Join War on the Rocks and gain access to content trusted by policymakers, military leaders, and strategic thinkers worldwide.
There are plenty of elements to praise in Secretary of Defense Pete Hegseth’s acquisition transformation announcement last week. The emphasis on speed and commercial solutions, the overhaul of training for the acquisition workforce, the extension of tour lengths for program managers and executives, and a holistic portfolio approach to military capability are just a few.
When taken in context with the drone memo and requirements process overhaul he released a few months ago, the secretary of defense is making a bold statement that he does not accept the often-stated premise that reducing risk to America’s warfighters necessarily means accepting higher cost or longer schedules.
The real gem and foundational element of lasting success in his transformation — “money follows need” — comes at the very end of the draft memo leaked before his speech. Closing out the document is a quiet directive to the Pentagon’s program and budget leads to: “improve budget flexibility.” That phrase, combined with the bureaucratic mouthful “all actions will comply with applicable statutes, appropriations law, and procurement integrity…” sets up a fundamental friction point with Congress on which the entire transformation effort now hangs, as without necessary legislative action on appropriations accounts, the Defense Department will struggle to align a transformation in the way it buys things with the money available to do it.
Four Major Shifts
Before delving into the complexities and centrality of matching the budget and appropriations structure to the new portfolio acquisition strategy, it’s worth examining how the moving pieces of the new approach fit together. Four major shifts are underway.
The first is in requirements. The Defense Department now says that front-line warfighters will have a far greater say in deciding what capabilities and equipment are needed. Blowing up the Joint Capabilities Integration and Development System was a good first start.
Programming and budgets are changing. The velocity of technological change has already outrun the defense budget structure and annual appropriation cycle, which itself is so dysfunctional that America is currently experiencing the longest lapse in appropriations and government shutdown in history. Weapons lag years behind needs as the pace of war runs circles around the pace of bureaucracy. Congressional authorizers took an important step in the reconciliation bill, providing broad, multi-year, flexible funds to develop, buy, and operate weapons.
Execution and acquisition processes still fall short. For three decades, despite numerous reforms and workarounds, the defense acquisition system is still mired in its own risk-adverse, plodding pace. The announcement last week holds promise of real modernization.
And finally, organizations and the workforce are key to enduring improvements. If this transformation is going to last, the Defense Department should do the hard work of changing regulations, structures, and culture while training the workforce in relevant skills and commercial buying practices. Otherwise, the old ways will snap back the first chance they get.
The Defense Department is now finalizing the Fiscal Year 2027 budget, which is due to Congress in February 2026. This will be the first full-year budget crafted by the Trump administration’s team — its seminal document of intent. Timing is everything: This budget will fund the military from October 2026 through September 2027, right as the acquisition reforms are supposed to bear fruit. If the money is not requested and justified in the right way, or if appropriators are not on board, the entire transformation could fail.
The Why and How Before the What
In analyzing the needed financial reforms, it is imperative to start with why the reform is needed, how it will be implemented, and only then what will actually change. Without clarity on the first two, the “what” devolves into a bureaucratic knife fight between the Pentagon and appropriators.
The “why” is clear and compelling: to “accelerate the fielding of new technology and advanced capabilities” to the warfighter. But that noble intent runs directly into the appropriator’s constitutional “why”: the obligation to control the purse strings and maintain civilian control of military spending. This is the friction point: speed versus stewardship. Fortunately, it is not insurmountable. Congressional authorizers have shown the way through the reconciliation bill, which generally aligns with the secretary’s acquisition reforms. The goal should now be to bring appropriators along by proving that flexibility is needed and that it can coexist with accountability.
The “how” is outlined in the memo. First, funds will need to be allocated into portfolios rather than individual program lines. Second, authority to redirect funds during execution should be delegated downward, empowering portfolio managers to shift resources quickly as technology and battlefield needs evolve. The third task, though phrased redundantly, reinforces the principle: Minimize the number of budget lines to maximize agility.
The “What” of Transformation
The essence of reform lies not in slogans about speed, but in rewiring the machinery that connects budget authority to operational need in five areas: budget structure, reprogramming authorities, accountability mechanisms, workforce incentives, and congressional engagement.
Rebuild the Budget Structure Around Portfolios
Today, the Pentagon’s budget is built around thousands of program elements, each tied to a specific platform or project. This structure assumes the world changes slowly. It locks dollars in narrow silos and ensures that even when technology shifts mid-year, the money cannot.
