Page 1 o © 2021 Ignyte Enterprise Risk & Technology Advisory Services Proprietary & Confidential

Ignyte Platform Inc. 

3432 Myna Lane 

Miamisburg, OH 45342 

April 22, 2022 

To whom it may concern, 

My name is Aaron McCray. I am the Chief Operating Officer for Ignyte Platform Inc., a cybersecurity assurance 

platform. I have over 28 years of experience in business and risk management operations, with extensive 

expertise across multiple industry sectors, including health care, finance, manufacturing, DoD, and Federal 

Government. 

Additionally, I serve as a Commander in the US Navy (reserves) with over 25 years of subject matter expertise in 

cryptography, information security, intelligence, and information assurance. I hold the following professional 

certifications: CISSP, HCISPP, CISA, CRISC, and AWS CP. 

The following is in response to the NIST Cybersecurity RFI regarding the "National Initiative for Improving 

Cybersecurity in Supply Chains (NIICS) - to address cybersecurity risks in supply chains." 

The conclusions drawn from the third annual Vital Signs 2022 report (submitted along with these comments), 

performed by the National Defense Industrial Association, show that the defense industrial base – a supply 

chain for the DoD, is failing in multiple categories. One of which is industrial security. In fact, over their threeyear history of conducting the defense supply sector analysis, industrial security continues to be the weakest 

area. 

● The NDIA report highlights something that we at Ignyte Platform Inc. have recognized for years within 

our defense customer base, and that is security is not a core competency. Manufacturing firms 

comprise the large majority of the defense supply chain, and their primary function is to design and 

produce the materials required for weaponry, systems, and components for warfighters. The security of 

the information they receive, and the information systems used to make said weapons, systems, and 

components is not a capability they maintain, nor typically do they have cybersecurity subject matter 

expertise on staff to provide guidance and direction. 

● Secondarily, the amount and volume of Federal and DoD cybersecurity regulations have created 

confusion in the standardization of requirements, what technology to implement (if any), and how to 

demonstrate the continuous monitoring of compliance. These challenges have increased the cost of 

compliance and cybersecurity – in some cases, beyond the value of the services and contracts they 

receive from the DoD and Federal Government. 

● Third, the lack of standardization and alignment of Federal and DoD standards creates confusion and 

complex challenges around implementing and monitoring controls. For example, the defense industrial 

base must comply with NIST SP 800-171 for Cybersecurity Maturity Model Certifications (CMMC v2) 

level 1 or 2 certifications. At level 2, 110 controls must be adhered to for certification. 

The alignment between NIST CSF v1.1 and NIST 800-171 is approximately 66%. Between NIST CSF and ISO 

27001:2013, the alignment is around 78%. Additionally, the alignment between NIST SP 800-171 and the Health 

Insurance Portability and Accountability Act (HIPAA) governing Security and Privacy is only 1.54%. That is a 

vast difference, especially considering the NIST risk management frameworks (RMFs) are derived directly from 

NIST SP 800-53. This disparity creates gaps in establishing a standardized and comprehensive cybersecurity 

program for much of the DoD supply chain. 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Page 2 o © 2021 Ignyte Enterprise Risk & Technology Advisory Services Proprietary & Confidential

Additionally, for a small manufacturing firm, DoD work may comprise less than 5% of total revenue. In contrast, 

commercial lines of business that requires HIPAA and or other compliance programs may generate 40% or 

more of total revenue. When the cost of compliance is greater than the revenues produced, the resulting 

decision may very well be to forgo DoD work altogether – creating a shortage in the defense supply chain. 

Integrating cybersecurity technology and processes with manufacturing suppliers can also be very difficult to 

accomplish. Why? Because many manufacturing IT systems are directly tied to manufacturing technology and 

operations. Implementing cybersecurity controls from disparate legal cyber legislations can result in higher 

operational risk for manufacturing systems (e.g., availability/production outages). 

Given the challenges identified above, it is apparent that simplification and standardization of controls, 

approaches, and methodologies will provide tremendous benefits. 

The NIST CSF provides standards, guidelines, and best practices to manage cybersecurity hygiene. Specifically, 

it intends to address internal risk management practices and supply chain risk (ID.SC-1 – ID.SC-5). The latest 

version provides implementation guidance but still requires subject matter expertise and understanding of 

additional NIST special publications to have a complete understanding of implementing controls at the system 

level (e.g., NIST SP 800-160 "Systems Security Engineering: Considerations for a Multidisciplinary Approach in the 

Engineering of Trustworthy Secure Systems"). 

NIST has an opportunity to address the challenges above by simplifying and standardizing the NIST CSF using 

additional implementation guidance and test cases, similar to the NIST SP 800-171A. The intent should guide 

organizational behaviors within the defense supply chain, focusing on the management of information and 

information system risk. 

Secondarily, NIST should move towards a more complete alignment of the NIST CSF to address various Federal 

Regulations that utilize a subset of the NIST SP 800-53 (e.g., FISMA, CNSSI, HIPAA, etc.). This alignment is an 

additional step toward simplifying and standardizing controls designed to protect and defend information and 

information systems. 

Alignment, standardization, and simplification of the NIST CSF can lead to cost savings for implementing 

cybersecurity controls and aligning risk management practices and standards. Additionally, this type of 

approach assists DoD supply chain organizations lacking cybersecurity expertise in implementing, maintaining, 

and continuously monitoring mandated controls. 

I look forward to reading the RFI submissions and the updated draft for the NIST CSF RMF. An old adage states, 

"a rising tide raises all boats." My great hope is that NIST CSF becomes that tide. 

Respectfully, 

Aaron William McCray 

Chief Operating Officer 

Ignyte Platform Inc. 

CISSP, HCISPP, CISA, CRISC, AWS CP 
Attached Vital Signs 2022 Report

February 2022 

First published in 2022 by NDIA.org, 2101 Wilson Blvd, Suite 700, Arlington, VA 22201, United States of America. 

(703) 522-1820 

© 2022 by the National Defense Industrial Association. All rights reserved. 

This report is made possible by general support to NDIA. No direct sponsorship contributed to this report. This report is 

produced by NDIA, a non-partisan, non-proft, educational association that has been designated by the IRS as a 501(c)3 

nonproft organization—not a lobby frm—and was founded to educate its constituencies on all aspects of national security. Its research is nonpartisan and nonproprietary. NDIA does not take specifc policy positions. Accordingly, all views, 

positions, and conclusions expressed in this publication should be understood to be solely those of the author(s). 

For the link to the PDF, see: NDIA.org/VitalSigns2022 

For more information please visit our website: NDIA.org 

MEDIA QUERIES: 

Evamarie Socha 

Director of Public Relations and Communications 

(703) 247-2579 

esocha@NDIA.org 
NDIA VITAL SIGNS 2022

TABLE OF CONTENTS 

Table of contents ................................................................................................ 3 

Forewords.......................................................................................................... 4 

Contributors ....................................................................................................... 5 

Executive summary ............................................................................................. 6 

Introduction........................................................................................................ 8 

How we score Vital Signs .................................................................................... 11 

Demand........................................................................................................... 13 

Production inputs.............................................................................................. 16 

Innovation ........................................................................................................ 23 

Supply chain .................................................................................................... 27 

Competition ..................................................................................................... 30 

Industrial security.............................................................................................. 35 

Political and regulatory ...................................................................................... 38 

Productive capacity and surge readiness ............................................................. 42 

Emerging technology ......................................................................................... 47 

Vital Signs survey results.................................................................................... 50 

Conclusion....................................................................................................... 56 

Appendix ......................................................................................................... 57 

ABOUT THE COVER IMAGE 

Pictured on the cover is the largest electron-beam welding 

system in the Western Hemisphere. Located in Huntsville, AL, the 

22-foot-long electron beam is capable of welding additively manufactured scramjet sections with materials as thin as aluminum foil 

to full-scale ship hulls that are fve inches thick. This technology 

will weld hardware for Virginia- and Columbia-class submarines. 

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NDIA VITAL SIGNS 2022

 

 

FOREWORDS 

NDIA 

For the frst time, because of the evolving impact of the COVID-19 

pandemic and the sustained challenges noted in past reports, our 

Vital Signs study has scored the health of the defense industrial 

base below a passing grade. As this report refects the challenging 

environment in which defense companies operate — rather than the 

companies themselves — this score serves as a wake-up call to all 

who care about the state of our national security. While the COVID19 pandemic continues, so does the critical work of the defense 

industry. The pandemic reinforces the fact that our defense industrial base is not isolated from the American economy or the global 

business environment: now, more than ever, we must pay heed to 

the health of our base as it serves our warfghters. 

In 2021, our economy was beset with a host of disruptions 

related to COVID-19 including workforce shortages, infation, and 

supply chain disruptions — conditions that we had yet to observe 

at such a large scale during the frst year of the pandemic. At the 

same time, cybersecurity and intellectual property threats continued unabated. Aggressive military actions by Russia and the rapid 

GOVINI 

The techno-military confrontation between the U.S. and China will 

likely not be decided in some contested stretch of the western 

Pacifc, but rather right here at home. If the United States is going 

to prevail in this confrontation, it must better harness the innovation engine that is the American economy. Successfully doing so, 

however, is a complex and challenging endeavor. 

China is already a more formidable economic competitor than 

the Soviet Union ever was during the Cold War, and its economic 

might will likely only continue to grow. The U.S. cannot simply outspend its way to victory this time around. As a result, the U.S. 

national security enterprise must work more effectively and effciently with the existing defense industrial base. 

But military advantage on future battlefelds will not solely 

stem from who can better churn out a new generation of warships, planes, and tanks. It will also depend on which side can 

best adapt emerging technologies from the commercial sector for 

military use. Therefore, the national security enterprise must also 

broaden the industrial base to incorporate non-traditional partners 

that are building technologies, such as artifcial intelligence, that 

will defne the future. 

military modernization efforts of China’s government continued to 

alarm policymakers, friends, and allies. These challenges remind 

us that our industry’s work of providing a superior operating environment and products and services to our armed forces, so that 

they can compete and win in all domains of warfare, can never be 

taken for granted. 

Again, it is important to emphasize Vital Signs does not assess 

the performance of our defense companies. The current health of 

the defense industrial base renders a sobering challenge to policy 

makers on Capitol Hill, leaders in the executive branch of government, scholars in academia, and other thought leaders. We hope 

that Vital Signs, and other research efforts by the National Defense 

Industrial Association, will form part of the remediation process as 

we discuss and address the impact of COVID-19 and the underlying concerns that remain. 

General Herbert “Hawk” Carlisle, USAF (Ret) 

NDIA President & CEO 

At the same time, the U.S. must balance efforts to spark and 

foster innovation with the need to ensure the defense industrial base 

is suffciently resilient. And as the COVID-19 pandemic has starkly 

demonstrated, this resilience must not only protect the industrial 

base against exploitation or disruption by China, but also enable it to 

withstand a host of potential economic and environmental shocks. 

This is why Vital Signs 2022 is so, well, vital. Now in its third year, 

the report’s data-driven approach not only provides an empirical 

assessment of the health and readiness of the defense industrial base over time, but also offers the frst real accounting of the 

damage wrought by the pandemic. Without efforts such as Vital 

Signs, it would be impossible to accurately understand the full 

extent of the problems facing the defense industrial base or to 

develop and implement effective solutions. How well the U.S. does 

so may be the difference between victory or defeat. 

Tara Murphy Dougherty 

Chief Executive Offcer, Govini 
NDIA VITAL SIGNS 2022

 

 

CONTRIBUTORS 

NDIA 

Policy Team 

Col Wesley Hallman, USAF (Ret) 

Senior Vice President, Strategy & Policy 

Editing 

Nicholas Jones 

Director, Regulatory Policy

 Editing 

Robert Van Steenburg 

Associate, Regulatory Policy 

Data, Writing, and Editing 

Samantha Beu 

Associate Research Fellow, ETI 

Data, Writing 

Research Support 

Jack Ellrodt 

Junior Policy Fellow 

Edmund A. Walsh School of Foreign Service Georgetown 

University 

Danyale Kellogg 

Junior Policy Fellow 

George Mason Schar School of Policy and Government 

Joshua Walker 

Junior Policy Fellow 

UC San Diego School of Global Policy & Strategy 

Andrew Senesac 

Junior Policy Fellow 

Johns Hopkins SAIS 

Elliot Seckler 

Junior Policy Fellow 

Johns Hopkins SAIS 

Michael Johns 

Junior Policy Fellow 

Harvard Kennedy School of Government 

Nicholas Lapinski 

Junior Policy Fellow 

Johns Hopkins Krieger School 

Heberto Limas-Villars 

Junior Policy Fellow 

Harvard Kennedy School of Government 

Publications 

Habiba Hamid 

Editor, Marketing & Communications 

Editing 

Hannah Meushaw 

Senior Graphic Designer, Marketing & Communications 

Layout and Design 

Eve Dorris 

Director, Information Production Offce, Marketing & 

Communications 

Design Support 

Evamarie Socha 

Director, Public Relations & Communications, Marketing & 

Communications 

Media Outreach 

GOVINI 

Matt Wiest 

Engagement Manager 

Joe Hsu 

Analyst 

Billy Fabian 

Vice President, Strategy 

Bob Rhea 

Senior Vice President, Mission Solutions 

Jen Gebhardt 

Analyst 

Andy Shaw 

Marketing 

Alison Sommer 

Graphic Designer 

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NDIA VITAL SIGNS 2022

 

 

 

EXECUTIVE SUMMARY 

This year’s iteration of Vital Signs: The Health and Readiness of the 

Defense Industrial Base marks the third consecutive year that the 

National Defense Industrial Association offers an unclassifed analysis of the state and performance of America’s defense industrial 

base (DIB) as an enterprise. 

Accessible to both the American public and defense policy 

community, Vital Signs 2022 strives to provide a comprehensive 

assessment of the resiliency of the defense sector by standardizing and integrating a set of criteria that reviews its performance in 

the context of the overall business environment. 

The report frames the health of the defense industrial base as 

essential to economic and national security and does not examine individual companies or the Department of Defense (DoD) 

specifcally, but rather the challenging environment in which all 

stakeholders operate. 

When researching Vital Signs 2022, NDIA examined data relating 

to eight “signs” that collectively shape the performance of defense 

contractors. In a departure from Vital Signs 2021, this year’s report 

indicates a fnal grade of “Unsatisfactory, Failing” for the health 

and readiness of the defense industrial base (DIB). While technically one point short of a pass mark, specifc signs provide cause 

for real concern. 

This year, fve of the eight signs received a failing grade. This 

refects the tumultuous state of the industry as it grappled with 

the extraordinary ramifcations of the COVID-19 pandemic, which 

dramatically disrupted the lives of individual Americans as well as 

global commerce. 

This past year has witnessed signifcant deterioration in the 

signs including “supply chain” as well as “production capacity and 

surge readiness,” which almost certainly is a result of the impact of 

the pandemic. Conversely, the only sign that signifcantly improved 

was “demand,” refecting recent growth in the defense budget. 

Vital Signs 2022 also refects the story of recent political and 

regulatory action against adversaries and their infuence over the 

DIB, and the way in which that has shaped and will continue to 

shape the future of the warfghter. 

AREAS OF CONCERN 

As a majority of the eight signs received failing grades for the frst 

time this year, Vital Signs 2022 reveals a DIB that, similar to other 

industries, suffered sustained losses during the COVID-19 pandemic. Six of the indicators earned composite scores lower than 

80 and fve of these earned scores below 70, a grade considered 

failing. These scores point to a DIB struggling to meet the unprecedented and ongoing challenges created by the pandemic in the 

face of an increasing challenge from competitor nations. 

“Industrial security” has gained renewed prominence due to data 

breaches and brazen acts of economic espionage, perpetrated by 

both state and non-state actors, that have plagued defense contractors. However, despite the importance of “industrial security”, 

this sign received a score of 50 in 2021, the lowest among the 

eight signs in 2022. To assess the “industrial security” sign, NDIA 

analyzed threat indicators to information security and intellectual 

property (IP) rights. The score incorporates the nonproft MITRE 

Corp.’s annual average of the threat severity of new cyber vulnerabilities. This year, the analysis included the new National Institute 

of Standards and Technology’s 3.1 scoring system, superseding 

last year’s usage of the 2.7 system. Threats to IP rights scored well 

at 80 in 2021, as the number of FBI investigations into intellectual 

property violations declined to 38. This pattern marks a steady 

decline since investigations reached an all-time high of 235 in 2011. 

Defense industry “production inputs” also scored poorly in 2021, 

receiving a failing score of 67. These inputs encompass skilled 

labor, intermediate goods and services, and raw materials used 

to manufacture or develop end-products and services for defense 

consumption. In particular, the indicators for security clearance 

processing contributed to the low score for “production inputs”, 

as on-boarding backlogs persist. 

OVERALL SCORES 

Condition 2019 2020 2021 Change, 

2020 – 2021 

Demand 82 88 94 +6 

Production inputs 66 66 67 +1 

Innovation 69 69 69 0 

Supply chain 60 71 63 -8 

Competition 92 88 88 0 

Industrial security 49 49 50 +1 

Political & regulatory 78 76 72 -4 

Productive capacity & surge 

Readiness 

80 67 52 -15 

Overall health and readiness 72 72 69 -3 

Figure 0.1 

Factor score key 

-6 and worse -1 – -5 0 +1 – +5 +6 and better 

AREAS OF CONFIDENCE 

Despite numerous negative scores, areas of confdence give cause 

for optimism within the defense industrial base. For instance, 

demand for defense goods and services remained robust in 2021 

and received an outstanding score of 94. This increase stems from 

a rise in contract obligations issued by the DoD. Moving forward, 

this will be an indicator to closely monitor, as the prospect of fatter defense budgets and rising infation pose potential headwinds 

in the near term. 

“Competition” was also a strength. An analysis of the top 100 

publicly-traded DoD contractors, conducted by decision science 

company Govini, produced a competition score of 88 for 2021. 
NDIA VITAL SIGNS 2022

 

 

This high mark was driven by several high-scoring factors including a low level of market concentration for total contract awards, 

the low share of total contract awards received by foreign contractors, and a high level of capital expenditure in the DIB. 

Conversely, other factors within the “competition” sign experienced decreases, including a signifcant 11-point decrease for 

liquidity. These decreases were anticipated, however, due to the 

impact of the pandemic on the economy. 

OTHER TAKEAWAYS 

In 2021, the “innovation” sign remained stagnant and received an 

unsatisfactory score of 69. 

Scores also declined for the “political and regulatory” sign. In 

early 2020, prior to the onset of the pandemic, 50% of participants 

believed that defense spending is “about right,” which marked a 

7% increase from 43% in 2019. This 2020 result of 50% is the highest percentage of “about right” responses for this question since 

Gallup began asking it more than 52 years ago. 

“Acquisition reform” and “budget stability,” two of NDIA’s strategic priorities, once again topped the list of concerns for industry 

leaders. In the Vital Signs survey, participants were asked about 

the most important thing government could do to help the defense 

industrial base. Respondents stated that both streamlining the 

acquisition process, 37.6%, and budget stability, 27.8%, were paramount, which is consistent with last year’s fndings. 

Similarly, a vast majority, 72.3%, cited uncertain business 

conditions when asked to cite what conditions would limit their 

willingness to allocate additional capacity to military production. 

And 62.8% of survey respondents cited the burden of government 

paperwork as a deterrent. Both fndings underscore the continued 

importance of acquisition reform and budget stability. 

HOW HAS THE DEFENSE 

INDUSTRIAL BASE RESPONDED 

TO THE PANDEMIC? 

The ability of the defense industrial base to expand output and fulfll 

increased military demand is a key test of its health and readiness. 

The COVID-19 pandemic, which began in early 2020 in the USA, 

exemplifes this. In 2021, “productive capacity and surge readiness” earned a critical risk score of 52. This represents a 15-point 

decrease from 2020 and can largely be attributed to declines in 

output effciency. However, it is important to note that this score is 

not based upon a fully mobilized economy, similar to the context 

of World War II. Rather, the “production capacity and surge readiness” sign is baselined against the late Cold War defense buildup, 

a surge of 31% that began during the Carter administration and 

accelerated throughout the Reagan presidency. 

The critical impact of COVID-19 also became evident in the 

“supply chain” sign, which experienced an 8-point drop that is 

largely attributed to a worsening in cash conversion cycles for the 

top 100 defense contractors. Also, as indicated by our survey, 

workforce challenges and the availability of talent are a critical 

concern. Interestingly, the pandemic also changed the makeup of 

the top 100 defense contractors, with pharmaceutical company 

Moderna, the maker of one of the approved COVID-19 vaccines, 

making it onto the list. 

The health and readiness of the DIB poses a challenge to the 

national security community. As the DIB evolves to meet new and 

complex challenges, Vital Signs 2022 highlights several obstacles 

the nation must overcome, especially in light of the continuing 

pandemic. 

As always, NDIA intends Vital Signs 2022 to be a reference 

document that sets forth conditions for an annual discussion on 

defense sector issues. It is NDIA’s hope that this report contributes 

to the critical debate surrounding the nation’s defense acquisition 

strategy by offering a common set of fact-based data points on 

industrial partners that give the men and women in uniform, and 

their civilian counterparts, an advantage in all domains of warfare. 

It is the hope of NDIA that Vital Signs 2022 will help inform policy 

discussions that lead to improvements in the health and readiness of the industrial base and a higher overall grade in Vital Signs 

2023, and beyond. 

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NDIA VITAL SIGNS 2022

 

 

INTRODUCTION 

For the frst time since NDIA began producing this annual report on 

the health and readiness of the Defense Industrial Base (DIB), the 

data shows less than a passing grade. This fnding supports the 

Department of Defense (DoD)’s FY20 Annual Industrial Capabilities 

Report which points out that “our defense industrial base has 

reached an infection point in its history regarding the balance 

between its vulnerabilities and its opportunities for modernization 

and reform.”1 Facing the challenges of the COVID-19 pandemic, 

as well as strategic competition from countries like China, this 

moment is of unique importance to the DIB and ultimately to our 

nation’s long-term security. 

Despite the historically vital role of the DIB in supporting 

America’s armed forces during peace and war, U.S. defense policy 

has not always recognized that vital role. For example, congressional panels on the defense industrial base convened by the House 

Armed Services Committee in 1980, 1992, and 2011 called attention 

to U.S. defense policy’s persistent neglect of the defense industrial base and the potential tactical and strategic ramifcations for 

the nation in a confict against a near-peer adversary.2 In 2017, 

Executive Order 13806 identifed important structural changes to 

the U.S. manufacturing sector that “raise[d] concerns about the 

health of the manufacturing and defense industrial base” and called 

for a “comprehensive evaluation” to help guide future remedial 

policy actions.3 As the executive order suggests, a key obstacle 

to a sound DIB strategy is a common baseline understanding of 

the overall health and readiness of the DIB. 

