WASHINGTON, Sept 2 (Reuters) - The Pentagon’s chief arms buyer said on Wednesday he was “not crazy” about growing share buybacks across the weapons industry but acknowledged a dearth of new arms programs has made it difficult for companies to invest in new technologies.
Defense Undersecretary Frank Kendall said he hoped that a series of technology demonstration projects to be announced with the fiscal 2017 defense budget would motivate companies to step up internal spending on research and development projects.
“I would like to see companies make more investments in technologies for future profits, but I’m not in a position to compel them to do it,” Kendall told Reuters after a speech hosted by the Professional Services Council trade group.
Kendall first raised concerns about growing share buybacks during a speech in December. He said they are eating up funding that might have gone into research in past years.
On Wednesday, Kendall said he understood that publicly traded corporations needed to generate returns for shareholders, and that budget cuts had limited the number of “new program starts,” which made it difficult for them to commit to larger internal investments.
But he said he hoped several key initiatives aimed at boosting innovation through specific technology demonstration programs would motivate companies to increase R&D spending in coming years.
Kendall told industry executives that years of mandatory budget cuts had taken their toll on the Pentagon, and left the U.S. military without the technology it needs to maintain a long-standing competitive edge over potential adversaries.
He said Defense Secretary Ash Carter’s initiative to reach out to technology firms in Silicon Valley, and a separate project aimed at identifying critical long-term research needs, should provide targets for increased corporate investment.
He said details about the long-term research projects would likely not be released publicly to avoid giving secrets to potential foes, although companies in the sector would be informed.
“Those programs will give industry a target to aim at,” Kendall told Reuters. “If they’re willing to make the investment, those are going to be competitive for the most part, and they’re going to lead to the systems that follow, once we have the budgets to support them.”
Kendall told executives at the event that he hoped they would relax a bit after he revised a plan to require government “sponsors” for internal research and development projects that can be billed as overhead, which had drawn sharp criticism from industry. (Reporting by Andrea Shalal; Editing by Ken Wills)