The first reform, therefore, is to collapse program elements into mission portfolios. For example, instead of dozens of program elements for separate drone variants, there should be a single “Unmanned Aerial Systems Portfolio.” That portfolio should fund the entire lifecycle — research, procurement, and sustainment — under one flexible line.
Redefine Reprogramming Authority
Flexibility without trust invites fear, and appropriators understandably fear a blank check. To ease that concern, the Pentagon should propose a tiered reprogramming model that replaces the outdated $10 and $20 million thresholds with percentage-based limits tied to portfolio size.
For example: Portfolio managers could move up to 5 percent of funds internally; service financial assistant secretaries could move 10 percent across portfolios within a service; and the Defense Department comptroller could move 10 percent of a portfolio across services. Anything beyond that would require notification to Congress.
In return, the Defense Department would provide real-time transparency through digital budget dashboards accessible to both authorizers and appropriators. The model combines flexibility for the executive with visibility for the legislature, a modern compact for a modern military.
Build Accountability and Transparency Through Metrics
Appropriators’ skepticism is rooted in history. The way to rebuild trust is to shift accountability from process compliance to outcome performance.
Similar to quarterly earnings reports to a company’s stakeholders, the Defense Department should commit to routine portfolio performance reports that track speed-to-field, cost variance, and operational effectiveness. These outcome-focused briefs, shared publicly where possible, will show Congress and the taxpayer that flexibility delivers results.
Transform the Workforce and Training Pipeline
No reform will survive without people who understand and believe in it. That means building a new kind of acquisition and financial professional who can manage risk dynamically rather than bureaucratically.
The secretary’s plan to extend tour lengths is a good start. But he should go further, by putting the budget and financial managers directly inside the new portfolio acquisition executive team and requiring those working in that shop to complete a short “industry immersion” with commercial firms to learn rapid prototyping and iterative design.
Institutionalize Congressional Engagement
Finally, government reform will fail if it is not open and collaborative. Recently, the Defense Department restricted engagement with Congress. This is the opposite of trust building and threatens the entire transformation effort. The Constitution defines two key tasks for the military, and it splits them between the executive and legislative branches. Article I gives Congress the power to “raise and maintain,” while Article II makes the president the commander in chief. Acquisition and funding reform clearly fall under Article I.
The Defense Department’s mandate should be to work with Congress to define the transparency and reporting mechanisms that accompany flexibility. This will transform friction between the Defense Department and the appropriators into a partnership that serves the warfighter and the nation and transcends politics.
If the secretary of defense can show that accountability (which has lately seemed of secondary priority) and agility are not opposites, he will have done what generations of reformers could not: align the Pentagon’s internal machinery with the speed of modern conflict.
The Stakes
When looking ahead to the positive potential of such big proposed improvements in Pentagon operations, it is tough to ignore the annual federal budget debacle, on full display now more than a month after the start of the fiscal year. But all the planning, requirements definition, and acquisition speed and flexibility won’t produce results without money. By the time the FY 2027 budget hits Capitol Hill, the administration will need to demonstrate that acquisition reform is backed up by a budget. The world is not waiting. China’s state-directed industrial system delivers capability in months, not years. Ukraine’s battlefield improvisations prove that innovation now happens at the tactical edge, not in the Pentagon’s five-year plans.
If the Defense Department cannot fund, prototype, field, and sustain systems on that tempo, it risks irrelevance. But if it succeeds — if Hegseth’s transformation is matched with a new financial architecture that empowers speed while preserving oversight — it will mark the most consequential modernization of defense management since Robert McNamara introduced the Planning, Programming, and Budgeting System in the 1960s.
That, ultimately, is a problem worth solving. Not a confrontation with Congress, but a partnership against inertia. And unlike the endless skirmishes over budget line items, this is a fight that, if won, will actually make America’s military stronger, faster, and ready for the next war before it starts.
Elaine McCusker is a senior fellow at the American Enterprise Institute (AEI). She previously served as the Pentagon’s acting undersecretary of defense (comptroller).
John G. Ferrari is a senior nonresident fellow at AEI. He previously served as a director of program analysis and evaluation for the Army.
**Please note, as a matter of house style, War on the Rocks will not use a different name for the U.S. Department of Defense until and unless the name is changed by statute by the U.S. Congress.
Image: Petty Officer 1st Class Alexander Kubitza via DVIDS.