As in past issues, this annual report is the defense industrial 

base’s yearly health check-up; accordingly, it aims to encourage 

conversations at all levels about how to adjust policies and make 

investments that maintain the superior readiness of the American 

DIB while providing the continued advantages our nation and its 

warfghters have come to expect. NDIA, in partnership with Govini, a 

decision science company, has completed our third annual assessment of the health and readiness of the DIB to address the gap 

in a common baseline understanding of the overall health of the 

DIB. By analyzing select statistical indicators, NDIA uses a unique 

composite indicator consisting of a set of eight signs, providing an 

integrated measure of the health and readiness of the U.S. DIB as 

an ecosystem. This is a measure more of the challenging environment within which DIB companies operate, rather than a measure 

of the companies themselves. Given that this synoptic indicator 

brings together data on multiple sets of factors affecting the defense 

industry, it facilitates a common, holistic understanding of the state 

of the defense industrial base and its “vital signs.” 

WHAT IS THE DEFENSE 

INDUSTRIAL BASE? 

The U.S. defense industrial base partners with the DoD to ensure 

that the U.S. enjoys decisive advantages to compete, deter, and 

win. The DIB encompasses manufacturers, systems integrators, 

service providers, technology innovators, labs and research organizations, and other suppliers linked to one another by contracts into 

regional, national, and global supply chains to provide America’s 

warfghters with superior tools, capabilities, and resources.4 In 

recent years, the U.S. DIB has declined in size, and in the number 

of new entrants, despite growing demand for its output. DoD is the 

largest contracting agency in the federal government. Total contract obligations issued by DoD grew from $368 billion in 2018 to 

$429 billion in 2020 (the last full-year data available). 

Defense supply chains touch every state in the Union. According 

to data from DoD’s Offce of Local Defense Community Cooperation, 

defense contract spending in FY20 averaged over $7 billion per 

state and in the District of Columbia, although spending levels 

varied widely.5 For example, Texas received the most of all states 

with $83 billion in defense contract spending while Wyoming 

received the least of all states with less than $200 million.6 The 

concentration of defense contract spending in major metropolitan 

areas supports clusters of defense industry production, investment, and employment. The metropolitan areas of Washington 

D.C.-Baltimore, Dallas-Fort Worth, San Diego, Seattle, St. Louis, 

Los Angeles, Huntsville, and Boston host the country’s largest 

1 Department of Defense, “FY20 Annual Industrial Capabilities Report,” January 2021. Accessed July 21, 2021. https://media.defense.gov/2021/Jan/14/2002565311/-

1/-1/0/FY20-INDUSTRIAL-CAPABILITIES-REPORT.PDF 

2 United States House Committee on Armed Services. (1980). The ailing defense industrial base: unready for crisis. Report of the Defense Industrial Base Panel of the 

Committee on Armed Services, House of Representatives. Ninety-sixth Congress, Second Session. Washington: U.S. G.P.O.; United States House Committee on 

Armed Services. (1992). “Defense industrial base: hearings before the Structure of U.S. Defense Industrial Base Panel of the Committee on Armed Services,” House 

of Representatives, One Hundred-Second Congress. Washington: U.S. G.P.O.; United States House Committee on Armed Services. (2012). “The defense industrial 

base: a national security imperative: hearing before the Panel on Business Challenges within the Defense Industry of the Committee on Armed Services,” House of 

Representatives 

3 Trump, President Donald J., “Presidential Executive Order on Assessing and Strengthening the Manufacturing and Defense Industrial Base and Supply 

Chain Resiliency of the United States,” July 21, 2017; Available at: https://www.whitehouse.gov/presidential-actions/ presidential-executive-order-assessingstrengthening-manufacturing-defense-industrial-base-supply-chain-resiliency-united-states/ 

4 Defnitions of the “defense industrial base” vary in their inclusiveness. We adopt a broad defnition of the defense industrial base in recognition of the growing size, 

diversity, and complexity of the supply networks that support America’s warfghters. 

5 U.S. Department of Defense, Offce of Economic Adjustment, “Defense Spending by State - Fiscal Year 2020.” October 22, 2021. Accessed December 15, 2021. 

https://www.defense.gov/News/Releases/Release/Article/2819472/dod-releases-report-on-defense-spending-by-state-in-fscal-year-2020/ 

6 Ibid. 
NDIA VITAL SIGNS 2022

 

 

 

New Vendors By Place of Performance, FY20 

DAFAs Air Force Army Navy 

Figure 0.2, Source: Govini 

defense contracting clusters.7 Historically, defense procurement 

has followed a decadal cyclical pattern, driven by events and policy 

changes.8 The breakout of major military conficts has prompted 

defense spending peaks with a typical concentration in the high-volume procurement of major defense acquisition programs (MDAPs). 

Spending troughs have followed such peaks when military conficts 

and tensions have deescalated, driving industry consolidation. For 

the U.S. DIB, these cyclical changes refect the challenges defense 

contractors have when maintaining thriving companies while also 

making critical investments in future capabilities. The globalization 

of supply chains have only served to exacerbate those challenges. 

THE EVOLVING DEFENSE 

INDUSTRIAL BASE: FROM THE 

COLD WAR TO TODAY 

The 2018 National Defense Strategy (NDS)’s declaration of the 

re-emergence of an era of great-power competition has held signifcant implications for the defense industrial base. The NDS called 

for reforms to defense acquisition systems to ensure the prompt 

delivery of important capabilities, services, and materials to U.S. 

warfghters in step with the changing strategic environment. This era 

of great-power competition presents the challenge of a multi-domain competition with peer and near-peer competitors, specifcally 

China and Russia. Achieving decisive national advantages across 

emerging technologies — artifcial intelligence, hypersonic aviation, quantum computing, autonomy, and human-machine teaming 

systems, among others — will have signifcant implications for the 

future of economic and strategic balances of power. This new 

era also challenges industry to achieve high levels of readiness to 

7 Department of Defense “FY20 Annual Industrial Capabilities Report,” January 2021. Accessed July 21, 2021. https://media.defense.gov/2021/Jan/14/2002565311/-

1/-1/0/FY20-INDUSTRIAL-CAPABILITIES-REPORT.PDF 

8 Watts, Barry D., “The US defense industrial base: Past, present, and future,” Center for Strategic and Budgetary Assessments, Washington DC, 2008. 

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NDIA VITAL SIGNS 2022

 

rapidly grow the production and deployment of military hardware 

during a confict against a near-peer competitor. Nevertheless, 

trends from previous eras will continue to affect the defense industrial base. Growing dangers to industrial security from cybersecurity 

threats and traditional economic espionage will require defense 

contractors to implement new and often costly security procedures 

and systems. Such dynamic and uncertain business conditions of 

this emerging era will undoubtedly bring changes to both the organization and behavior of frms within the defense industrial base. 

VITAL SIGNS SURVEY RESULTS 

For Vital Signs 2021, NDIA felded a thirty-two-question survey to 

our members. This year’s survey focused on questions that will be 

relevant every year (i.e. related to the DIB’s capacity to surge) and 

questions that are relevant to this year (i.e., related to the impacts 

of COVID-19). The survey results are used throughout Vital Signs 

2022 while key results are presented in a single, dedicated section of the report. 

UNDERSTANDING THE HEALTH OF 

THE DEFENSE INDUSTRIAL BASE 

Despite the DIB’s importance to America’s national security and ability to achieve policy goals, many assessments of national defense 

capacities, capabilities, and needs lack a broad consideration of 

the strengths and weaknesses of the defense industrial ecosystem. The FY2020 Annual Industrial Capabilities Report, authored 

by the Offce of the Under Secretary of Defense for Acquisition & 

Sustainment, focused on the current moment and a critical infection point for the DIB.9 Several non-governmental analyses tend to 

address the DIB health question from the perspective of trends in 

demand-side defense contracting fows.10 Although such studies 

provide valuable insights into specifc aspects of the health of the 

DIB, they lack the breadth necessary to develop a holistic understanding of the position of the defense industrial base with respect 

to peak performance standards. To understand the current business environment of the defense industrial base in empirical terms, 

NDIA developed a set of eight signs based on an array of statistical indicators. Like the four traditional “vital signs” in a health exam 

(temperature, pulse, respiratory rate, and blood pressure) NDIA’s 

Vital Signs series serves as a health check on the DIB. 

FOR THE FUTURE 

Vital Signs 2022: The Health and Readiness of the Defense 

Industrial Base is the third installment of the Vital Signs series. 

This report makes conclusions on the overall health and readiness 

of the defense industrial base. We intentionally refrain from offering policy recommendations, supporting any specifc legislative or 

regulatory changes, or advocating for any targeted investments 

within this report. Our goal is to provide a baseline reference for the 

defense policy community and Americans concerned with defense 

policy. We believe an unclassifed report, such as this one, will serve 

as an important annual touchpoint at the beginning of the policy 

cycle. Our intent is to provide trend analyses that demonstrate the 

results of changes in the strategic environment, economy, policies, 

and investments, while equipping stakeholders with the tools to 

discuss industrial base issues at the national level. In this way, we 

will be able to identify what actions or decisions were successful 

and which ones were not. It will then be up to various stakeholders, organizations, and policymakers to interpret and advocate for 

policies they believe are in the best interest of the defense industrial base and our national security posture. 

9 Department of Defense, “FY20 Annual Industrial Capabilities Report,” January 2021. Accessed July 21, 2021, https://media.defense.gov/2021/Jan/14/2002565311/-

1/-1/0/FY20-INDUSTRIAL-CAPABILITIES-REPORT.PDF 

10 Sanders, Gregory, “2021 Defense Acquisition Trends: Topline DoD Trends after a Half Decade of Growth,” CSIS, December 2, 2021, Accessed December 13, 2021, 

https://www.csis.org/analysis/2021-defense-acquisition-trends-topline-dod-trends-after-half-decade-growth 
NDIA VITAL SIGNS 2022

 

HOW WE SCORE VITAL SIGNS 

SIGNS, FACTORS AND INDICATORS 

The complexity and scale of the defense industrial base mean 

that an array of indicators may be useful for performance analysis and interpretation. In general, statistical indicators provide 

summary representations of statistical data and typically reveal 

directional trends or relative positions. Statistical indicators also 

provide a structured and longitudinal way of understanding the relative performance of the defense industrial base. The criteria for 

this report is based on eight “vital signs” that collectively shape 

the performance of defense contractors. These include: “demand”, 

“production inputs,” “innovation,” “supply chain,” “competition,” 

“industrial security,” “political and regulatory,” and “productive 

capacity and surge readiness”. These signs simplify the challenge 

of interpreting multiple indicators by combining and integrating various them into “a single index on the basis of an underlying model.”11 

As a result, they offer a better value for capturing multi-dimensional 

concepts, such as the health of the defense industrial base, for 

which single indicators prove inadequate as means of measurement. By tracking changes over time, our signs make modeling 

and other forms of advanced statistical values easier to analyze. 

Beyond their analytical benefts, they facilitate more inclusive and 

broader communication with the public. Vital Signs 2022 presents 

the overall composite index score for each of the eight “vital signs” 

and the underlying analysis for each condition. 

SCORE INDEX 

100 

Pass 

Fail 

90-100: Outstanding 

80-89: Good, Adequate 

80 

70-79: Concerning, Mediocre 

60-69: Unsatisfactory, Failing 

60 

0-59: Critical Risk, Failing 

Figure 0.3, Source: NDIA 

Signs are made up of one or more factors, which are themselves comprised of one or more indicators. NDIA analyzes over 

50 publicly available statistical indicators that serve as empirical 

proxies, converts them into an index score scaled from 0 to 100, 

DEMAND 

• Demand 

PRODUCTION INPUTS 

• Cost of goods and services 

• Access to strategic materials 

• Workforce productivity 

• Workforce compensation 

• Workforce diversity 

• STEM talent pool 

• Security on-boarding 

INNOVATION 

• Inputs 

• Outputs 

• Innovation competitiveness 

SUPPLY CHAIN 

• Contract failure 

• Financial performance 

• Inventory management 

• Cost management 

THE HEALTH 

AND 

READINESS 

OF THE 

DEFENSE 

INDUSTRIAL 

BASE 

COMPETITION 

• Contract competition 

• Market concentration 

• Foreign ownership 

• Proftability 

• Liquidity 

• Leverage 

• Capital investment 

INDUSTRIAL SECURITY 

• Threats to Intellectual Property 

rights 

• Threats to information security 

POLITICAL & REGULATORY 

• Public opinion 

• Congressional budgeting process 

• Regulatory burden 

PRODUCTIVE CAPACITY & 

SURGE READINESS 

• Output effciency 

• Intensity of capital usage 

Figure 0.4, Source: NDIA 

11 OECD, “The OECD-JRC Handbook on Practices for Developing Composite Indicators,” paper presented at the OECD Committee on Statistics, 7-8 June 2004, 

OECD, Paris https://www.oecd.org/els/soc/handbookonconstructingcompositeindicatorsmethodologyanduserguide.htm 

11
12

NDIA VITAL SIGNS 2022

and evaluates three years of scores for each indicator. We consider scores above 70 to be a passing grade. 

Our scores follow a nested approach, combining quantitative 

scores for each sign’s factors and indicators into an overall health 

score. Factors are averaged to create the score for the sign. Finally, 

the eight vital signs are averaged together to make the fnal score. 

SCORING AGAINST BASELINE 

VALUES 

Indicator scores are calculated by the ratio of an indicator’s average 

value to a control baseline value. Baseline values are either historical peak values (a prior value of the indicator that represents the 

best recent performance given available data) or, when conceptually appropriate, ideal standards. For each indicator, we provide an 

analysis that incorporates the infuence of contemporary contextual 

events and forces that drive the indicator’s performance. Each chapter includes a table detailing the current scores for each indicator in 

addition to its net change over the previous year. The availability of 

data in the public domain constrains the selection of baseline values. 

DATA SOURCES 

The indicators that form the basis of our analysis were constructed 

from multiple data sources and cited in each chapter. With the 

exception of the survey of NDIA members felded in August 2021, 

our datasets are lagging indicators published before the nationwide vaccination efforts against COVID-19 began. These lagging 

indicators provide insight into the environment in which the industrial base had to operate during the frst year of the pandemic. 

Furthermore, we developed many indicators from public data 

sources. Our fnancial indicators, for example, are based on publicly available SEC flings obtained through our partner, decision 

science company, Govini. Some indicators are based on estimates 

generated by NDIA. 
NDIA VITAL SIGNS 2022

 

 

 

 

 

DEMAND 

DEMAND 

Change, 2020 – 2021 

+6 

DEMAND SCORES 

Overall factor 2021 Change, 

2020 – 2021 

Demand 94 +6 

Overall demand score 94 +6 

Figure 1.1 

Factor score key

 -6 and worse -1 – -5 0 +1 – +5 +6 and better 

This section reviews developments in both cumulative defense procurement and contract distribution across various classifcations 

of goods and services. It further presents scores for the overall 

demand for defense goods and services. It also provides an evaluation of major developments in the Department of Defense (DoD)’s 

contract demand and a corresponding analysis of the impact of 

these trends on industry as a whole. 

KEY TAKEAWAYS 

• “Demand” scored a 94 this year, representing a signifcant 

improvement from an already strong score last year 

• DoD contract obligations for defense goods and services grew 

about 8% from the previous year. 

• Aircraft, ships, and land vehicles were again the preeminent 

recipients of contract obligation dollars 

• Foreign military sales saw a signifcant increase from 2019 

to 2020, enjoying an over 30% increase in sales totaling over 

$50 billion, which represents a signifcant departure from the 

last several years where foreign military sales totaled in the 

mid-$30 billion 

• Facilities and construction continue to make up a signifcant 

portion of contract obligations, as do professional services. 

OVERVIEW 

The scale of opportunities available to defense frms, both domestically and overseas, is a primary driver of the defense industrial 

base’s vigor and health; without a robust market for public contracts and overseas sales, there would be insuffcient demand to 

support a dynamic defense industry. The predictability of demand 

for defense goods and services directly translates to the capacity 

of frms to allocate resources towards both defense-related production and research and development of critical technologies. 

Of course, the DoD’s demand for the goods and services produced by frms is the principal driver of production and investment 

in the defense industrial base. As such, shifts in the quantity, scope, 

and composition of DoD purchases and contracts have a direct 

impact on frms’ calculations regarding participation in the defense 

industrial ecosystem, the production of certain goods and services, 

resource allocation towards research and development, and their 

role in broader supply chains. 

The demand signals from foreign military 

sales increased signifcantly, representing a bright 

spot for the defense industry. 

The DoD is the single largest buyer of defense goods and services in the world. DoD’s yearly contract obligations offer unique 

and unmatched insight into the larger demand for goods and 

services. Unsurprisingly, the U.S. defense budget drives a fairly 

constant “demand” signal. The stability of demand, in turn, allows 

frms within the defense industrial base to justify investments in the 

required productive capacity to fulfll contracts as well as funding 

ventures necessary to remain competitive when vying for future 

awards. Any decay in these budgetary foundations would undoubtedly raise the relative cost of market entrance for frms not already 

engaged in the defense industrial ecosystem and similarly raise 

the cost of continued or increased participation for those frms 

already engaged in defense markets. Ultimately, a substantial ebb 

in DoD-propelled demand would drive a corresponding decline in 

private sector investment and, in turn, modernization and technological dominance. 

13
14

NDIA VITAL SIGNS 2022

DEMAND SCORES 

Factor Indicator 2021 Change, 2020 – 2021 

Demand DoD contract obligations totals 94 +6 

Overall demand score 94 +6 

Figure 1.2 

Factor Score Key -6 and worse -1 – -5 0 +1 – +5 +6 and better 

CONTEXT 

The demand for goods and services by the DoD and customers from foreign militaries drive production and investment in the 

defense industrial base. Similarly, shifts in the volume, disposition, 

and composition of the Department of Defense’s contracting obligations also power corresponding changes in investment choices 

of individual frms within the defense industrial base. This segment 

of Vital Signs 2022 examines major trends in the DoD’s purchasing 

and contracting behavior, as well as the broader impact of these 

developments on the defense industry as a whole. 

METHOD 

For this section of the report, the value of annual DoD contract obligations serves as the primary indicator of “demand”. This indicator 

combines the total value of new DoD procurement contract awards; 

research, development, testing, and evaluation (RDT&E) contracts; 

and foreign military sales (FMS) contracts. NDIA’s decision science 

partner, Govini, provided this analysis by calculating the total contract 

obligation values based on their proprietary data science tradecraft. 

TRENDS 

DoD contract obligations 

As the dominant market actor, DoD’s total contract obligations are 

a clear indicator of the demand for defense goods and services. 

Contract obligations increased again in 2020, building on last year’s 

rise. This year we also adjusted the contract obligations for infation. 2011 was our benchmark as the highest single year fgure and 

adjusted the following years to 2011 dollars. We then scored the 

years as normal. This gave us a score of 94, a six point increase 

on last year when last year was also adjusted for infation. As the 

nation’s sole buyer of defense goods and services, and as the 

largest buyer in the world, the DoD and its annual total of contract 

obligations provide the best indication of the demand for defense 

goods and services. Contract awards drive production activity 

throughout industry as the defense industrial base relies on predictable demand from their DoD customer to justify investments 

in the productive capacity required to fulfll contracts and compete 

for future awards. Due to a limited amount of data available from 

the Carter-Reagan Era buildup, annual DoD contract obligations 

were scored against 2011’s baseline value of $373.4 billion12 — 

Demand for defense goods and services 

DoD contract obligations totals 

the highest peak in contract obligation volume within our dataset. 

At $322.8 billion, contracts for major defense platforms — aircraft, ships, submarines and land vehicles — commanded the 

plurality of contract dollars, alone representing over 20% of all obli100 gated contract dollars. 

94 

88 

82 75 Foreign military sales 

Foreign military sales totals (not scored) 50 

$6 B 

25 

$50.2 B 

$4 B 

2019 2020 2021 

Figure 1.3, Source: NDIA 

Dollars (Billions) 

$38.2 B $34.4 B $35.0 B $31.9 B 

$2 B 

$0 B 

2016 2017 2018 2019 2020 

Figure 1.4, Source: NDIA 

12 Based on Annual DoD contract obligations data provided by Govini for this 2022 report. 

0 
NDIA VITAL SIGNS 2022

 

 

 

 

Facilities and construction ($196.3 billion) and professional services ($186.5 billion) composed nearly a quarter of total awarded 

contract dollars (24%), continuing to be signifcant drivers of DoD 

spending. Over 30% of total obligation dollars were devoted to IT 

($136.8 billion), weapons and ammunition ($127 billion), sustainment 

of supplies and equipment or S&E ($115.2 billion), and research 

and development ($102.7 billion)13. 

Despite the expectation of fatter budgets in the immediate 

future (which looms large in the minds of many observers), recent 

demand signals from the DoD combined with the breadth of challenges that the organization is tasked with handling point to a 

continuation of strong demand and contract obligation growth. 

Foreign military sales (FMS) improved signifcantly. FMS saw 

a signifcant increase from 2019 to 2020, enjoying an over 30% 

increase in sales totaling over $50 billion14, which represents a signifcant departure from the last several years where FMS totaled 

in the mid-thirty billions. The demand signals from foreign military sales increased signifcantly, representing a bright spot for the 

defense industry. 

SUMMARY 

Demand from the DoD customer for defense goods and services 

has continued its upward trend. In the overall scoring, “demand” 

scored a 100, improving against last year’s score of 93. Defense 

contract obligations and foreign military sales rose. It will be worthwhile to gauge the future impact of new defense policy documents 

such as the next National Defense Strategy and the Nuclear Posture 

Review impact demand. 

Future defense demand will face the strain of upcoming budgets 

that will likely be fatter. Modernization and readiness, as well as 

recapitalization, are all factors to be decided upon in the future budgets that will have medium-term demand impacts for the defense 

industrial base. 

The combined “demand” signal on the defense industrial base 

from FMS and direct commercial sales (DCS) remains a bright spot. 

Foreign sales also provide the DIB with economies of scale and 

the resources to invest in new capabilities. The U.S. remains the 

supplier of choice for defense capabilities. 

