government
and the taxpayer from fraudulent and excessive costs, and assuring fair access to
Government procurement), and each has developed a constituency both inside and outside
DOD. The Clinton Administration raised acquisition reform to the top of its agenda and
created a Deputy Secretary for Acquisition Reform-position within the Office of the
Secretary of Defense to oversee DOD's efforts.
Reform is proceeding on two fronts: those associated with statutory requirements and
those that are essentially internal to DOD. Statutory reform was passed in the Federal
Acquisition Streamlining Act of 1994 (P.L. 103-355) and again in the Federal Acquisition
Reform Act of 1996 (P.L. 104-106). Among other things these Acts have expanded the
definition of commercial items, relaxed cost and pricing data requirements on commercial
items, and made more flexible contractual requirements for commercial items.
Internal reforms have focused mainly on military specifications and standards. A
process has been put in place that is designed to support continual review and integration
of military and commercial specifications and standards (the Defense Standardization

³Those barriers are generally grouped into four categories: unique military specifications and
standards; cost/price data requirements and unique accounting methods; technical data rights; and
unique contract requirements.

Program). Two major policy directives have been handed down by the Secretary of
Defense that have pushed the process forward. The first directed that all solicitations
should use performance-based requirements and that program managers must justify in
writing why a military specification is being required. The second directive allows firms
to adopt a single management system and uniform manufacturing practices for an entire
manufacturing facility (the Single Process Initiative).
Technology Programs: Much of the technology in which DOD invests could be
considered dual-use. However, in a more traditional approach DOD would be concerned
primarily with the military application of a technology leaving subsequent (or parallel)
commercial application strictly to the private sector. The "dual-use" approach that DOD
is emphasizing seeks to develop dual-use technologies in a way that actively promotes its
development and use simultaneously in both sectors. This involves cooperative cost-
shared development of dual-use technologies with the commercial sector through industry-⁴
led consortia. It also involves an explicit effort to insert, where possible, commercial
items into existing systems and in new designs, and to move production of unique military
items to commercial lines.
The flagship program for carrying out the technology element of DOD's strategy
became the Technology Reinvestment Project (TRP). The TRP evolved out of the
Defense Conversion, Reinvestment, and Economic Transition Act of 1992, and originally
was a collection of seven programs that supported a range of activities including dual-use
technology development, technology diffusion (via extension programs), and the
development of manufacturing education programs at universities. The technology
development programs were an expansion of an earlier authority that allowed DOD's
Advanced Research Projects Agency (ARPA) to enter into cooperative agreements and
"other transactions" with industry-led consortia to conduct pre-competitive, dual-use
technology development on a cost-shared basis. The model for these cost-shared,
industry-led consortia was the Semiconductor Manufacturing Technology consortium
(SEMATECH), established in FY 1988 to develop next generation semiconductor
processing technology.
Another example was DOD's proposed Flat Panel Display Initiative. This Initiative
sought to expand DOD's investment in new flat-panel-display technologies to include
investments aimed at helping to create a viable U.S. commercial flat-panel industry from
which DOD could buy its displays.⁵
While ARPA received the most attention (and money) for implementing dual-use
technology development programs, the Services, too, were given the authority to enter
into cooperative research and development agreements (CRADAs) and "other
transactions" which would allow them to cooperatively develop technology on a cost-

⁴For a discussion of the distinction between dual-use technology and dual-use technology
programs, see: The Difference Between DOD Programs That Develop Dual-Use Technologies and
DOD's Dual-Use Technology Development Programs--A Fact Sheet. CRS Report No. 95-738
SPR. by John D. Moteff. June 21, 1995. 2p.
⁵See: Flat Panel Display (FPD) Technology: An Introduction to the Issues. CRS Report No.

95-10 SPR, by Glenn J. McLoughlin and Richard M. Nunno. Dec. 19, 1994. 6 p.

