May 25, 2016
Having just finished a 300-page dissertation on the MRAP program, I have had some time (years, really) to think about the armored vehicle industry across the world. Back in November, BAE Systems and SAIC were selected by the US Marine Corps to build prototypes of its hoped-for Amphibious Combat Vehicle (ACV) version 1.1. The second of those companies might be considered a surprising choice. I am now thinking that the implications for competition, in not just armored vehicles, but many other sectors of the defense business, are pretty serious.

In truth, these Amphibious Combat Vehicles of the first round are not intended to be as amphibious as the Amphibious Assault Vehicles (AAV7s) that they will partially replace. The ACVs will move from ship to shore by hovercraft or displacement landing craft, swimming the last stretch if necessary. Overland, they’ll be much faster, as they’re 8x8 wheeled vehicles. The Corps plans to select its supplier in the first quarter of calendar year 2018, and to buy 204 ACVs, enough to transport two infantry battalions, starting in 2019. Sometime around then, the Corps would also move to directly replace most of the remaining AAV7s with an ACV 1.2, which would be more seriously amphibious. 

Cognizant of the time required to replace those AAV7s, the Corps is also paying for survivability upgrades to many—enough for four of the ten battalions it wants to keep motorized. Prime contractor SAIC has “SU” prototypes in testing with strengthened floors for mine resistance—a failing which helped kill the earlier EFV program—and buoyant armor for better side protection—a brilliant idea, really, for an amphibious vehicle. If all goes well, the USMC plans procurement funding of about $387 million over the next four years.

But in contrast to the long-gone EFV, both the AAV7 SU and the ACV 1.1 are intended to be manageable projects. As  Inside Defense put it, Under Secretary Kendall not long ago decided that the latter “should begin at milestone B, which means it skipped the technology development phase.” When you’re buying an eight-wheeled vehicle, like so many other armies, why reinvent those wheels? The Marines wanted a “non-developmental item” (NDI), but couldn’t swoon to any particular off-the-shelf product, and so last year chose those two contractors to refine ACV 1.1 prototypes from existing vehicles. Lockheed Martin, Advanced Defense Vehicle Systems of Michigan, and long-time supplier General Dynamics were not selected. GD complained that the Corps had not fully defined what it wanted, but the GAO denied that protestGD’s design was simpler, and that can be a meritorious idea. But as the GAO’s official statement put it, choosing “SAIC’s higher-rated, but higher-priced proposal was within the agency’s discretion when conducting a best value procurement.”

As there is no wholly American 8x8 vehicle (GD’s LAV series is substantially built in Canada), most of the bids bore some foreign provenance. Forerunners of BAE Systems had designed and built the original AAV7, and BAE had ten years ago upgraded many of those vehicles in the Reliability, Availability, Maintainability and Rebuild-to-Standard (RAM/RS) program. But without an 8x8 of its own, BAE needed to offer a proven design from overseas—the SuperAV, already in production at Iveco in Italy. That’s a firm well-known for a long line of 8x8s, including the Centauro, which a battalion of the US Army borrowed in the early days of the Stryker program.

SAIC, when not upgrading those AAV7 SUs, is probably better known as the information technology firm that recently split from intelligence services specialist Leidos. Its particular ACV 1.1 prototype has come through a license to the Terrex 2, a refinement of the 8x8 Terrex in production at Singapore Technologies. While a Singaporean design, the macroscopic parts list for this particular candidate ACV comes from a familiar set of American suppliers: hulls from Demmer, engines from Caterpillar, transmissions from Allison, and suspensions from the American branch of Horstman. Final assembly will be undertaken at SAIC’s overhaul facility in Charleston, South Carolina. The company has years of experience integrating weapons and electronics into tens of thousands of MRAPs, and the work on the new 8x8s will be undertaken by some of the same people who built MRAPs at Force Protection.

Unsurprisingly, the USMC’s selection of BAE Systems has drawn little attention, and no opprobrium. Its choice of SAIC, however, has led some lobbying opponents to raise the specter of the ill-fated Future Combat Systems (FCS) program—the company's earlier foray into managing a ground vehicle development program. This time around, it’s important to note that SAIC is not trying to serve as a “lead systems integrator,” effectively writing the requirements for the equipment that it will specify for other companies to design and build. Back then, that meant the effective duopoly of GD and BAE, in which the Army Department believed it needed to carefully allocate workload to preserve its preferred industrial base. This time, SAIC is more narrowly managing the engineering and assembly of an already proven vehicle, to requirements drafted by the USMC. It’s also upending the definition of industrial base.

That’s because SAIC is making an unusual effort in the defense business: organic market entry. The company is not trying to buy into a program through a merger. Rather, it’s drawing on its large, matrix organization (a change in operating model since the split with Leidos), in which lots of skilled engineers and managers inhabit lots of corners of expertise, to ask what’s possible. For SAIC, of course, success is not guaranteed. The aforementioned Lockheed Martin—highly skilled in engineering too—has tried entering the vehicle business several times, from this very ACV, to finishing a fair second in the massive JLTV program.

These forays into ground vehicles may not be classically disruptive, in Clay Christensen’s sense, across the whole industry. The innovations are mostly sustaining the dominant product architectures in the business. Moreover, in this particular case, the difference in scale is important. There’s a reason, after all, that Tesla is (or may yet become) the first successful startup in the automotive industry in North American since the 1920s. Mastering the expected learning curves of mass production for 50,000 JLTVs or 500,000 Model 3s is really challenging. Mastering the craft production of 204 ACVs is challenging too, but more manageable. Demonstrating to the military that Charleston can be a functional production facility should be easier than the problem Lockheed faced—and notably overcame—in the JLTV competition. And that's why the speciality automotive industry does experience occasional successful entry.

While it’s reasonable to consider BAE Systems the favorite, what if the USMC does eventually select SAIC as its winner? What if SAIC then builds 204 armored vehicles with no more than the usual modest problems of a military program? A computer systems company will have gotten into the armored vehicle business, just helped by a stable of trusted suppliers, and a stabile design from overseas. The notion that the “industrial base” must be composed of a certain eternal set of companies will then be grievously wounded. That pattern of competition may then attract others looking to displace long-time incumbents. If you’re a defense-industrial policymaker or procurement official, you might consider what you could do to encourage such alternatives, as the Army did with the JLTV, and the Marines have done with the ACV.

To be fair, furthering competition through overseas partnerships won’t work as well with stealth fighters or aircraft carriers. In many other sectors, however, complaints about the essentiality of any one company, and fears of merger-to-monopoly, will both be harder to believe. If you’re a defense industrialist yourself, you might ask yourself whether yours is a business in which domestic technological dominance is neither assured nor necessary, in which final assembly can be mastered with enough smart engineers and craftsmen, and whether overseas competitors have occasionally beaten you in overseas competitions. If you can answer yes, it may be time to worry that your local franchise is not guaranteed either.

James Hasík is a senior fellow at the Brent Scowcroft Center on International Security.

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