13 Based on Annual DoD contract obligations data provided by Govini for this 2022 report. 

14 Based on foreign military sales by fscal year data provided by Govini for this 2022 report. 

15
16

NDIA VITAL SIGNS 2022

       

 

PRODUCTION INPUTS 

PRODUCTION INPUTS 

Change, 2020 – 2021 

+1 

PRODUCTION INPUTS SCORES 

Overall factor 2021 Change, 

2020 – 2021 

Costs of goods and services 58 -14 

Access to strategic materials 43 +8 

Workforce productivity 63 -1 

Workforce compensation 97 +2 

Workforce diversity 76 0 

STEM talent pool 95 +3 

Security on-boarding 36 +8 

Overall Production Inputs Scores 67 +1 

Figure 2.1 

Factor score key

 -6 and worse -1 – -5 0 +1 – +5 +6 and better 

The cost and availability of the inputs used in the production of 

goods and services shapes the health and readiness of the defense 

industrial base in ways that have become more readily apparent 

since the start of the COVID-19 pandemic. Defense industry production relies heavily on intermediate goods and services, highly 

skilled labor, and raw materials. Trends in the cost and availability 

of these resources shed light on the ability of defense contractors 

to acquire the inputs necessary for production at a price and on a 

scale to perform on contracts. 

KEY TAKEAWAYS 

• Federal security clearance processes earned a critical risk 

score of 36 for 2021, eight points higher than last year’s report 

• The cost of goods and services indicator was negatively 

impacted by continuing supply chain constraints 

• Workforce compensation remains the best performing indicator within “production inputs”. 

OVERVIEW 

The “production inputs” sign has remained constant over the past 

two years. Within “production inputs”, there is signifcant improvement among security onboarding, access to strategic materials, and 

workforce compensation. The largest decline within this sector is 

the cost of goods and services due to rising prices as seen around 

the U.S. economy, with productivity also showing a small drop. 

Another area of concern is strategic materials, an indicator that 

represents America’s ability to procure and produce rare earth 

metals critical to the manufacturing of magnets, microelectronics, 

LEDs and batteries that drive nearly every product that operates 

using electricity. Although this indicator was not included as a 

stand-alone factor in Vital Signs 2020, the importance of rare earths 

called for the inclusion of new data as well as the treatment of strategic materials as a separate factor in Vital Signs 2021 and for this 

year. This factor continues to score poorly given the low levels of 

U.S. rare earth production. 

The industry’s increasing workforce diversity 

refects both demographic trends and a growing 

recognition of diversity and inclusion within the 

workforce. 

This section also illustrates why Vital Signs 2022 uses a threeyear trailing average for all the indicators. This year, the underlying 

data for diversity indicated a slight decrease though it highlights 

improvement from prior to COVID-19. Nevertheless, there were 

increases across the board for diversity indicators because previous 

years’ increases pushed up the three-year average. Conversely, the 

underlying data for cost of goods saw a year-over-year decrease, 

and that declined because infation drove the price up. However, 

their score has decreased due to the three-year average being 

driven down by recent performances. 

CONTEXT 

The “production inputs” scores are comprised of lagging indicators and refect their state during the frst part of the COVID-19 

pandemic. Defense contractors use a variety of goods, services, 
NDIA VITAL SIGNS 2022

 

PRODUCTION INPUTS SCORES 

Factor Indicator 2021 Change, 2020 – 2021 

Costs of goods and services 

Producer Price Index of services for intermediate demand 98 +24 

Producer Price Index of processed goods for intermediate demand 18 -52 

Overall costs of goods and services 58 -14 

Access to strategic materials 

Average Rare Earths Minerals (REMX) ETF prices 83 +8 

U.S. share of world rare earths mine production 39 +16 

Net import reliance as a percentage of domestic consumption 6 0 

Overall access to strategic materials 43 +8 

Workforce productivity Adjusted productivity 63 -1 

Overall workforce productivity 63 -1 

Workforce compensation Estimated average annual per-worker pay for defense-related 

employment 

97 +2 

Overall workforce compensation 97 +2 

Workforce diversity 

Gender diversity in employment in defense supplier industries 85 0 

Racial diversity in employment in defense supplier industries 79 0 

Latino ethnicity diversity in employment in defense supplier industries 41 0 

Age diversity in employment in defense supplier industries 100 0 

Overall workforce diversity 76 0 

STEM talent pool STEM percentage of total U.S. occupational employment 95 +3 

Overall STEM talent pool 95 +3 

Security on-boarding 

Annual inventory of security clearance investigation cases 39 +11 

Duration of initial top secret reviews (days)* 29 +6 

Duration of top secret periodic reinvestigations (days)* 39 +6 

Overall security on-boarding 36 +8 

Overall production inputs score 67 +1

Figure 2.2 *DSCA only released data for fasted 90% of cases 

Factor score key -6 and worse -1 – -5 0 +1 – +5 +6 and better 

materials, and security-cleared skilled labor to fulfll the requirements of defense contracts. The cost and availability of these 

“production inputs” are subject to institutional forces and changes 

in the market. Fluctuations in these production inputs affect delivery 

schedules, the quality of goods and services, as well as the fnal 

cost for the government customer. By presenting indicator scores 

for common defense production inputs, this section analyzes statistical factors that drive the supply side of defense production. 

METHOD 

This section describes key attributes of defense production inputs 

that include the costs of goods, services, and strategic materials; the size of the defense workforce; compensation; workforce 

diversity; workforce STEM talent pool availability; and the security 

on-boarding process. The indicators for the costs of goods, services, and strategic materials rely on Producer Price Index (PPI) 

data from the U.S. Federal Reserve Bank of St. Louis. This year, 

instead of looking at the PPI baselined to a year, we reviewed the 

rate of change from year to year. This is essentially the rate of infation for goods and services, which can be benchmarked against 

a Federal Reserve Ideal of 2%. Data for the rare earth price indicator is based on VanEck Vectors® Rare Earths/Strategic Metals 

Exchange Traded Fund (REMX ETF) and production data from the 

U.S. Geological Service. Total employment, average compensation, 

diversity, and STEM talent data is derived from the U.S. Bureau of 

Labor Statistics and the National Science Foundation. Data for the 

security on-boarding process is sourced from the National Industrial 

Security Program Advisory Council. 

17
18

NDIA VITAL SIGNS 2022

 

100 

Workforce size and productivity were also combined this year 

to make a new workforce productivity indicator. This is done by 

taking the workforce size, calculated the same as last year, and 

multiplying that by the annual labor productivity, which was also 

retrieved from the Federal Reserve Bank of St. Louis. 

TRENDS 

Costs of goods and services 

Producer Price Index, services for intermediate demand 

Producer Price Index, processed goods for intermediate demand 

98 

75 

50 

25 

0 

2019 2020 2021 

81 

74 70 

87 

18 

Figure 2.3, Source: NDIA 

Costs of goods and services 

The factor measuring the costs of goods and services saw the 

largest drop this year, down to 54, a 14 point drop from last year. 

The trend is based on the Bureau of Labor Statistics’ PPI rate of 

change for intermediate goods and services, which were -2.8%15 

and 0.4%16, due to disruptions from COVID-19 . 

Defense contractors consume intermediate goods and intermediate services when performing their defense contracts, and rising 

costs can negatively affect productive capacity. Changes in production input costs can force producers to adapt their production 

plans by changing their per-unit cost structure of fnal products, 

altering production volumes, or passing along additional costs to 

the government customer. The Bureau of Labor Statistics’ PPI measures average prices experienced by end-producers of goods and 

services across a single sector. The PPI of services for intermediate demand captures average prices for services consumed by 

end-producers that generate fnal products. The PPI of services 

for intermediate demand scored an 87 this year, which is actually 

a twenty-four point increase from last year, when recalculated with 

the new indicator method. The increase is not because 0.4% is a 

good change for 2020, but because the two previous years are 

strong enough to raise the score in the trailing average. The PPI 

of processed goods for intermediate demand shows a drop that 

wipes out any gains from services. In fact, the PPI of processed 

goods for intermediate demand scored a 18, which is a ffty-two 

point decrease from last year. This is because the PPI for processed goods has shown a negative value for the past two years, 

which take the three year average to almost 0%, well short of the 

federal target of 2%.17 This drop is one of the largest effects that 

we can see from COVID-19, and will be an indicator to watch for in 

Vital Signs 2023, when the full impact of the COVID-19 pandemic 

and rising infation is fully refected in our report. 

Access to strategic materials 

Average Rare Earths Minerals (REMX) ETF prices 

U.S. share of world rare earths mine production 

Net import reliance as a percentage of domestic consumption 

100 

Score 

83 

80 76 75 

60 

39 40 

20 

6 

0 

2019 2020 2021 

10 

6 6 

23 

Figure 2.4, Source: NDIA 

Access to strategic materials 

Many defense companies use rare earth minerals and metals to 

manufacture defense items. Rare earths are a group of 17 elements 

critical to the manufacture of magnets, microelectronics, LEDs, and 

batteries. Rare earth minerals are also used in consumer products 

such as the Apple iPhone, which use rare earths to run its taptic 

engine.18 China has restricted the export of rare earths, prompting 

concerns for their availability to the DIB.19 Section 851 of the FY21 

15 U.S. Bureau of Labor Statistics,“Producer Price Index by Commodity: Intermediate Demand by Commodity Type: Services for Intermediate Demand [WPUID63],” 

retrieved from FRED, Federal Reserve Bank of St. Louis. Accessed November 14, 2021, https://fred.stlouisfed.org/series/WPUID63. 

16 U.S. Bureau of Labor Statistics, “Producer Price Index by Commodity: Intermediate Demand by Commodity Type: Processed Goods for Intermediate Demand 

[WPUID61],” retrieved from FRED, Federal Reserve Bank of St. Louis. Accessed November 14, 2021. https://fred.stlouisfed.org/series/WPUID61. 

17 Board of governors of the Federal Reserve System, “Why Does the Federal Reserve Aim for Infation of 2% over the Longer Run?” Federal Reserve. Accessed 

October 8, 2021. https://www.federalreserve.gov/faqs/economy_14400.htm. 

18 Nellis, Stephen, “Apple Taps Recycled Rare Earth Elements for Iphone Parts.” Reuters, September 18, 2019. Accessed September 29, 2021. https://www.reuters. 

com/article/us-apple-rareearths/apple-taps-recycled-rare-earth-elements-for-iphone-parts-idUSKBN1W31JG. 

19 Yu, Sun, “China Targets Rare Earth Export Curbs to Hobble US Defence Industry.” Financial Times, February 16, 2021. Accessed October 21, 2021. https://www. 

ft.com/content/d3ed83f4-19bc-4d16-b510-415749c032c1. 
NDIA VITAL SIGNS 2022

National Defense Authorization Act (NDAA) contains a provision 

that will require a report on strategic and critical materials that will 

include the gaps and vulnerabilities in rare earth supply chain.20 

We consulted the REMX ETF measurement of average price 

activity across all rare earth metals to calculate our strategic materials score. The cost of rare earths was scored against a baseline 

annualized REMX ETF price for 2016 of $39.50. Meanwhile, the U.S. 

share of global production and the U.S. reliance on foreign production were scored against baselines of 32% in 1994, and 6% in 1995, 

respectively. These years represent peaks within our dataset. Within 

corresponding year.22 This gives an adjusted workforce productivity, which we can baseline to the Carter-Regan buildup era, in this 

case 1985. The results show a more accurate score than workforce 

alone. While the number of people who work in the DIB has shrunk 

greatly, this drop is somewhat accounted for by rising U.S. labor 

productivity. This year scores a 63, a one-point drop from last year. 

The underlying cause is a smaller workforce than we saw last year. 

Workforce compensation 

Estimated average annual per-worker pay, for defense-related employment this metric, the score for the U.S. share of worldwide rare earths mine 

production increased from a score of ten points in 2018 to a score of 100 

39 in 2021. Moreover, net import reliance as a percentage of domes- 97 95 

tic production remained unchanged from the 2019 and 2020 score 92 

75 of 6. These scores are representative of the low levels of production 

of rare earth metals within the United States as well as our continued reliance on imports. In fact, the United States exports nearly all 

the rare earths that it mines while continuing to rely on imports — 

all despite its increased domestic production. 

Score 50 

25 

Workforce productivity 

Adjusted productivity 

0 

2019 2020 2021 

100 

Figure 2.6, Source: NDIA 

75 Workforce compensation 

Workforce compensation scored a 97 for 2021, which increased 

50 by fve points from a score of 92 in 2019, and two points from a 

score of 95 in 2020. These scores are based on an NDIA estimate 

of the average annual per-worker pay in defense-related industries 25 

of approximately $96,994. The workforce compensation number 

was arrived at using the same process and for workforce size as 

0 above, but with the wage data. 2019 2020 2021 

Workforce compensation strongly infuences the defense industry’s ability to recruit talented people. While skilled workers make Figure 2.5, Source: NDIA 

61 64 63

Score 

essential contributions to the production of goods and services for 

Workforce productivity 

Workforce productivity is newly-included this year and was calculated by taking the top DoD North American Industry Classifcation 

System (NAICS) codes by Contract Obligations and pulling the data 

on the same NAICS codes from the Bureau of Labor and Statistics 

Quarterly Census of Employment and Wages.21 The employment 

numbers for the different sectors were weighted by their portion 

of the contract obligations and added up to fnd an estimate for 

employment in the DIB. From there, we took each annual value 

and multiplied it by the annual Total Factor Productivity for the 

defense contracts, trends in the average level of pay provided to individual industry workers indicates the value of their labor. Increasing 

wages, which is generally a very positive development for workers, 

can indicate tight labor markets that result in increased wages. Using 

wage data from the Bureau of Labor and Statistics, NDIA estimated 

a weighted average of annual pay per-worker in defense-related 

industries to demonstrate the trend in the valuation of talent within 

the DIB. Average annual per-worker pay was scored against a baseline value of $100,500, which is the infation-adjusted level of annual 

per-worker pay from during the defense buildup peak of 1985.23 

20 U.S. Congress, House, William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021, HR 6395 116th Cong., https://www.congress.gov/ 

bill/116thcongress/house-bill/6395/text. 

21 Bureau of Labor Statistics, “Quarterly Census of Employment and Wages 2020 Average Annual”. Accessed September 18, 2021. https://www.bls.gov/cew/ 

publications/employment-and-wages-annual-averages/2020/home.htm. 

22 U.S. Bureau of Labor Statistics, “Nonfarm Business Sector: Labor Productivity (Output per Hour) for All Employed Persons [OPHNFB],” retrieved from FRED, Federal 

Reserve Bank of St. Louis. Accessed November 14, 2021. https://fred.stlouisfed.org/series/OPHNFB 

23 David K. Henry and Richard P. Oliver, “The defense buildup, 1977- 85: effects on production and employment,” Monthly Labor Review, 1987. Accessed December 8, 

2021. https://www.bls.gov/opub/mlr/1987/08/art1full.pdf 

19
20

NDIA VITAL SIGNS 2022

 

 

100 

75 

25 

0 

Workforce diversity 

Gender diversity in employment in defense supplier industries 

Racial diversity in employment in defense supplier industries 

Latino ethnicity diversity in employment in defense supplier industries 

Age ethnicity diversity in employment in defense supplier industries 

100 100 100 

inclusion within the workforce. A 2016 Ernst and Young survey 

found that 54% of human resource professionals at leading global 

aerospace and defense companies identifed the “lack of diversity 

at different levels of the organization” as the top talent management 

challenge for the sector.26 A 2017 Aviation Week survey of top U.S. 

aerospace and defense companies identifed a surge in the percentage of minorities in the workforce, increasing from 15% to 21%.27 In 

2019 2020 2021 

85 

75 

40 

85 

79 

41 

85 

79 

41 

new hires identifed themselves as members of a minority group.29 

In 2020, there were small dips in the SDI score for all catego50 ries, which highlights the importance of the way in which Vital Signs 

2020, Aviation Week reported a sizable increase in the percentage 

of women and minority executives.28 Additionally, in 2019, 37.3% of 

Score 

uses three-year running averages. That one-year small dip could be 

either anomalous or a leading indicator; however, this small, oneyear shift was not enough to change the data. There were increases 

across the board for diversity indicators. 

STEM talent pool 

Figure 2.7, Source: NDIA STEM percentage of total U.S. occupational employment 

Workforce diversity 100 

Workforce diversity scored a 76 for 2021, which marks a one- 90 92 95 

point increase from 2019. This score is based on NDIA’s estimate 75 

of the value of Simpson’s Diversity Index (SDI) for employment in 

defense-related industries according to age, gender, race, and ethnicity. Notably, this measurement includes the total population of 

employees and is not segmented by level of employee (e.g., individual contributor, management, executive). 

The DIB derives its capabilities from the skills of its workforce 

and through its ability to attract talent from all parts of American 

society. Diversity includes differences in age, ethnicity, gender, and 

race. A diverse workforce enhances the breadth of knowledge, 

skills, and abilities present in the workforce. Several studies have 

found that diverse groups make better decisions. 

To assess diversity within key supplier industries, an estimate 

of SDI serves as an indicator of the level of diversity present in the 

DIB.24 SDI values measure the probability that any two members of 

a system, selected randomly, will be the same.25 Each dimension 

of diversity was scored against an SDI value of 0.5 — the threshold value for a diverse population. 

The industry’s increasing workforce diversity refects both 

demographic trends and a growing recognition of diversity and 

Score 50 

25 

0 

2019 2020 2021 

Figure 2.8, Source: NDIA 

STEM talent pool 

The size of the industry’s technical talent pool scored a 95 for 2021, 

three points higher than in 2020. This score is derived from the 

science, technology, engineering, and mathematics (STEM) percentage of total U.S. occupational employment. The 2021 score for 

the technical talent pool uses NDIA’s estimate of the average annual 

STEM share of total U.S. occupational employment — 12.8%. This 

was also based on data from the Bureau of Labor Statistics (BLS).30 

24 Knudsen, Eric, “Simpson’s Diversity Index: The Diversity Metric You Aren’t Tracking Yet,” The Namely Blog, December 8, 2020. Accessed December 8, 2021. 

Https://blog.namely.com/blog/the-diversity-metric-you-arent-tracking-yet 

25 Royal Geographical Society, “A Guide to Simpson’s Diversity Index.” Accessed December 8, 2021. https://www.rgs.org/CMSPages/GetFile. 

aspx?nodeguid=018f17c3-a1af-4c72-abf2-4cb0614da9f8&lang=en-GB 

26 Ernst and Young, “Top 10 risks in aerospace and defense.” Accessed December 8, 2021. https://assets.ey.com/content/dam/ey-sites/ey-com/en_gl/topics/ 

manufacturing/ey-top-10-risks-in-a-d.pdf?download 

27 AIA, “2017 Aviation Week Workforce Report,” Aviation Week, November 30, 2017. Accessed October 12, 2021. https://www.aia-aerospace.org/report/2017-aviationweek-workforce-report/ 

28 AIA,“The Face of Aerospace & Defense,” Aviation Week, September 25, 2020. Accessed October 12, 2021. https://aviationweek.com/aerospace/face-aerospace-defense 

29 Ibid. 

30 Bureau of Labor Statistics, “2020 Current Population Survey (CPS) Table 11b.” Accessed September 2, 2021. https://www.bls.gov/cps/tables.htm 
NDIA VITAL SIGNS 2022

The availability of STEM workers impacts the productive capabil- Rate the diffculty of fnding workers ities of the DIB because such workers offer highly valuable technical 

skills that are essential for the design, development, and production Extremely diffcult 

of complex goods and services. Data from the BLS on the share 

of STEM workers that comprise total U.S. occupational employ- 200 196 

Not diffcult Somewhat diffcult 

ment indicates the amount of STEM-trained talent active within the 

workforce. This year’s average percentage of 12.8% was scored 

against 13.5%, the single-year peak value that the STEM share of 

employment reached in 2020. 

The growing size of industry’s STEM talent pool refects the 

infuence of several factors. First, more undergraduate students 

choose STEM majors today than a decade ago.31 STEM workers 

beneft from a wage premium when compared to workers in other 

industries or groups.32 

In recent years, a debate has emerged among industry and government leaders about a defcit of STEM skills throughout the U.S. 

workforce. Depending on the feld, both shortages and surpluses 

exist within the STEM workforce.33 Thus, STEM employment faces 

a paradox in which an expanding pool of STEM graduates fails to 

keep up with the growing demand for skilled labor while the STEM 

workforce is aging.34 

Within the DIB, concerns about the skills gap have focused on 

the availability of STEM workers for both manufacturing and engineering roles.35 A 2018 study of the skills gap by Deloitte and the 

Manufacturing Institute estimated that 2.4 million open manufacturing positions would go unflled between 2018 and 2028 due to a 

lack of available skilled labor.36 Many defense leaders have issued 

calls to action to address this sort of STEM-based skills gap, citing 

growing shortages of engineers and technicians at a time of technological competition.37 Many leading defense frms have responded 

to this trend by helping to grow the pipeline of STEM graduates 

entering defense engineering and manufacturing felds. 

Another way to view this issue is our Vital Signs Survey. While 

there is not enough data to score yet, there are some worrying 

signs, with only 17% of respondents saying that fnding STEM workers is “Not diffcult.” This points towards the demand for STEM 

workers also growing, because even after a record number of new 

graduates have entered the market, companies in the DIB continue 

to report challenges in fnding qualifed talent. 

0 

Trades/skilled Cleared workers 

labor 

STEM-related 

positions 

63 

96 

78 

175 

97 

76 

156 

112 

Figure 2.9, Source: NDIA 

Security on-boarding 

Federal security clearance processes earned a score of 36 for 

2021, eight points higher than 2020. The security on-boarding 

factor is comprised of indicators from 2019 to 2020 that include the 

average annual inventory of security clearance investigation cases 

(218,900 cases), the duration of initial top secret clearance reviews 

(183 days); and the duration of periodic top secret clearance reinvestigations (240 days). The average annual inventory of security 

clearance investigation cases was scored against a baseline from 

FY10 (~162,000 cases); the duration of initial top secret clearance 

reviews (100 days); and the duration of periodic top secret clearance reinvestigations (180 days).38 

On-boarding new personnel in the defense industry often 

requires navigating the security clearance process. Access to security clearances affects the availability of skilled workers for the DIB 

because some contracts require employees to possess security 

clearances to begin work. Achieving a permanent security clearance requires an extensive background check. The capacity and Number of respondents 150 

100 

50 

31 Yadoo, Jordan, “American College Students Are Swapping Shakespeare for STEM,” Bloomberg News, September 14, 2018. Accessed December 8, 2021. https:// 

www.industryweek.com/talent/article/22026345/american-college-students-areswapping-shakespeare-for-stem 

32 Pew Research Center, “7 facts about the STEM workforce,” FACTANK, Pew Research Center, January 9, 2018. Accessed December 8, 2021. https://medium.com/@ 

pewresearch/7-facts-about-the-stem-workforce-fe2a9fb87cad 

33 Xue, Yi and Richard C. Larson, “STEM crisis or STEM surplus? Yes and yes,” Monthly Labor Review, U.S. Bureau of Labor Statistics, May 2015. Accessed December 

8, 2021. https://www.bls.gov/opub/mlr/2015/article/stem-crisis-or-stem-surplus-yes-and-yes.htm 

34 Kramer, Mark et al. “The Global STEM Paradox,” FSG and the New York Academy of Sciences, 2015. Accessed December 8, 2021. https://www.nyas.org/ 

media/15805/global_stem_paradox.pdf 

35 Aerospace Industries Association and the American Institute of Aeronautics and Astronautics, “2016 National Aerospace & Defense Workforce Summit: Proceedings 

Report & Recommendations,” 2016, Accesed December 8, 2021. http://static.politico.com/88/1f/4bdfa7e04063a94044eecf1c7f21/2016-national-aerospacedefense-workforce-summitproceedings-report-recommendations.pdf 

36 Giff, Craig et al, “2018 Deloitte and the Manufacturing Institute skills gap and the future of work study,” Deloitte Insights, 2018. https://www. 

themanufacturinginstitute.org/research/2018-deloitte-and-the-manufacturing-institute-skills-gap-and-future-of-work-study/ 

37 Hewson, Marillyn, “We must close the skills gap to secure our future,” FoxNews.com, July 19, 2018. Accessed December 8, 2020. https://www.foxnews.com/ 

opinion/we-must-close-the-skillsgap-to-secure-our-future 

38 Ogrysko, Nicole, “Agencies on Deadline to Enroll Security Clearance Holders in Continuous Vetting,” Federal News Network, April 21, 2021. https:// 

federalnewsnetwork.com/defense-industry/2021/04/agencies-on-deadline-to-enroll-security-clearance-holders-in-continuous-vetting/. 