shared basis with commercially-oriented firms or industry-led consortia.⁶ DOD's 1994
Science and Technology (S&T) Strategy mentions that the Services were to develop their
own formal dual-use programs, including specific programs aimed at inserting commercial
technology into weapon systems. The Services have been slow to initiate such programs.
Issues
There is little disagreement about the need for acquisition reform (at least in the
context of commercial items). The Acquisition Streamlining Act of 1994 and the Federal
Acquisition Reform Act of 1996 passed with bipartisan support. The Clinton
Administration has acted expeditiously on implementing the changes called for in the Act.
The biggest question now is whether sufficient incentives have been given to encourage
innovative behavior at the program manager and contract officer level who must
implement the policy day-to-day.
Another question is once these reforms are implemented, how much money can DOD
really save? Much of the motivation behind reform is based on the assumption that the
military industrial base is significantly segregated from the commercial base. Examples are
many, but the extent to which the base is segregated is unknown. Closer examination
shows that segregation can occur at three different levels -- research, administration,
production -- and in many cases a firm that segregates one part of its operation may be
relatively integrated in the other parts of its operations. Nor is the cost premium
associated with segregation well established. Again some cost estimates have been made,
but to what extent these examples are indicative of the industry as a whole is unknown.⁷
Although any savings may be sufficient to justify the efforts being undertaken, DOD is
counting on significant savings to fund planned increases in force modernization in the near
future and it is unclear if those levels of savings can be realized. While admitting that it
is not possible to estimate total savings to date, or to project future savings, DOD has
estimated that it has saved to date, as a result of Milspec reform alone, at least $2 billion,
based on a limited number of acquisition programs that it has studied.⁸
DOD's dual-use technology programs have generated much more debate. For some
critics, the approach, with its explicit concern on commercializing technology, has strayed
too far afield from DOD's primary mission which is to organize, equip, deploy and sustain
military forces. Given the inability of projected defense budgets to meet all of the national

⁶For a discussion on CRADAs, see: Technology Transfer: Use of Federally Funded Research
and Development, by Wendy H. Schacht. CRS Issue Brief IB85031. [updated regularly].
CRADAs and "other transactions" are different. CRADAs allow technology to be transferred and
information exchanged, and data rights/licenses to be negotiated, but does not involve federal
funding of non-federal participation. "Other transactions" do allow federal dollars to be used to
support non-federal participation.
⁷The Office of Technology Assessment discusses the difficulty in estimating how much DOD
could save from better integration, noting, however, that a conservative estimate of 5% would still
result in a few billion dollars per year. (Office of Technology Assessment. Assessing the Potential
for Civil-Military Integration: Technologies, Processes, and Practices. OTA-ISS-611.
Washington, Sept. 1994. 189 p.)
⁸See: Milspec Reform: Results of the First Two Years. Office of the Under Secretary of
Defense for Acquisition and Technology. June 1996. 20p.

security needs identified in the Nation's national security strategy, many Members of
Congress feel that DOD should concentrate its resources on more traditional development
programs.
There are also those who are skeptical (either philosophically or as a practical matter)
of the federal government's ability, let alone DOD's, to plan for and execute programs to
accelerate the commercialization of new technologies and products in a economically⁹
efficient manner. They would say that this is better left to the private sector. Dual-use
proponents, however, suggest that the laizze faire "spin-off" model used to explain the
diffusion of military technology into commercial markets in the past does not capture the
complexity of the interaction between the two sectors and is not a competitive approach¹⁰
in the new international marketplace.
While expressing its support for the goals of DOD's dual-use strategy (to save money
and gain quicker access to state-of-the-art technology), the 104th Congress did not¹¹
support the approach taken by the TRP. The project was eliminated in FY1996. For
FY1997, the Administration proposed two new programs, the Dual-Use Application
Program and the Commercial Technology Insertion Program. Both are tied much more
to specific military needs. Both were funded by Congress at reduced levels. The
Administration, however, plans to discontinue providing a separate account for dual-use
projects. There has evolved a consensus between the Administration and Congress that
dual-use projects should be integrated into regular research programs as just another tool
for program managers to accomplish their objectives. The issue for the 105th Congress
is to figure out how to encourage reluctant program managers to use their authority to
initiate such projects.

⁹For example, see Claude Barfield. Flat Panel Displays: A Second Look. Issues in Science
and Technology. Winter 1994-1995. p. 21-25. In that article, Barfield suggests that the "[flat panel
display] initiative hinges on the government's ability to second-guess the market." Ibid., p. 22.
¹⁰A closer examination shows that in those areas of successful "spin-off" DOD provided
critical early markets. With procurement accounts lowered, DOD may no longer be able to provide
those early markets. See: Alic, John. et al. Beyond Spinoff: Military and Commercial
Technologies in a Changing World. Harvard Business School Press. Boston, 1992. 428 p.
¹¹For a greater discussion of the TRP and criticisms of it, see: DOD's Technology
Reinvestment Project (TRP):Friend or Foe. CRS Report No.95-86 SPR, by John D. Moteff.
Washington 1995. 6p.