21
22

NDIA VITAL SIGNS 2022

effciency of the security clearance investigation process and the 

issuance process may act as a constraint on the ability of defense 

contractors to fll defense contracting jobs. The backlog of security clearances has seen a signifcant decrease since the release 

of Vital Signs 2020. Though the three-year trailing average is still 

largely dominated by the massive increase from 2018, the inventory 

was down from a high of over 700,000 cases to just over 300,000 

cases in 2019. The drop in cases has coincided with investigations 

being handed over from the National Background Investigations 

Bureau to the Defense Counterintelligence and Security Agency 

(DCSA). Both new investigation times and reinvestigation times 

are down on a year-by-year basis. However, it is worth mentioning that DCSA only released the average time for the fastest 90% 

of investigations in 2019. As mentioned previously, it is unclear if 

this trend will continue long enough to have a signifcant bearing 

upon future averages. 

SUMMARY 

While “production inputs” demonstrated increasingly poor performance with an overall unsatisfactory and failing score of 67 for 2021, 

that score is a one increase from 2019. The failing performance of 

the federal clearance system led to a low score of 36 for security 

on-boarding, a key limiting component in the defense industry’s 

access to skilled labor. The costs of goods and services scored a 

good 58 for 2021. This is a 14 point drop from last year and a 26 

point drop from 2019; meanwhile, access to strategic materials 

increased by twelve points from 31 in 2019 to 43 in 2021. Workforce 

diversity improved by one point — to a mediocre 76 in 2021 from 

75 in 2019 — driven primarily by a four-point improvement in racial 

diversity from two years ago. The skilled workforce pool scored a 

95, rising as a result of an expansion of STEM-trained graduates 

and workers drawn to the compensation premium associated with 

STEM jobs and educational backgrounds. 
NDIA VITAL SIGNS 2022

 

 

INNOVATION 

INNOVATION 

Change, 2020 – 2021

 0 

INNOVATION SCORES 

Overall factor 2021 Change, 

2020 – 2021 

Innovation inputs 75 -2 

Innovation competitiveness 73 0 

Innovation/intellectual property 

production 

59 +3 

Overall innovation score 69 0 

Figure 3.1 

Factor score key

 -6 and worse -1 – -5 0 +1 – +5 +6 and better 

The U.S. has long relied on private industry to spearhead research 

and development into innovation and new technologies to ensure 

our nation’s capabilities superiority across all domains of warfare. 

This chapter examines trends in our innovation ecosystem’s inputs, 

outputs, and competitiveness and highlights the defense industrial 

base’s ability to yield innovations that help our warfghters maintain 

or expand upon their technological advantage. Trends in industrial 

R&D investment and patent activity help form a picture of the state 

of private sector defense innovation. 

KEY TAKEAWAYS 

• Overall, “innovation” scored a 69 for 2021, which meant no 

change from 2020 

• The continued decline in basic science R&D expenditures and 

overall productivity has placed signifcant downward pressure 

on innovation 

• Between 2011 and 2016, U.S. government funding for R&D 

projects fell by 12% in absolute terms. Over the same time 

frame, Russia and China grew public investment in R&D by 

13% and 56%, respectively. 

OVERVIEW 

For decades, the U.S. National Defense Strategy has looked to 

the DIB as an essential source of technological innovation. The 

manufacturing and services industries associated with the most 

technology-intensive goods and services acquired by DoD are the 

source of signifcant amounts of capital for research and development. Trends in industrial R&D investment and patent activity help 

to form a picture of the state of private sector defense innovation. 

Many DoD programs require, or are the result of, large investments 

in research and development. Both the technical research of applied 

science and foundational basic research are key to this effort. 

For Vital Signs 2022, “innovation” remained stagnant with a failing grade just below passing when adjusted for changes in scoring. 

The decline in innovation investments stems from scientifc R&D 

services industries—typically those focused on basic research. 

The growing intensity of competition with 

both China and Russia requires the maintenance 

and expansion of U.S. technological dominance. 

This sector also continues to be a poor performer in innovation outputs, which accounts for the lack of change in the status 

of scientifc R&D services, a key force in the decline of innovation. 

R&D investment in technology and manufacturing continues to 

be strong. Manufacturing innovation outputs saw a slight rebound 

from last year but overall, this factor is still down from 2019. Direct 

DoD innovation spending patterns provide another way of looking 

at the innovation landscape. Research, development, test, and evaluation continue to dominate DoD innovation spending, but OTA's 

continue to increase at a rapid rate. 

METHOD 

This section presents scores for industrial innovation drawn from 

the U.S.-based innovation inputs, innovation outputs, and the international competitiveness of industrial innovation. The overall scores 

for “innovation” inputs and outputs are derived from the total dollar 

value of corporate R&D expenditures and annual patent applications 

23
24

NDIA VITAL SIGNS 2022

 

INNOVATION SCORES 

Factor Indicator 2021 Change, 2020 – 2021 

Innovation inputs 

Average annual value of worldwide R&D paid for by United Statesbased companies, selected durable industrial goods manufacturing 

industries 

100 0 

Average annual value of worldwide R&D paid for by United Statesbased companies, information and communications technologies 

100 0 

Average Annual Value of Worldwide R&D paid for by United Statesbased companies, scientifc R&D services 

25 -6 

Overall innovation inputs 75 -2 

Innovation competitiveness 

Share of international patent applications, U.S.-origin 68 -1 

Share of global R&D investment, U.S.-origin 77 +1 

Overall Innovation competitiveness 73 0 

Innovation/intellectual property 

production 

Average annual patent applications, durable industrial goods 

manufacturing 

50 +4 

Average annual patent applications, information and communication 

technologies goods and services 

90 +6 

Average annual patent applications, scientifc R&D services 36 -2 

Overall innovation/intellectual property production 59 +3 

Overall innovation score 69 0 

Figure 3.2 

obtained from the National 

Factor score key -6 and worse -1 – -5 0 +1 – +5 +6 and better 

 Science Foundation, respectively. The Innovation inputs fnal score for “innovation” competitiveness is based on patent data 

from the World Intellectual Property Offce, and comparative international expenditures data from the Organization for Economic 

Cooperation and Development. 

TRENDS 

Innovation inputs 

In 2021, innovation inputs scored 75, a slight decrease of 2 points 

from the previous year, 2020. NDIA calculates this overall score 

for innovation outputs based on the value of worldwide research 

and development (R&D) paid for by U.S.-based companies.39 More 

specifcally, NDIA accounts for U.S. based R&D spending in three 

categories: 1) selected durable industrial goods, 2) information 

and communications technology, and 3) scientifc R&D services.40 

Defense industrial base investment in innovation plays a key role 

in advancing and enhancing defense-related technologies. By engaging in R&D projects, frms can develop proprietary capabilities that 

can be scaled-up and incorporated into the larger defense industrial 

ecosystem, once their value is proven. Private sector investment in 

R&D still dominates overall R&D funding, accounting for nearly 70% 

Average annual value of worldwide R&D paid for by U.S.-based 

companies, selected durable industrial goods manufacturing industries 

Average annual value of worldwide R&D paid for by U.S.-based 

companies, Information and Communications technologies 

Average annual value of worldwide R&D paid for by U.S.-based 

companies, scientifc R&D Services 

100 

80 

60 

31 30 25 

2019 2020 2021 

40

Score 

20 

0 

Figure 3.3, Source: NDIA 

39 National Science Foundation, “Business Enterprise Research and Development Survey (BERD).” December 16 2020. Accessed September 5, 2021. https://ncses. 

nsf.gov/pubs/nsf21312. 

40 Selected durable industrial goods manufacturing (NAICS codes: 3251, 3252, 3255, 3259, 326, 327, 331, 332, 3336, other 333, 335, 336), Information and 

Communication Technologies goods and services (NAICS 333242, 334, 5112, 517, 518, 5415), Scientifc R&D Services (5417) 
NDIA VITAL SIGNS 2022

 

 

 

50 

of all U.S. R&D expenditures.41 Nevertheless, the trends outlined in 

this report indicate a decline in defense-related private sector R&D. 

The defense sector does not enjoy the same R&D incentives 

that the broader organic industrial base does resulting in relatively 

low levels of R&D. Additionally, the U.S. defense market is a monopsony, which can sometimes result in unclear demand signals by 

the DoD, the sole customer, creating a larger risk to such investments. As a result, new innovative technologies are often felded 

through mergers and acquisition activity by larger companies. We 

intend to study this effect in future editions of Vital Signs. 

From 2022, companies will be required to amortize their R&D 

expenses over fve years as part of the Tax Cuts and Jobs Act of 

Innovation/Intellectual Property production 

Average annual patent applications, durable industrial goods 

manufacturing 

Average annual patent applications, Information and Communication 

Technologies goods and services 

Average annual patent applications, scientifc R&D services 

100 

90 

84 

75 71 

58 

Score 

50 46 

37 38 

2017 (TCJA). Since 1954, and prior to the introduction of the TCJA, 

companies were allowed to deduct qualifying R&D expenses under 

Section 174 of the Internal Revenue Code. The requirement for 

companies to capitalize and amortize R&D expenses amounts to 

a signifcant tax increase, which will negatively impact innovation.42 

The Congressional Research Service categorizes R&D funding by 

the nature of the work it supports: basic research, applied research, 

and development43. Basic research is experimental and theoretical, 

applied research is primarily undertaken with a specifc practical aim 

or objective in mind, and development is directed towards producing 

new, or improving existing, products and processes. Private industry dominates funding of both development and applied research 

projects, accounting for 85.2% and 54.3% expenditures, respectively. The Federal Government, however, accounts for the majority 

of basic research funding.44 As the Federal Government continues 

to allocate fewer funds to R&D projects—and without private investment to supplement this decline—the DIB faces the decay of the 

most basic scientifc and technological R&D capabilities. 

Innovation outputs 

In 2021, innovation outputs scored 59 which was a modest 

increase from the previous year’s 56. NDIA scores innovation outputs based on three indicators tied to annual patent application 

flings for inventions associated with 1) durable goods manufacturing, 2) information and communications technologies, and 3) 

scientifc R&D services.45 This year, information and communications technology uses a new baseline because the most recent 

data represented a new peak value for this indicator. 

We defne innovation outputs as “how well the U.S. innovation 

system generates new inventions.” Inventions are new solutions to 

problems that generate goods and services. Patent applications are 

25 

0 

2019 2020 2021 

Figure 3.4, Source: NDIA 

an effective proxy to measure inventions and innovation productivity. They also help identify new technical creations with benefcial 

commercial uses. However, patent issuances include only those 

innovations that qualify for a patent and have been fled, which 

means they do not effectively represent all productive innovation 

outputs. 

As with our previous reports, the average annual patent application totals were scored against a series of baseline fgures: in 

2013 there were 71,202 total patent applications for durable goods 

manufacturing; 64,665 in 2008, for information and communications technologies; and 7,072 for 2008, for scientifc R&D services. 

These years represent standout levels of patent applications. 

And as with innovation inputs, the trends for average patent 

applications submitted for inventions in durable goods manufacturing and information and communication technologies are related 

to trends in scientifc R&D services. 

Innovation competitiveness 

Innovation competitiveness scored 73 in 2021, a two-point decline 

from the 2019 score of 75. NDIA calculated the score for innovation 

competitiveness using the U.S. share of global R&D investment, 

which currently stands at a three-year average of 29%.46 

41 Congressional Research Service, “U.S. Research and Development Funding and Performance: Fact Sheet”. October 4, 2021. Accessed November 1, 2021 https://sgp. 

fas.org/crs/misc/R44307.pdf. 

42 Atkinson, Robert D, “The Case for Repealing the R&D Amortization Provision in the 2017 Tax Cuts and Jobs Act,” Information Technology and Innovation 

Foundation, September 7, 2021. Accessed December 8, 2021. https://itif.org/publications/2021/09/07/case-repealing-rd-amortization-provision-2017-tax-cuts-and-jobsact. 

43 Congressional Research Service, “U.S. Research and Development Funding and Performance: Fact Sheet”. October 4, 2021, Accessed October 5, 2021. https://sgp. 

fas.org/crs/misc/R44307.pdf. 

44 Ibid. 

45 National Science Foundation, “Business Enterprise Research and Development Survey (BERD).” December 16 2020. Accessed September 5, 2021. https://ncses. 

nsf.gov/pubs/nsf21312. 

46 Organization for Economic Cooperation and Development (OECD), “Main Science and Technology Indicators.” Accessed November 9, 2021. https://www.oecd.org/ 

sti/msti.htm. 

25

36 
26

NDIA VITAL SIGNS 2022

 

100 

Innovation competitiveness 

Share of international patent applications, U.S.-origin 

Share of global R&D investment, U.S-origin 

76 76 77 

75 

50 

25 

0 

Figure 3.5, Source: NDIA 

This indicator also looks at U.S. patents as a share of the global 

total.47 This indicator was used in Vital Signs 2020 but was absent 

last year given a lack of updated data. This year, the U.S. patents 

indicator shows a slight improvement from two years ago. The measurement of innovation inputs and outputs are important metrics 

which frame the state of the current environment, yet such activities also occur within the broader international ecosystem. 

The growing intensity of competition with both China and Russia 

requires the maintenance and expansion of U.S. technological 

dominance. However, in recent years, U.S. investment in R&D has 

declined precipitously as a percentage of global expenditures. In 

1995, the U.S. accounted for nearly 40% of global R&D; yet by 2019 

that number had dropped to just 29%.48 Similarly, while international research intensity among developed nations has continued 

to rise, the U.S. has remained behind. As of 1995, the U.S. ranked 

fourth in terms of total R&D expenditures as a percentage of GDP; 

by 2019, it had tumbled to tenth.49 

Outside of the private sector, public sector investment in innovation also continued to deteriorate. This is especially signifcant 

considering that public sector funding dominates the area of basic, 

experimental, and theoretical research in the U.S. Between 2011 

and 2016, U.S. government funding for R&D projects fell by 12% in 

absolute terms. Over the same timeframe, Russia and China grew 

public investment in R&D by 13% and 56%, respectively.50 

73 

68 69 

2019 2020 2021 

Score 

DoD innovation spending 

DoD’s innovation spending patterns provide another lens for understanding innovation trends. Since FY 2016, DoD’s RDT&E budget 

requests have grown, with the FY 2022 request being the highest 

ever made at $112 billion, a 5% increase over FY 2021. The FY 2020 

request was DoD’s overall largest budget request in 70 years, with 

a marginal increase of 0.1% coming the year after.51 The FY 2022 

request is the largest ever made at $715 billion.52 This is up from 

$705.4 billion in FY 2021, representing a 1.6% increase this year. 

In addition to competition with China and Russia, the FY 2022 

budget request emphasizes broader challenges to global security 

such as climate change and the global threat it poses to military 

installations. This request includes $617 million to accelerate DoD’s 

response to climate change in addition to a further $500 million for 

pandemic preparedness and COVID-19 mitigation. The budget also 

focuses on modernization and future technologies, including $14.7 

billion for science and technology broadly in addition to investments 

in artifcial intelligence, 5G, and microelectronics. 

The DoD has also turned to its National Security Innovation 

Network to create alternative funding pathways in this area, particularly outside of traditional defense contractor networks. This has 

included several pitch competitions open to the public and attempts 

to incorporate non-traditional contractors into defense circles. Finally, 

this year’s budget request also includes a Defense Production Act 

request “to partner with U.S. companies to boost the defense industrial base and bring critical supply chains back to the U.S., including 

rare earth elements and microelectronics,” totaling $341 million. 

SUMMARY 

In terms of contributing factors, corporate investment into industrial research and development in defense-related industries scored 

a 75, marking a two-point decline since 2019. The declining level 

of inputs coming from scientifc R&D services, industries that are 

typically focused on basic research, is a critical component in 

the overall decline in “innovation”. Innovation outputs regarding 

patent applications from defense-related industries scored a 59, 

four points higher than 2019 when previous years were rescored 

with a new baseline. For 2021, innovation competitiveness scored 

73, which is a decrease of two points from 2019. 

Overall, “innovation” scored 69 for 2021 in the United States 

and has failed this year, although this sign is stable across the last 

two years when new indicators are integrated into previous scores. 

47 World Intellectual Property Organization, “WIPO IP Statistics Data Center.” Accessed October 29, 2021. https://www3.wipo.int/ipstats/. 

48 The Task Force on American Innovation, “Second Place America? Increasing Challenges to U.S. Scientifc Leadership,” The Task Force on American Innovation, May 

2019. http://www.innovationtaskforce.org/wp-content/uploads/2019/05/Benchmarks-2019-SPA-Final4.pdf. 

49 Ibid. 

50 Caleb Foote, Robert D. Atkinson, “Dwindling Federal Support for R&D Is a Recipe for Economic and Strategic Decline,” Information Technology and Innovation Foundation, 

December 14, 2018. Accessed November 1, 2021. https://itif.org/publications/2018/12/14/dwindling-federal-support-rd-recipe-economic-and-strategic-decline. 

51 Department of Defense, “DoD Releases Fiscal Year 2021 Budget Proposal,” February 10, 2020. Accessed November 3, 2021. https://www.defense.gov/Newsroom/ 

Releases/Release/Article/2079489/dod-releases-fscal-year-2021-budget-proposal/. 

52 Department of Defense, “The Department of Defense Releases the President’s Fiscal Year 2022 Defense Budget,” May 28, 2021. Accessed November 3, 2021. 

https://www.defense.gov/News/Releases/Release/Article/2638711/the-department-of-defense-releases-the-presidents-fscal-year-2022-defense-budg/ 
NDIA VITAL SIGNS 2022

 

 

SUPPLY CHAIN 

SUPPLY CHAIN 

Change, 2020 – 2021 

-8 

SUPPLY CHAIN SCORES 

Overall factor 2021 Change, 

2020 – 2021 

Contract failure 37 +10 

Financial performance 38 -36 

Inventory performance 75 -8 

Cost management 100 0 

Overall supply chain score 63 -8 

Figure 4.1 

Factor score key

 -6 and worse -1 – -5 0 +1 – +5 +6 and better 

The performance of supply chains factors into assessments of the 

health of the defense industrial base. Defense supplier networks rely 

on well-functioning relationships among companies to deliver products and services to fulfll their government contracts. This section 

of the report studies trends in contract failures, supply chain fnancial performance, inventory performance, and cost management. 

KEY TAKEAWAYS 

• “Supply chain” scored a 63, erasing the signifcant improvements measured in last year’s report 

• Contract failure scored a 37 for 2021, marking a substantial 

increase of 10 points from the 2020 score of 27 

• The defense industry scored a 38 for fnancial performance in 

2021. This represents a very sharp decline, down 36 points 

from last year. 

OVERVIEW 

Reliable supply networks are vital to the health and readiness of 

the defense industrial base and our national security as evidenced 

by the semiconductor shortage that has hit all industrial sectors 

during the pandemic. As such, the performance and effciency of 

these supply chains directly drive industry’s capacity to provide 

affordable, timely, and high-quality goods and services to defense 

customers. These broader conditions are the product of other 

trends across defense-related and commercial supplier networks 

that include rates of contract failure, fnancial performance, inventory management, schedule management, and cost management. 

We expect that next year’s report will refect 

even greater supply chain challenges wrought by 

the pandemic. 

METHOD 

There is one major change from last year’s report. We are no 

longer able to track Schedule Management. We based this score 

on Selected Acquisition Reports (SAR). These reports were based 

on Major Defense Acquisition Program (MDAP) data that was previously reported to Congress, however, in the FY 2020 NDAA53, 

Congress chose to stop requiring these reports. Without them there 

is no other publicly available source of data that tracks the costs 

of schedule changes to major DoD programs. 

The “supply chain” section offers scores for indicators that 

refect the overall performance of defense supply chains. The indicators in this section depict trends in contract failure, supply chain 

fnancial performance, inventory management, and cost management. The indicator for contract failure rates was drawn from data 

on contract terminations for cause, which was obtained from the 

Federal Awardee Performance and Integrity Information System. 

For fnancial performance and inventory management, NDIA calculated industry’s cash conversion cycle and inventory turnover 

ratio, respectively. These calculations relied on data obtained from 

our partner, decision science company Govini, as well as annual 

reports, required by the Securities and Exchange Commission, of 

the annual flings of the top 100 recipients of defense contracts. 

Lastly, the indicator for cost management was drawn from the 

number of Nunn-McCurdy cost breaches reported by the DoD’s 

Director of Cost Assessment and Program Evaluation. 

53 U.S. Congress, House, National Defense Authorization Act for Fiscal Year 2020 S.1790, 116th Cong., https://www.congress.gov/bill/116th-congress/senate-bill/1790/text. 

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NDIA VITAL SIGNS 2022

 

 

 

 

25 

SUPPLY CHAIN SCORES 

Factor Indicator 2021 Change, 2020 – 2021 

Contract failure Average annual DoD contracts terminated for cause 37 +10 

Overall contract failure 37 +10 

Financial performance Weighted average cash conversion cycle for top defense contractors 38 -36 

Overall fnancial performance 38 -36 

Inventory performance Weighted average inventory turnover ratio for top defense contractors 75 -8 

Overall inventory performance 75 -8 

Cost management Average Nunn-McCurdy unit cost breaches 100 0 

Overall cost management 100 0 

Overall supply chain score 63 -8 

Figure 4.2 Factor score key -6 and worse -1 – -5 0 +1 – +5 +6 and better 

DoD contract management ecosystem. Contract terminations were TRENDS 

scored against a baseline of 135 for 2014, which is the frst year for 

Contract Failure which a longitudinal dataset for this statistic is available. 

Average annual DoD contracts terminated for cause 

100 Financial performance Score 

Weighted average cash conversion cycle ratio for top defense contractors 

75 100 

50 74 75 37 

25 27 

Score 

54 

38 

2019 2020 2021 

50 

0 

2019 2020 2021 

Figure 4.3, Source: NDIA 

Contract failure 

The defense industry’s contract failure indicator scored a 37 for 

2021, marking a substantial increase of 10 points from the 2020 

score of 27. The considerable surge in scoring is due to an equally 

sizable decrease in the average number of contract terminations 

for cause. In 2019, there were 394 contract terminations for cause; 

in 2020 there were just 164.54 

All federal agencies, including the DoD, maintain the ability for 

complete or partial termination of contracts for the convenience of 

the Government or for default. Contracting offcers are often only 

able to exercise this mechanism after a lengthy process consisting 

of offcial complaints and contractor responses. Trends in contract 

terminations reveal broader patterns of contract performance and 

award management. As such, contract terminations serve as a 

very useful gauge to understand systemic challenges across the 

25 

0 

Figure 4.4, Source: NDIA 

Financial performance 

The defense industry scored a 38 for the fnancial performance 

indicator in 2021. This represents a very sharp decline, down 36 

points from last year, and refects the challenges the COVID-19 pandemic has posed to defense supply chains. The score is based on 

the average cash conversion cycle for companies.55 

The cash conversion cycle illustrates how well supply chains 

function by indicating the time needed for a company to regain a 

dollar invested in product inventory as cash receipts. Converting 

product investment into cash receipts involves all stages of the 

supply chain process — providing a valuable indicator to the health 

54 General Services Administration, “The Federal Awardee Performance and Integrity Information System (FAPIIS).” Accessed October 25, 2021. https://www.fapiis. 

gov/fapiis/#/reports. 

55 Based on fnancial data of the top 100 provided by Govini 
NDIA VITAL SIGNS 2022

 

25 

of defense industrial base supply chains. Trends in the length of the 

cash conversion cycle suggest a pattern of either improvement or 

deterioration in supply chain performance. 

The cash conversion cycle helps to illuminate supply chain 

liquidity conditions. Companies rely on cash generated from sales 

to fnance the production of additional goods for sale. While a 

shorter cash conversion cycle helps companies to fund operations 

without having to access capital markets, a longer cash conversion 

cycle indicates that companies face greater diffculty in relying on 

sales for the liquidity necessary to fund critical operations. 

Historically, defense manufacturing frms maintain extra inventory 

because of the complexity of their supply chains and long production 

lead times.58 While increased inventory can protect against potential 

sole-source chokepoints among lower-tier suppliers, industry risks 

a loss of both supply chain fexibility and working capital.59 

Supply chain issues are also demonstrated in the results of 

our Vital Signs Survey 2022. In it we asked, “given current conditions, do you think your company’s supplier network will be more 

reliable, less reliable, or about the same at delivering goods, materials, and services?”60 Only 12% thought their supplier networks 

would be more reliable. 

Inventory performance 

Cost management 

Weighted average inventory turnover ratio for top defense contractors 

Average Nunn-McCurdy unit cost breaches 

100 100 

75 83 75 75 

62 

2019 2020 2021 

Score 50 

Score 

50 

0 

2019 2020 2021 

Figure 4.5, Source: NDIA 

Inventory performance 

Inventory management scored a 75 for 2021, an eight-point 

decline from last year.56 The inventory turnover ratio was scored 

against the highest performing year in our dataset.57 

Given current conditions, do you think your company’s supplier 

network will be more: reliable, less reliable, or about the same 

at delivering goods, materials, and services necessary for DoD 

contracts? 

150 

138 

25 

0 

Figure 4.7, Source: NDIA 

Cost management 

The defense industry’s cost management indicator scored a 100 for 

this year. Over the past decade, there were no more than a handful of Nunn-McCurdy cost breaches each year. Supply chain cost 

management is a critical sign as to the health and readiness of the 

DIB. Supply chain costs can come from a wide variety of places. 

The cost management for Major Defense Acquisition Programs 

(MDAPs) has been a concern of lawmakers and policymakers for 

decades. The Nunn-McCurdy Act of 1983 created mechanisms 

for alerting Congress when an MDAP surpasses its cost threshNumber of respondents 100 

50 

0 

77 

30 

Less reliable About the same More reliable 

old. Tracking Nunn-McCurdy breaches provides a valuable proxy 

for industry’s supply chain cost management trends. 

SUMMARY 

An overall “supply chain” score of 63 refects an eight-point decline 

over last year, placing the sign at an “Unsatisfactory, and Failing 

level.” This decline refects the signifcant turbulence introduced 

into the economy during the frst year of the COVID-19 pandemic. 

We expect that next year’s report will refect even greater supply 

Figure 4.6, Source: NDIA chain challenges wrought by the pandemic. 

56 Based on fnancial data of the top 100 provided by Govini 

57 Based on fnancial data of the top 100 provided by Govini 

58 Mayer, Abby, “Supply Chain Metrics That Matter: A Focus on Aerospace & Defense,” Supply Chain Insights LLC, March 18, 2014. Accessed December 8, 2021. 

https://www.kinaxis.com/sites/default/fles/2017-12/metrics-that-matter-aerospace-and-defense-supply-chain-insights-research.pdf 

59 EY, “A&D Edge: Supply chain management in aerospace and defense,” EY, February 2018, Accessed September 12, 2021. https://assets.ey.com/content/dam/eysites/ey-com/en_gl/topics/manufacturing/ey-AD-Edge-Supply-chain-management-in-aerospace-and-defense.pdf?download 

60 NDIA, “Vital Signs 22 Survey,” data collected in August 2021. 

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NDIA VITAL SIGNS 2022

 

 

 

COMPETITION 

COMPETITION 

Change, 2020 – 2021

 0 

COMPETITION SCORES 

Overall factor 2021 Change, 

2020 – 2021 

Proftability 75 +2 

Liquidity 82 -11 

Leverage 87 -4 

Capital investment 77 -5 

Market concentration 100 0 

Foreign ownership 100 0 

Contract competition 92 0 

Overall Competition Score 88 0 

Figure 5.1 

Factor score key

 -6 and worse -1 – -5 0 +1 – +5 +6 and better 

The defense industrial base consists of many thousands of companies competing for and performing on contracts with the Department 

of Defense. This section looks at conditions that characterize and 

shape “competition”, which can help determine the composition of 

the industry and its performance outcomes. A competitive defense 

sector can be both benefcial and indicative — benefcial in that 

competition can drive innovation and effciencies to deliver better 

capabilities at reduced cost to the warfghter, and indicative in that 

the market incentives and perceived opportunities keep producers 

in the sector while also potentially pulling in new frms. This section 

of the report informs our understanding of the health of competitive dynamics within the defense industrial base. 

KEY TAKEAWAYS 

• “Competition” scored 88 for 2021, the same as in 2020 

• In the three years prior to the COVID-19 pandemic, the level 

of competition had proved relatively stable 

• Proftablity is the only factor that has experienced an increase 

since 2020 

• Almost 30% of survey respondents said that they were the 

sole eligible provider of a product for DoD. However, survey 

results do not contribute to fnal scores. 

There is a decrease in both the total number 

of DoD vendors, and new entrants to the DIB. 

OVERVIEW 

The state of competition between frms exerts a powerful infuence on the productive performance of frms within industry. Many 

frms of varying sizes, product and service specializations, and 

even national origins compete for contracts within the defense 

industrial base. While such competition occurs, trends in fnancial performance indicate the fnancial health of the involved frms. 

The competition between frms for contracts results in patterns of 

market concentration that illustrate the extent to which relatively 

few frms dominate defense contracting dollars. The entry of frms 

into defense contracting provides insight into the openness and 

attractiveness of the defense contracting market to new sources 

of competition. 

Overall, competitiveness within the defense industrial base has 

decreased slightly when compared with 2019. Proftability increased 

by two points compared to last year, and was fat compared to 

2019. The liquidity indicator dropped sharply from 2020 while all 

other indicators slightly decreased. We relied on publicly available Securities and Exchange Commission flings from the top 

100 publicly traded recipients of defense contracts to complete 

our analysis.61 

61 DoD issues an annual list of the top 100 defense contractors that includes both public companies and privately held companies. We do not attempt to measure the 

fnancial performance of the private companies due to the lack of reliable publicly held data. Department of Defense, “CY 2021&22 Top 100 Defense Contractors by 

Global Vendor Name (FY 20),” https://dodsoco.ogc.osd.mil/Portals/102/Documents/Conficts/CY%202021-22%20Top100%20Contractor%20List%20-Alpha%20(FY20). 

pdf?ver=laieJKldvd2EEW_jI59gFQ%3d%3d 
NDIA VITAL SIGNS 2022

 

COMPETITION SCORES 

Factor Indicator 2021 Change, 2020 – 2021 

Proftability 

Weighted average core operating margin (return on sales) 76 -17 

Weighted average earnings per share 89 +5 

Weighted average return on assets 97 +31 

Weighted average return on equity 39 -12 

Overall proftability 75 +2 

Liquidity 

Weighted average free cash fow 67 -19 

Quick ratio (acid test) 82 -12 

Working capital ratio (current ratio) 96 -2 

Overall liquidity 82 -11 

Leverage 

Debt to equity ratio 84 +1 

Solvency ratio 90 -8 

Overall leverage 87 -4 

Capital investment Capital expenditure ratio 77 -5 

Overall capital investment 77 -5 

Market concentration Level of market concentration (Herfndahl-Hirschman index) 100 0 

Overall market concentration 100 0 

Foreign ownership Contracting market share of foreign-owned frms 100 0 

Overall foreign ownership 100 0 

Contract competition Average number of competitive offers received per contract actions 92 0 

Overall contract competition 92 0 

Overall competition score 88 0 

Figure 5.2 

CONTEXT 

Market concentration, contract competitiveness, proftability, cash 

availability, capital investment, and foreign ownership of the defense 

industrial base are used as assessments in this section of Vital 

Signs. By understanding the trends across these measures, we 

can determine the current state of competitiveness and whether 

the dynamics of the defense contracting marketplace are evolving in a healthy direction. 

The competitive environment for the DIB remained stable over 

the three-year period preceding the novel coronavirus pandemic. 

For all factors, there have been no signifcant increases since 2019, 

other than a marginal increase in proftability. 

METHOD 

NDIA calculated indicator scores for proftability, cash availability, 

capital expenditures, market concentration, and foreign ownership 

Factor score key -6 and worse -1 – -5 0 +1 – +5 +6 and better 

using fnancial data for the top 100 publicly traded Department 

of Defense contractors. We also relied on annual fnancial data 

obtained through our partner, decision science company, Govini. 

NDIA calculated the scores for competitive bidding from federal 

procurement data analyzed by Govini. 

TRENDS 

Contract competition 

Contract competition earned a score of 92 for 2021, the same as 

in 2020. Contract competition refers to the number of frms bidding on contracts offered by the DoD. Contracts can be awarded 

through either a competitive or non-competitive bidding process. 

When broken out by the type of competition, Full and Open 

Competition and Special Acquisition Procedures (SAP) saw a slight 

decrease from FY 2019. Full and Open Competition dropped from 5.6 

average offers per award to 5.38 while the latter dropped from 3.71 to 

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NDIA VITAL SIGNS 2022

Contract competition an industry that is dominated by a few frms. For the health of the 

defense industrial base, low market concentration is generally prefAvg. number of competitive offers received per contract action erable to high market concentration. Low-concentration markets 

100 feature more competition, competitive prices, and more innovation. 93 92 92 

HHI is the standard statistical measure of market concentration and 

is widely used among federal policymakers.64 

75 In 2021, the defense industrial base’s HHI was 400, below the 

Department of Justice’s threshold of 1,500 for a moderately concentrated industry. Comparatively, the DIB’s HHI score that was 50 

calculated for Vital Signs 2022 is nearly 110 points lower than in 

Vital Signs 2021, trending towards a lower degree of market con25 centration. The defense industrial base’s low HHI indicates that 

total contract obligation dollars remain widely allocated among 

contractors and suggests a high degree of competition within the 

0 defense industrial base. The overall defense industrial base market 

2019 2020 2021 

Score 

Figure 5.3, Source: NDIA 

3.7. The increase came from Full and Open Competition After Exclusion 

of Sources, which increased from 5.55 average offers to 6.15.62 

When broken down by category management groups, 

Transportation and Logistics Services continues to have the most 

competition with 12.16 average offers in FY2020. The Equipment 

Related Services category was last this year with only 2.42 averDoes your company produce any defense-related products, 

regardless of industrial line of business, for which it is the 

sole eligible provider in the United States? 

249 250 

200 

114 

Yes No 

age offers, with Aircraft, Ships/Submarines & Land Vehicles just 

ahead with 2.55 average offers per award.63 

Market concentration 

Number of respondents 150 

100 

2019 2020 2021 

75 

50 

25 

0 

Figure 5.4, Source: NDIA 

Market concentration 

The overall score for market concentration remains unchanged 

from last year, a 100. The score is derived from a calculation of the 

Herfndahl-Hirschman Index (HHI), with a baseline index score of 

1,500. The Herfndahl-Hirschman Index is used to measure market 

concentration within an industry. A high HHI score is illustrative of 

Level of market concentration (Herfindahl-Hirschman Index) 

100 

50 

0 

Figure 5.5, Source: NDIA 

concentration indicates a competitive market for the time being. 

Due to defnitional and unclassifed data availability challenges, 

we did not attempt to calculate the HHI for different defense market 

segments. As noted in the 13806 Report, certain defense market 

segments may be highly and increasingly concentrated — such as 

fuzes—or extremely fragmented — such as transportation services. 

This factor is also demonstrated by our Vital Signs Survey in which 

almost 30% of respondents (Figure 5.5) said that they were the 

sole eligible provider of a product for DoD.65 This matches results 

from last year, and while it cannot be scored yet, the consistency 

between years is notable. 

62 Based on DoD innovation spending data provided by Govini 

63 Based on DoD contract obligation data provided by Govini 

64 Rhoades, Stephen A., “The Herfndahl-Hirschman Index,” 79 Fed. Res. Bull. 188, (1993). Accessed August 23, 2021 https://fraser.stlouisfed.org/fles/ docs/ 

publications/FRB/pages/1990-1994/33101_1990-1994.pdf 

65 Interagency Task Force in Fulfllment of Executive Order 13806, “Assessing and Strengthening the Manufacturing and Defense Industrial Base and Supply Chain 

Resiliency of the United States,” September 2018. Accessed June 21, 2021. https://media.defense.gov/2018/Oct/05/2002048904/-1/-1/1/ASSESSING-ANDSTRENGTHENING-THE-MANUFACTURING-AND%20DEFENSEINDUSTRIAL-BASE-AND-SUPPLY-CHAIN-RESILIENCY.PDF 
NDIA VITAL SIGNS 2022

 

While there are some decreases in concentration at the top level, Proftability there are still some worrying signs. There is a decrease in both the 

Weighted avg. core operating margin Weighted avg. return on assets total number of DoD vendors, and new entrants to the DIB. Govini 

Weighted avg. earnings per share Weighted avg. return on equity numbers show that the DIB has dropped from about 58,000 ven- 97 dors last year to about 55,000 this year. This is also a signifcant 100 

drop from the 69,000 vendors of 2016. 

There is also a drop in new vendors from 2021. While not as 

75 extreme as last year’s drop, the number of entrants in the DIB did 

drop from about 6,500 new entrants in FY 2019, to 6,300 in FY2020.66 

That the drop persists is worrying. An overreliance on a smaller pool 

of entrants may create production or innovation shortages in the 

future; new entrants may be discouraged from competing which 

could constrain the capacity of the DIB to respond to threats. 

Despite the relative lack of overall industry concentration by 

Department of Justice standards, some parts of the industrial base 

are at risk of having only one supplier. For example, the industrial 

base for fuzes has shrunk from 30 businesses in 1995 to only three 

today. Despite this rapid consolidation, DoD’s acquisition plans are 

still on track to leave the United States with potentially only one 

domestic supplier for aerial bomb fuzing by 2023. The presence of 

only one aerial bomb fuze supplier may introduce unacceptable risks 

to the supply chain. Foreign-based fuze makers will likely fll the void. 

Foreign ownership 

0 

2019 2020 2021 

94 

81 

73 

51 

93 

84 

66 

51 

76 

89 

39 

Figure 5.7, Source: NDIA 

Proftability 

The defense industrial base remained proftable and its performance remained consistent with overall U.S. corporate profts for 

2020. Proftability slightly increased from last year; it saw a total Percent 50 

25 

Contracting market share of foreign-owned firms 

100 

75 

50 

25 

0 

Figure 5.6, Source: NDIA 

Foreign ownership 

Foreign ownership in the defense industrial base was 5.4% for 2020, 

demonstrating a decrease over 2019’s share of 8.7%.67 Additionally, 

foreign ownership scored a 100 for 2021, like in 2019 and 2020. 

Foreign ownership is the percentage of the 100 largest public companies in the DIB that are not based in the United States. It is 

baselined against the Carter-Reagan Era buildup of the late 1970s 

through the mid-1980s. In 1981, the Government Accountability 

Offce reported foreign ownership at 9.4%, which represents the 

highest level of foreign ownership within the data available to NDIA. 

Possible reasons for this drop include complications with foreign 

supply chains due to the COVID-19 Pandemic. 

2019 2020 2021 

increase of two points from 73 in 2020 to 75 in 2021. The increase 

is despite the change to Return on Sales (ROS) and Return on 

Equity (ROE), which decreased by 17 and 12 points, respectively. 

Return on Assets (ROA) and Earnings Per Share (EPS) remain 

indicators in this year’s proftability factor. These four indicators 

show a more detailed, albeit somewhat conficting, picture of profitability in this year’s version of Vital Signs compared to last year. 

These four indicators are weighted averages. The individual 

company values have been weighted by the defense-related market 

share of their respective companies. Weighting in this manner 

ensures that large companies with large non-defense businesses 

do not skew the scores. ROA is baselined to the Defense Financial 

and Investment Review study from 1985. Core Operating Margin 

and ROE are baselined to 2019 while EPS is baselined to 2020. 

Both years represented high watermarks within our dataset. 

Liquidity 

Liquidity’s overall score is 82 for 2021, plummeting eleven points 

from 2020. This year’s report includes the Quick Ratio, Current 

Ratio, and Free Cash Flow.68 The Current Ratio is a measure of a 

company’s current assets to current debt while the Quick Ratio is 

a measure of liquidity to current debt. Free Cash Flow represents 

cash available to creditors or investors. Taken together, these indicators show that—since the COVID-19 pandemic began—some in 

the defense industrial base have found it challenging to meet their 

outstanding fnancial obligations, especially those with signifcant 

exposure to commercial markets. 

66 Based on DoD contract obligation data provided by Govini 

67 Based on fnancial data of the top 100 provided by Govini 

68 Based on fnancial data of the top 100 provided by Govini 

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NDIA VITAL SIGNS 2022

100 

75 

50 

100 

Liquidity 

Weighted avg. free cash fow Working capital ratio 

Capital investment 

Capital expenditure ratio 

Quick ratio (acid test) 

100 

97 99 98 96 87 Percent 

88 86 

94 

67 

82 

2019 2020 2021 

82 

77 

2019 2020 2021 

Figure 5.9, Source: NDIA 

75 

50 

98 

Percent 

25 

25 

0 

0 

Figure 5.8, Source: NDIA 

Capital investment 

Leverage Capital investment scored a 77 this year, which is a four-point drop 

from 2020; this drop is after reassessing past years using the same Debt to equity ratio Solvency ratio 

measure. Our baseline year for this factor is 2016, which had a 3.94% 

84 

93 

83 

95 

90 

2019 2020 2021 

75 

50 

25 

0 

Percent 

Figure 5.8, Source: NDIA 

ratio. In this year’s Vital Signs, we used a ratio of capital expenditure 

to total revenue, which better controls for differences in size between 

companies in our list of the top 100 DoD contractors and is a more 

accurate representation of the DIB’s capital investment. This year’s 

score of 77 is representative of a landscape in which there is a yearon-year decrease in capital investment relative to revenues. 

SUMMARY 

An overall score of 88 for “competition” refects a modest, four-point 

decline from two years ago in the level of competition present in the 

U.S. defense sector, which is representative of the overall instability 

introduced into the economy since the COVID-19 pandemic began. 

Although most scoring categories have refected this modest decline, 

concentration, and foreign ownership are still 100. We expect scores to 

Leverage 

Leverage received a score of 87 for 2021, marking a three-point 

decline from 2020. Baseline years of 2017 and 2018 were used for 

the Solvency Ratio and Debt to Equity, respectively.69 These two 

years represent the best performing years within our limited dataset. Before the COVID-19 pandemic, the increase in the score for 

leverage was driven by the Debt-to-Equity ratio increasing from 

1.07 to 1.09 and by the Solvency Ratio rising from 0.125 to 0.13. 

Leverage is comprised of the Solvency Ratio and the Debt-toEquity Ratio. The Solvency Ratio measures income to liabilities, 

while the Debt-to-Equity Ratio measures liabilities to equity. 

Together, the two variables measure companies’ ability to cover 

both long and short term debts and are suitable measures of how 

leveraged companies in the defense industrial base are. 

be further impacted next year as supply chain disruptions and infation 

rise as concerns with the continued follow-on effects of the pandemic. 

69 Based on fnancial data of the top 100 provided by Govini 
NDIA VITAL SIGNS 2022

 

INDUSTRIAL SECURITY 

INDUSTRIAL SECURITY 

Change, 2020 – 2021 

+1 

INDUSTRIAL SECURITY SCORES 

Overall factor 2021 Change, 

2020 – 2021 

Threats to intellectual property rights 80 +3 

Threats to information security 20 -1 

Overall Industrial Security Score 50 +1 

Figure 6.1 

Factor score key

 -6 and worse -1 – -5 0 +1 – +5 +6 and better 

The Defense Industrial Base (DIB) faces sustained and increasing threats of intellectual property theft, economic espionage, and 

ransomware hacks among other security breaches. This section 

examines new Federal Bureau of Investigation (FBI) intellectual 

property rights violation investigations, the average annual newly-reported common IT cyber vulnerabilities, and the severity of 

newly reported common IT vulnerabilities. 

KEY TAKEAWAYS 

• “Industrial security” earned an overall failing score of 50, with 

the intellectual property rights violation indicator as the only 

improvement since 2018 

• The number of newly-reported common IT cybersecurity vulnerabilities continues to increase 

• The severity of each known IT cybersecurity vulnerability has 

slightly decreased on average since 2016 

• The Vital Signs 2022 scores for industrial security indicate an 

environment that presents an escalating risk to the DIB. 

OVERVIEW 

Since our previous report, “industrial security” has slightly improved, 

although it is still one of the lowest-performing signs. But this merits 

further context: the improvement in score between 2020 and 2021 

is due entirely to a reduction in the number of new FBI intellectual 

property rights violation investigations, which is the only “industrial security” indicator to improve since 2018. The FBI investigation 

factor masks the overall trend which is the continued deterioration 

of the cybersecurity indicator. The overall impact of FBI investigations results in a higher overall score for industrial security in 2021. 

Over the past year, “industrial security” has also been an area 

of active federal rulemaking. In 2020, the release of an Interim 

Rule for the Cybersecurity Maturity Model Certifcation (CMMC; 

85 FR 61505), and an Interim Rule for Section 889(a)(1)(B) of the 

FY19 NDAA (Section 889 Part B; 85 FR 42665) highlighted DoD’s 

heightened focus on industrial security issues, indicative of its substantive impact on the DIB. 

Over the past year, “industrial security” has 

been an area of active federal rulemaking. 

CONTEXT 

Since the release of the 2018 National Defense Strategy and its 

focus on renewed great-power competition, the concern with industrial security in the defense sector has steadily increased. Data 

breaches, intellectual property theft, and state-sponsored industrial espionage in both private companies and university labs are 

on an unrelenting rise while the dynamic nature of attacks makes 

it a constantly moving target to address. A 2017 report by the 

National Bureau of Asian Research estimates cyberthreats cost 

the U.S. economy as much as $600 billion on an annual basis.70 

Industrial security issues continue to be a priority for the defense 

industrial base and DoD. 2020 saw the release of an Interim Rule 

for the Cybersecurity Maturity Model Certifcation (CMMC; 85 FR 

61505) and an Interim Rule for Section 889(a)(1)(B) of the FY19 

NDAA (Section 889 Part B; 85 FR 42665). In 2020, the Interim 

Rule implementing Section 889 Part B was published, prohibiting 

executive agencies from entering into contracts with any entity that 

incorporates any equipment or service that uses telecommunication 

70 The Commission on the Theft of American Intellectual Property, “Update to the IP Commission Report,” The National Bureau of Asian Research, February 2017. 

Accessed September 15, 2021. https://www.nbr.org/wp-content/uploads/pdfs/publications/IP_Commission_052213_Transcript.pdf. 

35
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NDIA VITAL SIGNS 2022

 

 

 

 

 

INDUSTRIAL SECURITY SCORES 

Factor Indicator 2021 Change, 2020 – 2021 

Threats to intellectual property rights New FBI intellectual property rights violation investigations 80 +3 

Overall threats to intellectual property rights 80 +3 

Threats to information security 

Average annual newly reported common IT cyber vulnerabilities 26 -1 

Severity of newly reported common IT vulnerabilities 14 0 

Overall threats to information security 20 -1 

Overall industrial security score 50 +1 

Figure 6.2 

Factor score key -6 and worse -1 – -5 0 +1 – +5 +6 and better 

equipment made by Huawei, ZTE, and several other Chinesemade telecommunications equipment manufacturers. Section 

889 is intended to prevent the exfltration of sensitive data from 

the U.S. DIB. CMMC is a DoD effort to improve the handling of 

sensitive information by and within the defense industrial base. 

The certifcation is intended to provide a “unifying standard for 

the implementation of cybersecurity” across the DIB.71 These programs are still in interim stages and their impact on cybersecurity 

is yet to be determined. 

METHOD 

NDIA’s “industrial security” sign threats to our nation’s intellectual 

rights and cybersecurity vulnerabilities. NDIA’s “industrial security” 

indicators are derived from FBI intellectual property rights investigation statistics. We use two sources to obtain averages of IT 

security faws for our cybersecurity data: The MITRE Corporation 

maintains the Common Vulnerabilities and Exposures (CVE) List, a 

“dictionary of publicly disclosed cybersecurity vulnerabilities” that 

serves as the most authoritative list of known security holes in IT 

hardware and software products. In addition, the National Institute 

of Standards and Technology (NIST) publishes an annual version 

of that CVE list that includes severity scores for each vulnerability. 

A change worth noting is that this year Vital Signs went from 

tracking the Common Vulnerability Scoring System (CVSS) 2.0 to 

CVSS 3.0, a system which more accurately refects the types of 

vulnerabilities encountered. 

TRENDS 

Intellectual Property rights 

Intellectual Property (IP) rights are essential to the health of the 

DIB. The perception of risks to IP rights shapes investor’s willingness to invest in research and development and commercialization 

activities. The protection of IP rights also compels investments in 

costly information security measures. New IP rights investigations 

Threats to IP rights Score 

New FBI intellectual property rights violation investigations 

100 

75 80 77 

74 

50 

25 

0 

2019 2020 2021 

Figure 6.3, Source: NDIA 

by the FBI scored an 80 for 2021, which is up six points from 

2019. This score is based on an annual average of 48 new FBI IP 

rights investigations between 2018 and 2020.72 The frequency of 

new investigations has steadily decreased since 2011 and was 

scored against the 2020 single-year value of 38 investigations — 

the smallest in our dataset. Since 2008, the FBI has published 

statistics on its intellectual property-based investigative activities. 

The new IP rights investigations statistic includes intellectual property rights violations, trade secret theft, counterfeiting, copyright 

infringement, and trademark infringement cases with an impact on 

national security or a link to organized crime. The FBI shares IP 

rights enforcement responsibilities with more than 20 other federal 

agencies and collaborates on investigative activities through the 

National Intellectual Property Rights Coordination Center, which 

is hosted by the Department of Homeland Security and deconficts thousands of investigations each year. This coordination may 

have led to fewer FBI intellectual property rights cases that are not 

refected in the FBI’s reporting. 

71 In November 2021, DoD announced the rollout of CMMC 2.0 and the start of a new rulemaking process that will revamp CMMC. 

72 Intellectual Property Enforcement Coordinator (IPEC), “Annual Intellectual Property Report to Congress,” January 2021. Accessed August 23, 2021. https:// 

trumpwhitehouse.archives.gov/wpcontent/uploads/2021/01/IPEC-Annual-Intellectual-Property-Report-January-2021.pdf. 
NDIA VITAL SIGNS 2022

 

Threats to information security 

Average annual newly-reported common IT cyber vulnerabilities 

Severity of newly-reported common IT vulnerabilities 

100 

75 

50 

32 

27 26 

25 

14 

0 

14 14

2019 2020 2021 

Figure 6.4, Source: NDIA 

Threats to information security 

Threats to information security scored a 20 for Vital Signs 2022. The 

number of newly reported common IT cyber vulnerabilities rose to 

16,971 in 2021 from 15,255 in 2020.73 The number of average annual 

documented IT cyber vulnerabilities was scored against a “peak 

low” value of 4,150 from 2011. In addition to the increase over the 

2011 baseline, the average severity of newly reported vulnerabilities decreased from 7.27 in 2020 to 7.12 in 2021.74 The vulnerability 

severity scores are different from last year’s Vital Signs report due 

to the aforementioned change from CVSS 2.0 to CVSS 3.0. The 

past fve years were all assessed under the CVSS 3.0 system so 

that changes between years could still be assessed. The results 

were still scored against an ideal severity score of 1. 

Defense manufacturing and services rely on secure information to produce the defense products and services that our 

service-members need. Vulnerabilities in information systems that 

facilitate the fow of industrial information can threaten production capabilities, service deliveries, and the integrity of IP rights. 

Information security threats are also an enduring source of overhead costs as frms implement measures to protect and recover 

from cyber threats. 

Known cybersecurity vulnerabilities continue to rise at a very 

high rate. New cybersecurity vulnerabilities have seen a 263% 

increase since 2016. Last year, vulnerabilities affecting business 

applications as well as internet and mobile software accounted for 

over 45% of new CVE entries. A 2021 analysis by Skybox Security 

indicated that there was also a growth in new types of attacks.75 

The surge in data breaches underscores the risk industry faces 

from cybersecurity vulnerabilities and ransomware attacks that continue to proliferate, providing a compelling indication of the focus that 

adversaries, competitors, and bad actors have placed on attacking 

U.S. systems to garner sensitive information. The ID Theft Center 

reported that the total number of breaches reported in 2020 (1,854) 

increased 25% from the total number of breaches reported in 2019 

(1,473) and that the business sector exposed the highest number of 

non-sensitive records with a total of 705,106,352 exposed.76 

The Vital Signs 2022 scores for “industrial security” indicate an 

environment that presents an escalating risk to the DIB. 

SUMMARY 

Overall, “industrial security” received a score of 50 for 2021. This 

failing score refects larger trends in the dramatic shortcomings of 

industrial cybersecurity despite increasing attention and resources 

dedicated to combating the threat. Threats to IP rights scored an 

80 for 2021, increasing six points since 2019 because of a steadily 

declining number of new FBI IP rights investigations that came 

after years of enhanced law enforcement. This increase is enough 

to offset the decreases to Information Security, giving an overall 

score of 50, one point higher than two years ago when adjusted 

for changes in scoring. Federal rule changes CMMC 2.0, Section 

889 Part B, and other measures to address threats to “industrial 

security” will be tracked in coming years. 

73 MITRE, “Common Vulnerabilities and Exposures.” Accessed June 15, 2021 https://cve.mitre.org/cve/index.html 

74 Ibid. 

75 Skybox Security, “Vulnerability and Threat Trends Report 2021.” Accessed December 9, 2021. https://www.skyboxsecurity.com/resources/report/ 

vulnerabilitythreat-trends-report-2021/. 

76 Based on NDIA calculations. See the most recent report from the ID Theft Resource Center: https://notifed.idtheftcenter.org/s/ 

37
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NDIA VITAL SIGNS 2022

 

 

 

 

 

POLITICAL & REGULATORY 

POLITICAL & REGULATORY 

Change, 2020 – 2021 

-4 

POLITICAL & REGULATORY 

SCORES 

Overall factor 2021 Change, 

2020 – 2021 

Public opinion 44 -5 

Congressional budgeting process 83 -6 

Regulatory burden 90 +1 

Overall political & regulatory score 72 -4 

OVERVIEW 

While public opinion and the congressional budgeting process 

have decreased scores, regulatory burden slightly improved. We 

are still seeing a score decrease from 2019 to 2021, with public 

opinion scoring poorly. 

The congressional budgeting process also saw a minor drop 

from last year. Despite the improvement in appropriations passage, 

the congressional interest in acquisitions and increasing focus on 

supply chains has led to a slightly lower score than 2021. The highest-performing factor is regulatory burden because we see a slight 

Figure 7.1 increase in most metrics ensuring that the score remains steady. 

Factor score key

 -6 and worse -1 – -5 0 +1 – +5 +6 and better 

The pandemic may have increased some 

of the public’s anxiety about the need for more 

More than most industries, legislative and regulatory processes investment in defense. 

have a direct impact on defense industry productivity. The public’s 

attitudes toward defense spending shape congressional interest 

in defense acquisition, affecting congressional budgets. The time 

that Congress takes to authorize a budget for national defense programs affects capital availability and the product delivery schedule 

of defense supply chains. Similarly, changes to defense acquisition 

regulations affect defense contractors’ eligibility and administrative costs. In this way, policymakers can have a signifcant impact 

on the demand for defense goods and services, the availability of 

inputs, the conditions in related and supporting industries, and 

the structure of industry competition. This section of the report 

assesses political and regulatory trends that shape defense industrial productivity. 

KEY TAKEAWAYS 

• The “political and regulatory” sign scored a 72 for 2020, which 

is down 6 points from 2018 

• Public opinion saw a major decline in its score since 2018 

• Regulatory burden saw minor improvements to offset the slight 

decline from congressional budgeting. 

CONTEXT 

The “political and regulatory” sign scored a 72 for 2020, which is 

down 6 points from 2018. The decrease in score was driven by 

a deterioration in public opinion, which scored a 44, which is 18 

points lower than last year’s report. 

METHOD 

This section presents scores for indicators of the “political and regulatory” sign shaping defense production. These indicators describe 

1) public opinion, 2) congressional budgeting and interest, and 3) 

rulemaking trends. First, public opinion indicators are based on 

long-standing and publicly available survey data from the Gallup 

Organization. Second, congressional budgeting indicators are derived 

from data published by the Congressional Research Service. Third, 

the congressional interest indicator is provided by Govini through their 

proprietary data science tradecraft. Finally, regulatory burden was a 

major change this year. Forward pricing audits is unchanged, and 

incurred cost audit had been re-baselined to 2020 since that is now 

the highest scoring single year. Last year’s “Red Tape” ratio has been 

replaced by the number of annual representations and certifcations 

required to be made in the System for Award Management (SAM). 
NDIA VITAL SIGNS 2022

POLITICAL & REGULATORY SCORES 

Factor Indicator 2021 Change, 2020 – 2021 

Public opinion Public opinion polling on defense spending: responses indicating 

“Too little” 

44 -5 

Overall public opinion 44 -5 

Congressional budgeting process 

Average number of days NDAA passed after Oct. 1 86 -3 

Average number of days appropriations passed After Oct. 1 85 +8 

Congressional interest in: procurement: MDAPs 80 -19 

Supply chains: manufacturing/supply chain/reshoring/Buy American 81 -10 

Overall congressional budgeting process 83 -6 

Regulatory burden 

Number of SAM representations and certifcations 77 0 

Incurred costs audit average elapsed days 95 +3 

Forward pricing audit average elapsed days 99 +1 

Overall regulatory burden 90 +1 

Overall political & regulatory score 72 -4 

Figure 7.2 

Factor score key -6 and worse -1 – -5 0 +1 – +5 +6 and better 

TRENDS 

Public opinion 

Public opinion polling on defense spending: responses indicating 

“Too little” 

100 

75 

62 

49 50 44 

25 

0 

Figure 7.3, Source: NDIA 

Public opinion 

In general, public opinion about defense policy refects broad attitudes about both the state of national security and the perceived 

trade-offs between preferred defense policies and other national 

priorities. Since 1969, the Gallup Organization has conducted a 

poll of U.S. adults in which it asked, “There is much discussion Score 

2019 2020 2021 

as to the amount of money the government in Washington should 

spend for national defense and military purposes. How do you feel 

about this? Do you think we are spending too little, about the right 

amount, or too much?”77 

In 2021, public opinion scored a 44, which is 18 points lower 

than the 62 scored for 2019 and 26 points lower than the 70 scored 

in 2018, continuing a downward trend for this indicator. In February 

2021, 26% of respondents said that the U.S. is spending too little on 

national defense and military purposes, compared to 25% in 2019 

and 17% in 2020.78 The decline has partially reversed this year but 

the score still declined when taken as part of a three-year average. 

The pandemic may have increased some of the public’s anxiety 

about the need for more investment in defense. In Gallup’s February 

2021 poll, 42% of participants believed that defense spending is 

“about right,” which marked an 8 point decline from 50% in their 

2020 poll.79 Gallup’s February 2020 poll result of 50% is the highest percentage of “about right” responses for this question since 

Gallup began asking it more than 52 years ago. 

Conversely, according to Gallup, when asked “Do you, yourself, feel that our national defense is stronger now than it needs 

to be, not strong enough or about right at the present time?” the 

percentage of Americans that believed the U.S. military was “not 

strong enough” rose to 35% in February 2021, from 25% in February 

2020.80 The strongest indicator of this trend is the fact that 50% of 

respondents believe the strength of U.S. national defense is “about 

right” which is down from 62% last year.81 

77 Gallup, “Military and National Defense.” Accessed November 3, 2021. https://news.gallup.com/poll/1666/Military-National-Defense.aspx. 

78 Ibid. 

79 Ibid. 

80 Ibid. 

81 Ibid. 

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40

NDIA VITAL SIGNS 2022

The same Gallup poll noted that most Americans feel it is important for the U.S. to be the leading military in the world.82 While most 

Americans support continuing America’s role in global security, 

they demonstrate a growing concern about the trade-offs involved. 

Congressional budgeting process Score 

Average number of days NDAA passed after Oct. 1 

Average number of days appropriations passed After Oct. 1 

Congressional interest in: procurement: MDAPs 

Supply chains: manufacturing/supply chain/reshoring/Buy American 

99 100 97 

90 91 89 86 85 82 80 81

77 

75 

50 

25 

0 

2019 2020 2021 

65 

Figure 7.4, Source: NDIA 

Congressional budgeting process 

The congressional budgeting process for national defense programs 

scored an 81 for 2021. This factor’s score refects a combination of 

indicators with contrasting trend lines: the average number of days 

past 1 October taken to pass the National Defense Authorization 

Act (NDAA) and defense appropriations, the number of hearings 

with fve or more mentions of MDAPs, and congressional interest in 

supply chains. The congressional interest indicator score is calculated by our data science partner, Govini. Since FY18, the running 

average number of days past 1 October taken to pass the NDAA 

and defense appropriations has remained between 70 to 90 days. 

For the NDAA, this is far longer than its historical norm of passage 

by 1 October, though delay in passage is now consistent with that 

of defense appropriations. 

The duration of the congressional budgeting process reveals the 

level of priority that Congress devotes to defense acquisition issues. 

Congress faces a statutory expectation to complete the defense budgeting process between the frst week of February and 1 October 

for the next fscal year. When Congress breaches that schedule, the 

Executive Branch cannot advance, start, or sustain defense acquisition plans. Similarly, the NDAA sets defense policies, reporting 

requirements, and outlines programmatics. Without its passage, 

the department and contractors operate under the previous year’s 

NDAA. Therefore, the amount of time that Congress takes to deliberate on passing the NDAA and Defense Appropriations refects the 

performance of the legislative budgeting process. 

In recent years, the irregularity of the congressional budgeting processes and the long durations required for NDAA and 

appropriations passage have subjected the DoD to disruptive 

budget uncertainty. Frequently forced to operate under continuing resolutions, DoD has had to delay urgent contract awards and 

future acquisition planning. 

The score for the three-year average of congressional interest in 

MDAPs dropped from 81 in 2020, to 71 in 2021. This score is based 

on the number of hearings with at least fve mentions of any MDAPs, 

which decreased from 160 in FY17 to just 110 in FY20. Mention of 

supply chains has also decreased over that same period from 82 

hearings with fve or more mentions down to 57. Annual congressional interest totals were scored against a baseline value of 160 

for MDAPs and 82 for supply chains, both of which are from 2017 

— the earliest year for which data was available. 

While Congress plays a central role in deciding, enabling, and 

supervising defense acquisition policy, congressional attention 

devoted to acquisition-related topics fuels policymaking activity. 

Therefore, the level of congressional interest in defense acquisitions 

gives a good sense of the extent of related activity within the legislative environment. Rising levels of interest in defense programs 

and systems suggest a correlation with increasing policy activity. 

That activity may take the form of critical oversight of high-visibility 

MDAPs or forward-looking hearings on the status of future requirements. For this report, Govini measured congressional interest as 

the number of mentions of MDAPs in congressional hearings, applying a signifcance threshold of fve mentions. 

Regulatory burden 

Number of SAM representations and certifcations 

Incurred costs audit average elapsed days 

Forward pricing audit average elapsed days 

99 100 97 98 

95 92 

87 

80 80 77

60 

40 

20 

0 

77 

2019 2020 2021 

Figure 7.5, Source: NDIA 

Regulatory burden 

The “regulatory” sign continue to trend upward with the score for 

regulatory trends increasing two points from 2019. In addition to 

the industry’s number of SAM representations and certifcations, 

the Vital Signs 2021 score for regulatory burden accounts for the 

average time taken for incurred cost audits and the average elapsed 

82 Gallup, “Military and National Defense.” Accessed November 3, 2021. https://news.gallup.com/poll/1666/Military-National-Defense.aspx. 
NDIA VITAL SIGNS 2022

 

time during the forward price auditing process.83 Accounting for 

these indicators, the regulatory burden factor scored a 90 for 2021. 

For this edition of the report, the methodology changed slightly. 

In last year’s report, NDIA calculated the ratio of new fnal rules in 

FY20 that decrease restrictions to rules that increase restrictions. 

This year, to get a more objective assessment of the regulatory 

environment, we instead counted the number of SAM representations or certifcations required for contractors and adjusted the 

previous years’ scores accordingly.84 

The level of regulatory burden that industry faces in contracting 

within the DoD affects industry’s productivity and produces barriers to entry for new companies interested in joining the defense 

industry. DoD regularly issues new rules that modify the Defense 

Federal Acquisition Regulation Supplement (DFARS), defning the 

rights and obligations of the parties involved in defense contracting in accordance with the preferences of Congress, the President, 

and the Secretary of Defense. Often, new rules add or subtract 

restrictions or requirements for parties involved in the contracting process. These rules ultimately add up to an overall regulatory 

burden that imposes costs on companies seeking to do business 

with the government. 

Under the direction of Executive Orders 13771 and 13777, DoD 

prioritized the exploration of ways to reduce the regulatory burden 

and, thereby, improve the performance of the defense acquisition 

system. That effort involves various beneft-cost assessments of 

existing and proposed regulations in addition to the elimination of 

unnecessary ones, including some that impact defense acquisitions. This year, both EO’s were revoked. 

Both audit indicators showed improvement. While the time taken 

to complete incurred cost audits was down to 110 days from 112 

the previous year, the time taken to complete forward pricing audits 

stayed steady from last year at 82 days. The three-year average 

for incurred costs is down to 116 days, which contributes to the 

lower score from last year. Meanwhile, forward pricing audits had 

a three-year average of 83 days, which produced a score of 99. 

According to the Defense Contract Audit Agency (DCAA), as 

a result of DCAA audits, contract offcials saved $3.5 billion in 

defense spending last year—signifcant savings that can be reinvested or returned to the Treasury. DCAA was able to reduce the 

time taken to complete incurred cost audits to 84 days from 88 

days.85 In FY19, DCAA was able to complete 719 forward pricing 

audits, up from 710 last year, and kept the average time to complete the audits at 82 days.86 Even with a majority of the workforce 

teleworking 100% of the time, in 2020, DCAA capitalized on the 

elimination of the incurred cost audit backlog in 2019 by enhancing customer service in other areas such as proposal reviews and 

business systems audits, achieving an all- time high 93% customer 

satisfaction rating. DCAA also met customer agreed-to deadlines 

for requested work 93% of the time, up from 64% a few years ago.87 

SUMMARY 

The “political and regulatory” sign received an overall score of 72 

for 2021, a decline from 78 in 2019. Public opinion towards defense 

spending fell from 62 points in 2019, to a score of 44. The overall 

rating of the congressional budgeting process fell by three points 

from 2019, to an overall score of 84 as the result of a broad loss of 

congressional interest in major defense acquisition programs. The 

regulatory burden increased by one point to 90 in 2021. With these 

scores in mind, the trend for this Sign is downward and marks a 

considerable decline over the last several years. 

83 Department of Defense, “Report to Congress on FY 2020 Activities,” Defense Contract Audit Agency. March 31, 2021, Accessed September 2, 2021. https:// 

www.dcaa.mil/Portals/88/Documents/About%20DCAA/508%20compliant%20docs/DCAA%20FY2020%20Report%20to%20Congress%20fnal%20wo%20cost. 

pdf?ver=oQmfWK424yqKn7RK3mPFuQ%3d%3d. 

84 “Annual Representations and Certifcations,” Code of Federal Regulations, 52.204.-8 https://www.acquisition.gov/far/52.204-8 

85 Department of Defense, “Report to Congress on FY 2020 Activities,” Defense Contract Audit Agency. March 31, 2021, Accessed September 2, 2021. https:// 

www.dcaa.mil/Portals/88/Documents/About%20DCAA/508%20compliant%20docs/DCAA%20FY2020%20Report%20to%20Congress%20fnal%20wo%20cost. 

pdf?ver=oQmfWK424yqKn7RK3mPFuQ%3d%3d. 

86 Ibid. 

87 Ibid. 

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42

NDIA VITAL SIGNS 2022

 

PRODUCTIVE CAPACITY & SURGE 

READINESS 

PRODUCTIVE CAPACITY & 

SURGE READINESS 

Change, 2020 – 2021 

-15 

PRODUCTIVE CAPACITY & 

SURGE READINESS SCORES 

Overall factor 2021 Change, 

2020 – 2021 

Intensity of capital usage 84 -2 

Output effciency 20 -28 

Overall productive capacity 

& surge readiness score 

52 -15 

Figure 8.1 

Factor score key

 -6 and worse -1 – -5 0 +1 – +5 +6 and better 

The U.S. defense industrial base, more than any other, must be 

ready to respond to a demand surge for a variety of goods, services, 

materials, and systems. This section will assess the output effciency and capacity utilization of the broader U.S. defense sector. 

The need for an increase in defense production often appears suddenly, leaving little time for defense suppliers to ramp up production 

to fulfll a surge in demand for their goods, services, or materials. 

This section analyzes the output effciency and the capacity utilization of the economy. 

KEY TAKEAWAYS 

• The 2021 score of 51 represents a 15-point drop from last year 

• 78% of VS 22 survey respondents said the availability of skilled 

labor was a moderate or signifcant problem 

• The U.S. output gap, a proxy indicator for the ability to surge 

defense production, scored a 20 in 2021, down from 48 in 2020. 

OVERVIEW 

Demand surges for defense related goods, services, and materials are unpredictable. Often defense suppliers have little warning 

to scale up production to fulfll a need. To meet surge demand, 

organizations within industry must leverage any dormant excess productive capacity. For manufacturing, this translates into activating 

unused capital to hit a surge demand marker. Unfortunately, industrial production is no simple enterprise, and the complex nature of 

current supply chains hamper the ability of organizations to meet 

sudden increases of demand, adding lag time between end-product and the initial surge. 

The ongoing impact of COVID-19 pandemic on the national, 

regional, and local economies continues to reinforce the importance of surge capacity. Surge readiness and production capacity 

are a weakness in the defense industrial base. The 2021 score of 

52 represents a 15-point drop from last year, which was already 

a failing grade. This drop was primarily driven by the decline in 

output effciency, while capacity utilization has remained somewhat steady. The national industrial output gap continued its sharp 

downward trajectory. 

“Productive capacity and surge readiness” 

has seen one of the largest drops in this year’s 

Vital Signs. 

CONTEXT 

Strong productive capacity and surge readiness are critical to 

national security and for maintaining a healthy and robust defense 

industrial base. Both areas are important in understanding and 

gauging the vitality of the defense ecosystem. Assessing “productive capacity” reveals the extent to which the national economy can 

expand to accommodate growth in demand for certain goods and 

services. More specifcally, it indicates the DIB’s ability to adapt 

to shifts in supply chain requirements. Similarly, evaluating surge 

readiness of industries that provide critical resources, supplies, and 

equipment to the defense ecosystem offers insight into the defense 

industrial base’s capacity to perform successfully in circumstances 

of heightened DoD Procurement. It is also worth noting that the data 

from this section is from 2020, so it fully demonstrates the effects 

of the COVID-19 pandemic on industrial capacity. 
NDIA VITAL SIGNS 2022

 

 

PRODUCTIVE CAPACITY & SURGE READINESS SCORES 

Factor Indicator 2021 Change, 2020 – 2021 

Intensity of capital usage Durable goods manufacturing sector capacity utilization 84 -2 

Overall intensity of capital usage 84 -2 

Output effciency National industrial output gap 20 -28 

Overall output effciency 20 -28 

Overall productive capacity & surge readiness score 52 -15 

Figure 8.2 

Factor score key -6 and worse -1 – -5 0 +1 – +5 +6 and better 

METHOD 

This section assesses “productive capacity and surge readiness” by 

examining the intensity of capital usage and output effciency. The 

overall score for intensity of capital usage comes from the capacity 

utilization for durable goods manufacturing, and the score for output 

effciency is calculated using the national industrial output gap. The 

former is drawn from the Federal Reserve’s monthly G.17 release; the 

latter is an annual fgure provided by the Congressional Budget Offce. 

TRENDS 

Output effciency 

National industrial output gap 

100 

75 

75 

50 

48 

25 

0 

2019 2020 2021 

Figure 8.3, Source: NDIA 

Output effciency 

The productive effciency of the U.S. economy shapes the productive capacity of the defense industrial base. The output gap 

measures the economy’s productive effciency by estimating the 

difference between its actual output and its potential output. When 

this difference holds a positive value, the output gap indicates an 

economy that is over-performing its long-run potential. 

The U.S. output gap, a measure of productive effciency, continued its decline this year, scoring 20 in 2021 down from 48 in 2020. 

20 

Score 

This is a total decline of 55 points since 2019. This year’s score is 

based on an output gap of -1.12%, and average of FY2018, FY2019, 

and FY2020, bringing this average back below zero after it broke 

into the positive range between FY2017 and FY2019.88 

When this situation occurs, high aggregate demand for goods 

and services throughout the economy forces production facilities 

to operate in an unsustainable manner and at peak effciency levels 

to provide enough supply, leading to tight labor markets and possible price infation. When the output gap is negative, the economy’s 

production capabilities experience inferior effciency, indicating that 

some productive capacity is underutilized. Under ideal conditions, 

no output gap would exist with actual economic output matching 

potential output. We use the national output gap as a proxy indicator for the ability to surge defense production. 

Essentially, the output gap illustrates how the economy would 

react to a surge in defense-related demand. A surge of new demand 

when there is a positive output gap would likely result in production 

shortages, price infation, and a lack of investment in new productive capacity. Conversely, a surge of new demand when there 

is a negative output gap would likely activate dormant capacity; 

however, production could suffer from low productivity and other 

ineffciencies. This period, 2018-2020, is the frst to have both the 

pre-COVID-19 pandemic positive output gap (from 2019, when 

unemployment was low and the labor market was tight) and the 

early impacts of the pandemic in its averages. 2020 brought a variety of challenges, including real GDP growth of -3.5% (down from 

2.3% in 2019) amid sharp increases in unemployment, which is 

refected in this calculation.89 

Intensity of capital usage 

For 2021, intensity of capital usage scored an 84 out of 100, which 

marks a one-point increase over 2020’s score of 83. This score 

is derived from a capacity utilization rate of 74.4% for the period 

of 2018-2020 — an increase of 0.5% from the running average of 

73.9% for the years 2017-2019.90 Durable goods manufacturing 

88 Congressional Budget Offce, “An Update to the Economic Outlook: 2021 to 2031,” Accessed on December 8, 2021. https://www.cbo.gov/publication/57218 

89 Ibid. 

90 Federal Reserve Bank of St. Louis, “The 2021 Annual Revision,” Accessed on December 8, 2021. https://www.federalreserve.gov/releases/g17/ 

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NDIA VITAL SIGNS 2022

100 

Intensity of capital usage 

Durable goods manufacturing sector capacity utilization 

upward-trending rate indicates an increasing dedication of productive capital assets to the industrial base ecosystem, likely due to 

sustained additional market demand. 

SURVEY RESULTS 

85 86 84 75 In August 2021, NDIA conducted a survey of its membership. With 

nearly four hundred respondents the survey covered several subjects, 

50 including the ability to respond to demand surges and the impacts of 

the ongoing COVID-19 pandemic. Amassing skilled labor appears to 

25 be central to limiting surge capacity. When asked what would affect 

their frm’s ability to increase defense production in response to mili0 tary surge demand, 78% of respondents said the availability of skilled 

2019 2020 2021 labor was a moderate or signifcant problem, and 63% said the same 

for the availability of cleared labor. This becomes a more signifcant Figure 8.4, Source: NDIA Score 

issue because when asked what would be necessary to reach the 

sector capacity utilization continues to be scored against a 1973 

baseline value of 88.6%. 

The strength and wellbeing of an industrial base’s productive 

capacity is directly related to the degree manufacturers use and 

employ their productive capabilities. Productive capabilities are, in 

turn, derived primarily from physical capital assets including equipment, machinery, and facilities employed throughout the course 

of the production of goods. For manufacturing industries, capital 

assets constrain capabilities and are key limiting factors in overall “productive capacity”. Capacity utilization rates measure the 

share of industrial productive capacity employed, on average, over 

of a defned period. As such, industrial capacity utilization rates 

are a useful indicator of the intensity of physical capital usage. 

This year marked a slight shift away from the downward trend in 

capacity utilization rate that has defned many previous years. This 

maximum production increase, only 20% of respondents said, “Hire 

additional labor and/or add shifts” would not be required. The following fgures in this chapter show the amount that production can 

surge, and the associated price increases necessary. 

SUMMARY 

“Productive capacity and surge readiness” has seen one of the 

largest drops in this year's Vital Signs. The drop is in large part 

due to the disruptions caused by the COVID-19 pandemic. This 

disruption is most clearly seen in the signifcant drop in the output 

gap. This year also saw a more substantial introduction of the Vital 

Signs survey into this section. While the survey is still too new to 

score, in the future, it will hopefully provide another valuable datapoint for this section. 

How much could your company increase production within the following timeframes? 

0-20% 21-40% 41-60% 61-80% 81-100% 

250 

213 

200 

Number of respondents 150 

122 

114 

100 100 

66 

13 15 

23 21 

62 

81 

56 57 

43 

58 63 

50 

30 

30 days 90 days 180 days 365 days 

69 

51 

Figure 8.5, Source: NDIA 

50 

0 
NDIA VITAL SIGNS 2022

250 

Approximately what percent increase in the price of your defense-related products would be necessary to cover the cost of the 

output completed? 

0-20% 21-40% 41-60% 61-80% 81-100% 

200 

150 

100 

50 

0 

208 

61 

13 13 

186 

71 

11 9 

189 

70 

13 7 

43 

58 

50 

122 

18 

31 

23 

51 

Number of respondents 

30 days 90 days 180 days 365 days 

Figure 8.6, Source: NDIA 

How would each of the following affect your frm’s ability to increase defense production in response to a surge in military 

demand? 

Not a problem Moderate problem Significant problem 

Percentage of respondents 

100 

75 

50 

25 

0 

34.2 

28.1 

5.9 

21.1 18.5 

10.3 

4.8 

21.8 

33.0 

37.2 41.4 

34.8 

34.6 

43.1 

61.1 54.9 

73.4 

22.7 

37.3 41.6 40.2 

Availability of 

skilled labor 

Availability 

of securitycleared labor 

Availability of 

equipment and 

tooling 

Availability of 

materials 

Cyber and 

supply chain 

security 

requirements 

Government data 

rights compliance 

Buy American 

Act or Berry 

Amendment 

compliance 

Figure 8.7, Source: NDIA 

45
46

NDIA VITAL SIGNS 2022

When would the following actions be necessary in order to achieve the maximum potential production increases? 

Would need fnancial assistance 

from the government 

Subcontract some work with 

foreign suppliers 

Team up with another company 

Obtain a loan 

Convert some equipment 

used in non-defense 

production to use in defense 

production 

Convert some labor which is 

currently used in non-defense 

production touse in defense 

production 

Take in-house some work 

that is currently contracted 

Subcontract some work that 

is currently done in-house 

Purchase new enterprise 

software 

Purchase new capital 

equipment 

Make use of idle equipment 

Increase use of existing 

capital equipment currently 

used in production 

Hire additional labor and/or 

add shifts 

Extend working hours of 

current labor force 

Draw down inventory of 

fnished goods 

30 days 90 days 180 days 365 days Would not be necessary 

0 50 100 150 200 

Number of respondents 

Figure 8.8, Source: NDIA 
NDIA VITAL SIGNS 2022

 

EMERGING TECHNOLOGY 

This newly-incorporated section, while not yet included as one of 

eight of the signs, merits inclusion given its relevance as to the 

future health of the industrial base. It is primarily derived from fndings by the NDIA’s Emerging Technologies Institute (ETI), which was 

formed in 2021. This unit has offered a new chapter in this report 

to begin looking at how the emerging tech landscape is fairing, and 

to monitor it going forward. 

OVERVIEW 

The Department of Defense (DoD) has long endured the tension 

between maintaining aging systems and the need for major defense 

modernization. Today the U.S. faces rapid technological innovation by strategic competitors — China and Russia — who have 

poured investments into their industrial sectors to become more 

lethal and resilient than ever before. Aware of the growing threat 

to our national interests, the DoD has laid out 11 modernization 

priorities in key emerging technology areas that will deliver the 

technical capabilities needed by our warfghters to cope with the 

new security environment.91 These technologies include: Artifcial 

Intelligence (AI), Biotechnology, Autonomy, Cyber, Directed Energy, 

Fully Networked Command, Control, and Communications (FNC3), 

Microelectronics, Quantum Science, Hypersonics, Space, and 5G 

— all of which will play a vital role in how the DoD will shape its 

next national defense strategy. 

With the outbreak of the COVID-19 pandemic 

in 2020, the DoD had to collaborate with the DIB to 

ensure a robust industrial base for combating the 

spread of the virus. 

CONTEXT 

Congressional attention 

Members of Congress have grown increasingly focused on developing emerging technologies to enhance U.S. national security and 

keep pace with top competitors.92 A metric for Congressional interest in each technology was developed by measuring the number 

of Congressional hearings per year where a related term was mentioned at least fve times [see Figure 9.1]. Of course, that is just one 

measure of interest; others include legislative language, individual 

engagements, inquiries, report assignments, and others that are 

harder to quantify. It is important to note that in FY 2020, there was 

a substantial drop in the total number of public hearings, likely due 

to the COVID-19 pandemic, so relative change was measured to 

draw a comparison between years. For FY 2020, Congressional 

focus in key technologies such as microelectronics and biotechnology increased from the previous year, while hearings that mentioned 

hypersonics and space — among others — dropped from FY 2019. 

Emerging Technology 

FY 2018 FY 2019 FY 2020 Relative Change in 

Interest 

Hearings % Total Hearings % Total Hearings % Total 

Artifcial Intelligence 40 10.30% 39 8.99% 24 10.30% Increase 

Space 38 9.79% 38 8.76% 18 7.73% Decrease 

Hypersonics 24 6.19% 30 6.91% 14 6.01% Decrease 

Cyber 30 7.73% 39 8.99% 14 6.01% Decrease 

Quantum Science 21 5.41% 29 6.68% 12 5.15% Decrease 

Fully Networked C3 12 3.09% 10 2.30% 11 4.72% Increase 

5G and Next G 3 0.77% 21 4.84% 9 3.86% Decrease 

Biotechnology 8 2.06% 5 1.15% 7 3.00% Increase 

Microelectronics 7 1.80% 6 1.38% 6 2.58% Increase 

Autonomy 13 3.35% 11 2.53% 5 2.15% Decrease 

Directed Energy 11 2.84% 8 1.84% 3 1.29% Decrease 

Total Hearings 388 434 233 *From 2019 to 2020 

Figure 9.1, Source: Govini. Congressional Interest in Emerging Technologies (FY18 - FY20) *Note: A hearing was counted if a term related to the 

emerging technology was mentioned at least fve times 

91 Offce of the Under Secretary of Defense for Research and Engineering,“Modernization Priorities – DOD Research & Engineering.” Accessed January 10, 2022. 

https://www.cto.mil/modernization-priorities. 

92 Congressional Research Service, and Kelley M. Sayler, R46458 “Emerging military technologies: Background and issues for Congress” (2021). Accessed January 

10, 2022. https://crsreports.congress.gov/product/pdf/R/R46458/8. 

47
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NDIA VITAL SIGNS 2022

 

 

 

 

This result might be surprising given the DoD’s recent push to 

modernize hypersonics defensive and offensive capabilities, and 

expand capabilities within the space domain, which could in fact 

refect a view that these issues are already being worked effectively. 

The emerging technology discussed most during the 2020 

Congressional hearings was artifcial intelligence (AI). With the introduction of six AI bills, including the National AI Initiative Act of 2020 

and the Advancing AI Research Act of 2020, it is clear that the 

future adoption and regulation of AI technology was a high priority on Capitol Hill. This was further refected in the FY 2021 NDAA 

passed by both houses of Congress in December of 2020, which 

allocated more funds to AI research and pushed for stronger coordination with the new National AI Initiative Offce.93 

While these fndings prove interesting, it is also important to 

note that the use of strictly unclassifed data may have impacted 

the results given the nature of these technologies. Despite this possibility, evidence points toward a signifcant drive for technological 

innovation by members of Congress. For example, the creation of 

a Congressional Hypersonics Caucus is a strong indication of continuing interest in that area despite the drop in hearings. 

Defense innovation spending 

In FY 2020, the Defense Department obligated a considerable 

amount to defense innovation at $73.5 billion, an increase of nearly 

$14.5 billion from the year prior. While a large majority of these obligations were awarded to Research, Development, Test & Evaluation 

(RDT&E) contracts at $48.2 billion with about 20% going toward 

the development of emerging technologies defense-wide, most 

notable was a shift toward the use of Other Transaction Authority 

(OTA) contracts. Unlike alternative contracting authorities, OTAs are 

not subject to the same federal procurement laws and regulations, 

making the acquisition process more streamlined for contractors. 

During FY 2020 alone, the DoD awarded over $16 billion in OTAs, 

almost the same amount as the previous four years combined and 

up more than $8 billion from 2019. 

With the outbreak of the COVID-19 pandemic in 2020, the DoD 

had to collaborate with the DIB to ensure a robust industrial base 

for combating the spread of the virus. According to a FY 2020 

annual report, the Offce of Defense Pricing and Contracting (DPC) 

noted that the DoD used $7.7 billion of OTA spending on necessary COVID-19 response efforts94, such as vaccine development 

and improvements to telework infrastructure, with the rest being 

allocated to defense modernization programs. 

Of the more than $8 billion in OTAs not allocated to pandemic 

response, nearly half were obligated to research & development 

efforts in key technologies, including microelectronics95 and cyber96 

programs administered by the Navy, as well as the Space Enterprise 

Consortium (SpEC) agreement.97 The SpEC program gives the 

Space Force the ability to grow the space industrial base through 

a more rapid acquisition process and provides fexibility between 

government and industry while prototyping new technology. With 

the space domain growing increasingly competitive amongst peer 

competitors, OTAs provide a new approach for increased resiliency 

and reduced cost to get technology in the hands of the warfghter 

at a faster rate. 

There has been some controversy surrounding the usage of 

OTAs despite their effciencies. Smaller companies could face a 

barrier to entry as one requirement to joining an OT consortium 

involves paying an annual fee and does not guarantee a company 

will win a bid. There is also the question of how much funding is 

allocated to the consortium’s management organization that oversees administrative operations, essentially taxing the work of the 

performing members. Perhaps the largest concern with OTAs is 

whether they are just an attempt to mend a broken acquisition process with a Band-Aid solution rather than repairing the process 

itself to enable more rapid acquisition. 

The future of emerging technology 

There is universal agreement that, if the U.S. wants to ensure its 

competitive edge over peer competitors such as China and Russia, 

it is crucial to maintain technological superiority. To ensure this, the 

Defense Department will need to work with industry partners to support the development and integration of these critical technologies 

into our defense systems with the necessary funding levels, and in 

a timely manner. Organizations such as the Defense Innovation Unit 

(DIU) can play a role in felding and scaling these technologies at a 

much quicker pace,98 while constructs such as the Technology and 

Manufacturing Industrial Base (TMIB) directorate within OUSD(R&E) 

can lead the effort in assessing threats, gaps, and fragility of the 

DIB to create strategies that support modernization priorities with 

respect to emerging technologies.99 

93 Lyon, H. Mark, and Frances Waldmann. Issue brief. “Gibson Dunn: Fourth Quarter and 2020 Annual Review of Artifcial Intelligence and Automated Systems,” Los 

Angeles, CA: Gibson, Dunn & Crutcher LLP, 2021. 

94 Defense Pricing and Contracting, Offce of the Under Secretary of Defense, Acquisition and Sustainment, “Defense Pricing and Contracting Year In Review 2020” 

(2021). Accessed January 10, 2022. https://www.acq.osd.mil/dpap/ops/docs/2020_DPC_Year_in_Review_Report.pdf. 

95 Sybert, Sarah, “IBM Wins DoD OTA to Advance Microelectronics,” ExecutiveGov. Accessed on December 21, 2021. https://executivegov.com/2020/12/ibm-winsdod-ota-to-advance-microelectronics-jay-bellissimo-quoted. 

96 Judge, Michaela,“NAVWAR Transitions First Wave of IWRP Prototypes to Production,” Naval Information Warfare Center Atlantic. Department of the Navy. Accessed 

on December 21, 2021. October 19, 2020. https://www.niwcatlantic.navy.mil/2020/10/navwar-transitions-frst-wave-of-iwrp-prototypes-to-production. 

97 Space Enterprise Consortium, “The SpEC Program,” National Security Technology Accelerator. Accessed on December 21, 2021. https://space-enterprise.org/thespace-enterprise-program. 

98 Defense Innovation Unit, “About DIU,” United States Department of Defense. Accessed on December 21, 2021. https://www.diu.mil/about. 

99 Department of Defense Research and Engineering Enterprise, “Technology and Manufacturing Industrial Base (TMIB).” Offce of the Under Secretary of Defense for 

Research and Engineering. https://rt.cto.mil/stpe/tmib. 
NDIA VITAL SIGNS 2022

SUMMARY 

The 2018 National Defense Strategy placed a heavy emphasis on 

investing in high-end technologies to improve overall capability. The 

question now is whether the 2022 NDS will do the same. Though 

we are still in a transitional period, indications are that the Biden 

administration will make relatively few changes in modernization 

priorities. DoD leaders have stated that integrated deterrence will 

play a large part in the new defense strategy, which will require 

technological improvement across all agencies and services100. The 

FY 2022 defense budget request also appears to stay the course 

on future force modernization with record R&D investment in cutting edge technologies101. However, the DoD102 is still charged with 

maintaining current capacity while simultaneously improving U.S. 

deterrence capabilities — the modernization quandary. 

Some uncertainty lies ahead for the future of emerging technologies, but if the U.S. wants to uphold its technological advantage 

in the great power competition, it needs to prioritize defense modernization above all else. 

100 Roaten, Meredith, “‘Integrated Deterrence’ to Drive National Defense Strategy,” National Defense Magazine. National Defense Industrial Association, September 22, 

2021. https://www.nationaldefensemagazine.org/articles/2021/9/22/integrated-deterrence-to-drive-national-defense-strategy. 

101 Garamone, Jim. “Fiscal 2022 DOD Budget Request Looks to Future Preparedness.” Defense.gov. U.S. Department of Defense, June 17, 2021. https://www.defense. 

gov/News/News-Stories/Article/Article/2661496/fscal-2022-dod-budget-request-looks-to-future-preparedness. 

102 Offce of the Under Secretary of Defense Comptroller, “Defense Budget Overview, United States Department of Defense Fiscal Year 2022 Budget Request,” May, 

2021. https://comptroller.defense.gov/Portals/45/Documents/defbudget/FY2022/FY2022_Budget_Request.pdf. 

49
50

NDIA VITAL SIGNS 2022

 

80 

60 

40 

VITAL SIGNS SURVEY RESULTS 

KEY TAKEAWAYS 

• 14% of respondents do not believe their business will 

return to its normal level of operations relative to one 

year ago 

• Streamlining the acquisition process and the need for budget 

stability continue to be the top two actions that NDIA members believe that the government can do to help the defense 

industrial base. 

• 63% of respondents did not receive pandemic-related fnancial assistance from any source since December 27, 2020. 

ABOUT THE SURVEY 

In August 2021, nearly seventeen months after the COVID-19 pandemic lockdowns began, NDIA conducted a member survey that 

garnered responses from nearly 400 corporate member respondents. Vital Signs 2022 is a data-driven look at the state of America’s 

defense industrial base (DIB) that uses accessible datasets and 

enables both snapshot views and the ability to see trends over 

time. Survey results can be found throughout the report, with additional questions included in this chapter. Building upon the survey 

from our previous report, we made it a priority to continue include 

industry members’ sense of how they saw the state of the industry and the environment in which they operate. 

As with last year’s report, we developed a set of questions that 

we will ask every year, which includes questions related to the 

demographics of the industry, business confdence, surge capacity, and other factors. We intend to build a compelling dataset over 

time, which we will factor into our scores in the future. A second 

set of questions will change year to year depending on the topical 

issues of the day. And like last year’s report, we included questions 

focused on the impacts of the COVID-19 pandemic on the defense 

industry. This second set of questions will allow for a rapid “taking 

of the pulse” of the defense industry on topical issues immediately 

affecting the base. 

METHOD 

As this is the second year of conducting this survey, we do not have 

the historical data set required to incorporate any of the results into 

our scoring. Furthermore, this section is not graded. 

What percent (by value) of your total equipment is 

government property or equipment? 

% of total equipment that is government owned 

% of government owned equipment that is in productive use 

Is your frm currently responsible for any government 

property or equipment? 

80 

64 

60 

0–20% 21–40% 41–60% 61–80% 81–100% 

Number of respondents 

62 40 36

28 

10 

Yes No Prefer not to answer/ 

do not know 

Figure 10.1, Source: NDIA 

27 

18 20 15 13 

9

Percent 

5 6 

1 

0 

20 

Figure 10.2, Source: NDIA 

0 
NDIA VITAL SIGNS 2022

114 

100 

25 

Approximately indicate the approximate percentage of the What impact will federal restrictions on using Chinese 

dollar value of your frm’s sales in your primary NAICS code communication technologies have on your company’s supply 

which went to DoD end-use in 2020 chain? 

125 300 

259 

43 

61 

47 

93 

0–20% 21–40% 41–60% 61–80% 81–100% 

28 

67 

14 

Don’t know No impact Some impact Large impact 

Number of respondents 

200 

Number of respondents 

75 

50 

100 

0 0

Figure 10.3, Source: NDIA Figure 10.4, Source: NDIA 

Would any of these conditions be a deterrent to your frm’s willingness or ability to devote larger amounts of productive 

capacity to military production? 

Not a deterrent Moderate deterrent Significant deterrent 

100 

75 

50 

25 

0 

15.2 

24.9 

59.9 

19.8 

43.1 

37.2 

28.9 

43.5 

27.7 

18.1 

35.0 

46.9 

7.5 

24.9 

67.7 

6.8 

1.8 

91.4 

6.3 

7.2 

86.5 

Percent 

Requirements 

for separate 

defenseunique 

production 

processes 

Burden of 

government 

paperwork 

Uncertain 

prospect of 

continuing 

volume of 

business 

Low 

profitability 

relative 

to civilian 

production 

Obligation 

to civilian 

customers. 

Employee 

discontentment 

with the U.S. 

military 

Other 

Figure 10.5, Source: NDIA 

51
52

NDIA VITAL SIGNS 2022

100 

250 

150 

100 

In a situation short of a declared national emergency, would any of the conditions listed below deter your frm from devoting 

signifcant amounts of productive capacity to military production? 

Not a deterrent Moderate deterrent Significant deterrent 

3 

12 

22 

18 22 

13 

6 

7 

6 

7 

21 

35 

38 

34 

66 

53 

73 

90 

88 

47 

40 

Percent 

75 

50 

25 

0 

Requirements 

for separate 

defenseunique 

production 

processes 

Burden of 

government 

paperwork 

Uncertain 

prospect of 

continuing 

volume of 

business 

Figure 10.6, Source: NDIA 

Given current conditions, do you think your company’s defense 

contracting business will be more proftable, less proftable, or 

about the same next fscal year compared to this year? 

212 

Low Obligation Employee Other 

profitability to civilian discontentment 

relative customers with the U.S. 

to civilian military 

production 

Given current conditions, do you think your company will 

bid on more, fewer, or about the same amount of defense 

contracts next fscal year compared to this year? 

193 200 

49 

131 

Fewer Same More 

Figure 10.8, Source: NDIA 

200 

Number of respondents 

87 

78 

50 

0 0 

Less profitable About the same More profitable 

150 

Number of respondents 

100 

50 

Figure 10.7, Source: NDIA 
NDIA VITAL SIGNS 2022

200 

In the next year, is your workforce: 

29 

About the same Contracting Expanding 

Figure 10.9, Source: NDIA Number of respondents 

177 

163 

150 

100 

50 

0 

What part of your supply chain is most vulnerable? 

Product security 

Fragile supplier 

Foreign dependency 

Fragile market 

Erosion of US-based 

infrastructure 

Single source 

Diminishing manufacturing 

sources & material 

shortages (DMSMS) 

Capacity 

constrained 

supply market 

Gap in US-based 

human capital 

Other 

Figure 10.10, Source: NDIA 

62 

0 10 20 30 40 50 60 70 80 

29 

23 

53 

14 

45 

24 

8 

60 

19 

Number of respondents 

53
54

NDIA VITAL SIGNS 2022

 

 

 

200 

150 

Since December 27, 2020, has this business received fnancial assistance from any of the following sources? Number of respondents 

250 

239 

200 

Economic 

Injury Disaster 

Loans (EIDL) 

25 

Employee 

Retention and 

Rehiring Credit 

11 

Increased 

DoD Progress 

Payments 

18 

Other 

Federal, State 

or local 

programs any source since 

19 

Paycheck 

Protection 

Program (PPP) 

117 

Section 3610 

5 

This business has 

not received financial 

assistance from 

December 27, 2020. 

150 

100 

50 

0 

Figure 10.11, Source: NDIA 

What is the most important thing the federal government can do to help the Defense Industrial Base? 

139 

All of the above Simplify Provide more Enhance Ensure budget Streamline the Other 

the security support for funding stability acquisition 

clearance workforce for R&D of process 

process technical emerging 

skill training technologies 

programs 

100 

50 

0 

58 

103 

29 

19 

3 

19 

Number of respondents 

Figure 10.12, Source: NDIA 
NDIA VITAL SIGNS 2022

200 

100 

150 

50 

Overall, how has this business been affected by the COVID-19 One year from now, do you think general business conditions 

pandemic? will be better, worse, or about the same next fscal year 

compared to this year? 

197 

200 

87 

162 150 

124 

Number of respondents 

15 

7 

0 

Large Moderate Little or Moderate Large 0 

About the same Better Worse negative negative no effect positive positive 

effect effect effect effect 

Figure 10.13, Source: NDIA Figure 10.14, Source: NDIA Number of respondents 

In your opinion, how much time do you think will pass before this business returns to its normal level of operations? 

100 

75 

50 

66 

51 

16 

55 

6 

0 50 100 150 200 

1 month or less 

2-3 months 

4-6 months 

More than 6 months 187 

I do not believe this 

business will return to its 

normal level of operations 

relative to one year ago 

There has been little or no 

effect on this business’s 

normal level of operations 

relative to one year ago 

Number of respondents 

Figure 10.15, Source: NDIA 

55

92 
56

NDIA VITAL SIGNS 2022

 

CONCLUSION 

The U.S. defense industrial base’s overall health and readiness 

received a fnal score of 69 out of 100, refecting the frst overall failing grade in the Vital Signs series. This departure refects 

sustained challenges to the DIB as well as the unprecedented disruption caused by the pandemic. The report reinforces the notion 

that the DIB is not insulated from the rest of the economy; it paints 

a picture of a DIB that has struggled through the frst year of the 

pandemic alongside the rest of the economy. Moving forward, the 

goal of maintaining or improving the health and readiness of the 

defense industrial base continues to be a pressing challenge for 

national security and defense policy communities. 

Vital Signs 2022 highlights the hurdles that exist as demands 

on the defense industrial base rise in the age of renewed strategic competition. The largest drops from last year were in “supply 

chain”, and “production capacity and surge readiness”. This will 

come as no surprise as these issues featured very prominently 

across the world, due to covid-19 disruptions. They are also critical to U.S. national security interests as they feed into the ability 

to respond to a crisis. 

Continuing a trend over the past two years, “industrial security”with its contributing factor, cybersecurity risks are among the 

most signifcant challenges for the industrial base. While the rate 

of growth has slowed down, the base continues to experience a 

year-on-year increase in the number of cybersecurity vulnerabilities. Modern defense supply chains rely on the sharing of sensitive 

information across networks to meet the needs of DoD and our 

servicemembers. The importance of these issues to policymakers 

can be seen though the implementation of CMMC and Section 889 

Part B, which were created to improve the industry’s cybersecurity posture in response to these increased risks. 

The escalating costs and constraints on the availability of 

defense production inputs also threaten the DIB. One signifcant 

risk is the acquisition of rare earth metals: The United States is 

almost entirely reliant on foreign rare earth metal production, with 

the vast majority coming from our long-term strategic competitor, 

China. When a sector is dependent upon a single producer, supplies from global competitors or politically unstable regions, risks 

increase for the DIB’s supply chain. 

Finally, we continue to look at ways to improve the usefulness of 

this report. We welcome your constructive comments and suggestions on how we can improve the usefulness and range of Vital Signs. 
NDIA VITAL SIGNS 2022

APPENDIX 1 

FULL INDICATOR SCORES LIST 

# Factor Indicator 2019 2020 2021 Change, 

2020 – 2021 

Demand 

1 Demand DoD contract obligations totals 82 88 94 +6 

Overall demand 82 88 94 +6 

Production inputs 

2 

Costs of goods and services 

Producer Price Index, services for intermediate demand 81 74 98 +24 

3 Producer Price Index, processed goods for intermediate demand 87 70 18 -52 

4 

Access to strategic materials 

Average Rare Earths Minerals (REMX) ETF prices 76 75 83 +8 

5 U.S. share of world rare earths mine production 10 23 39 +16 

6 Net import reliance as a percentage of domestic consumption 6 6 6 0 

7 Workforce productivity Adjusted productivity 61 64 63 -1 

8 Workforce compensation Estimated average annual per-worker pay, for defense-related 

employment 

92 95 97 +2 

9 

Workforce diversity 

Gender diversity in employment in defense supplier industries 85 85 85 0 

10 Racial diversity in employment in defense supplier industries 75 79 79 0 

11 Latino ethnicity diversity in employment in defense supplier 

industries 

40 41 41 0 

12 Age ethnicity diversity in employment in defense supplier industries 100 100 100 0 

13 STEM talent pool STEM percentage of total U.S. occupational employment 90 92 95 +3 

14 

Security on-boarding 

Annual inventory of security clearance investigation cases 24 28 39 +11 

15 Duration of initial top secret reviews (days)* 24 23 29 +6 

16 Duration of top secret periodic reinvestigations (days)* 36 33 39 +6 

Overall production inputs 66 66 67 +1 

Innovation 

17 

Innovation inputs 

Average annual value of worldwide R&D paid for by U.S.-based 

companies, selected durable industrial goods manufacturing 

industries 

100 100 100 0 

18 Average annual value of worldwide R&D paid for by U.S.-based 

companies, information and communications technologies 

100 100 100 0 

19 Average annual value of worldwide R&D paid for by U.S.-based 

companies, scientifc R&D services 

30 31 25 -6 

20 

Innovation competitiveness Share of international patent applications, U.S.-origin 73 69 68 -1 

21 Share of global R&D investment, U.S.-origin 76 76 77 +1 

22 

Innovation/intellectual 

property production 

Average annual patent applications, durable industrial goods 

manufacturing 

58 46 50 +4 

23 Average annual patent applications, information and communication technologies goods and services 71 84 90 +6 

24 Average annual patent applications, scientifc R&D services 37 38 36 -2 

Overall innovation 69 69 69 0 

*DSCA only released data for fasted 90% of cases 

Factor score key -6 and worse -1 – -5 0 +1 – +5 +6 and better 

57
58

NDIA VITAL SIGNS 2022

# Factor Indicator 2019 2020 2021 Change, 

2020 – 2021 

Supply chain 

25 Contract failure Average annual DoD contracts terminated for cause 25 27 37 +10 

26 Financial performance Weighted average cash conversion cycle for top defense 

contractors 

54 74 38 -36 

27 

28 

Inventory performance 

Cost management 

Weighted average inventory turnover ratio for top defense 

contractors 

Average Nunn-McCurdy unit cost breaches 

62 

100 

83 

100 

75

100

 -8 

0 

Overall supply chain 60 71 63 -8 

Competition 

33 

Proftability 

Weighted average core operating margin (return on sales) 94 93 76 -17 

34 Weighted average earnings per share 81 84 89 +5 

35 Weighted average return on assets 73 66 97 +31 

36 Weighted average return on equity 51 51 39 -12 

37 

Liquidity 

Weighted average free cash fow 88 86 67 -19 

38 Quick ratio (acid test) 97 94 82 -12 

39 Working capital ratio (or current ratio) 99 98 96 -2 

40 

Leverage 

Debt-equity ratio 93 83 84 +1 

41 Solvency ratio 95 98 90 -8 

42 Capital investment Capital expenditure ratio 87 82 77 -5 

31 Market concentration Level of market concentration (Herfndahl-Hirschman Index) 100 100 100 0 

32 Foreign ownership Contracting market share of foreign-owned frms 100 100 100 0 

30 Contract competition Average number of competitive offers received per contract actions 93 92 92 0 

Overall competition 92 88 88 0 

Industrial security 

43 

Threats to Intellectual 

Property rights New FBI Intellectual Property rights violation investigations 74 77 80 +3 

44 Threats to information 

security 

Average annual newly-reported common IT cyber vulnerabilities 32 27 26 -1 

45 Severity of newly-reported common IT vulnerabilities 14 14 14 0 

Overall industrial security 49 49 50 +1 

Political & regulatory 

46 Public opinion Public opinion polling on defense spending: responses indicating 

"Too little" 

62 49 44 -5 

47 

Congressional budgeting process 

Average number of days NDAA passed after Oct. 1 90 89 86 -3 

48 Average number of days appropriations passed After Oct. 1 65 77 85 +8 

49 Congressional interest in: procurement: MDAPs 97 99 80 -19 

50 Supply chains: manufacturing/supply chain/reshoring/Buy 

American 

82 91 81 -10 

51 

Regulatory burden 

Number of SAM representations and certifcations 80 77 77 0 

52 Incurred costs audit average elapsed days 87 92 95 +3 

53 Forward pricing audit average elapsed days 97 98 99 +1 

Overall political & regulatory 78 76 72 -4 

Productive capacity & surge readiness 

55 Intensity of capital usage Durable goods manufacturing sector capacity utilization 85 86 84 -2 

54 Output effciency National industrial output gap 75 48 20 -28 

Overall productive capacity & surge readiness 80 67 52 -15 

Figure 10.1 

Factor score key -6 and worse -1 – -5 0 +1 – +5 +6 and better 
NDIA VITAL SIGNS 2022

5

10

15

20

25

30

35

40

45

50

55

60

65

70

75

80

85

90

95

100

APPENDIX 2 

TOP 100 PUBLICLY TRADED DEFENSE CONTRACTORS 

Rank Parent Vendor FY21 Total Rank Parent Vendor FY21 Total 

1 Lockheed Martin Corp. $74.9 B 51 Cdw Corporation $365,548,549 

2 Raytheon Technologies Corp. $26.9 B 52 Centurylink, Inc. $364,048,565 

3 General Dynamics Corp. $22.2 B 53 Asgn Incorporated $356,432,093 

4 The Boeing Co. $21.7 B 54 GLAXOSMITHKLINE PLC $342,454,804 

Northrop Grumman Corp. $12.3 B CHEMRING GROUP PLC $325,878,061 

6 Huntington Ingalls Industries, Inc. $8.0 B 56 CAE Inc $311,382,773 

7 Humana Inc. $6.9 B 57 Tetra Tech, Inc. $307,948,031 

8 BAE Systems PLC $6.6 B 58 ELBIT SYSTEMS LTD $305,280,381 

9 L3Harris Technologies, Inc. $6.1 B 59 AAR Corp. $299,791,271 

General Electric Co. $4.4 B THALES $295,370,575 

11 Booz Allen Hamilton Holding Corp. $3.7 B 61 Insight Enterprises, Inc. $285,047,941 

12 Leidos Holdings, Inc. $3.6 B 62 US Foods Holding Corp. $278,847,219 

13 Centene Corp. $3.1 B 63 ROYAL DUTCH SHELL PLC $278,774,939 

14 Science Applications International Corp. $3.0 B 64 Caterpillar Inc. $268,246,601 

McKesson Corp. $2.8 B Kratos Defense & Security Solutions, Inc. $260,754,641 

16 CACI International, Inc. $2.5 B 66 Owens & Minor, Inc. $260,398,254 

17 Oshkosh Corp. $2.5 B 67 Tiger Midco, LLC $251,262,633 

18 Fluor Corp. $2.5 B 68 SODEXO $249,971,309 

19 Amerisourcebergen Corp. $2.1 B 69 Johnson Controls International Public Limited Company $238,780,265 

KBR, Inc. $2.0 B Par Pacifc Holdings, Inc. $235,536,810 

21 Perspecta Inc. $1.8 B 71 Aerojet Rocketdyne Holdings, Inc. $232,503,943 

22 Textron Inc. $1.8 B 72 Ball Corporation $229,621,268 

23 Vectrus, Inc. $1.6 B 73 Cummins Inc. $226,712,185 

24 Leonardo S.p.A. $1.5 B 74 American Water Works Company, Inc. $222,576,214 

Jacobs Engineering Group Inc. $1.3 B Parker-Hannifn Corporation $213,013,357 

26 Moderna, Inc. $1.2 B 76 Atlas CC Acquisition Corp. (Cubic Corp) $211,833,121 

27 Rolls-Royce Holdings PLC $1.1 B 77 Transdigm Group Incorporated $210,720,999 

28 Dell Technologies Inc. $1.1 B 78 Berkshire Hathaway Inc. $209,297,560 

29 Honeywell International Inc. $1,013,663,348 79 Allison Transmission Holdings, Inc. $206,329,195 

The Parsons Corporation $938,800,027 Siemens AG $205,274,052 

31 Aecom $820,652,908 81 WPP PLC $200,454,053 

32 Fedex Corporation $812,549,206 82 Duke Energy Corporation $198,539,770 

33 SERCO GROUP PLC $809,460,252 83 3M Company $198,067,169 

34 Verizon Communications Inc. $772,508,945 84 Unitedhealth Group Incorporated $194,149,997 

BP P.L.C. $659,148,438 Veritas Capital Fund Management, L.L.C. $186,475,267 

36 Viasat, Inc. $647,542,300 86 Tutor Perini Corporation $182,418,427 

37 Mantech International Corporation $646,007,001 87 Austal Limited $177,669,580 

38 Cardinal Health, Inc. $544,355,206 88 Sysco Corporation $166,607,463 

39 Great Lakes Dredge & Dock Corporation $532,226,187 89 Becton, Dickinson and Company $149,520,877 

International Business Machines Corporation $471,543,471 ENEOS Holdings, Inc. $149,223,925 

41 Omnicom Group Inc. $470,876,502 91 Aerovironment, Inc. $145,859,900 

42 Phillips 66 $458,124,291 92 VSE Corporation $145,424,671 

43 Hewlett Packard Enterprise Company $456,264,421 93 Moog Inc. $144,474,282 

44 Microsoft Corporation $421,587,826 94 Arrow Electronics, Inc. $140,425,760 

AIRBUS SE $415,688,399 MEGGITT PLC $138,224,166 

46 Pae Incorporated $414,668,301 96 Gulf Island Fabrication, Inc. $131,140,350 

47 ACCENTURE PUBLIC LIMITED COMPANY $403,150,610 97 Danaher Corporation $128,874,429 

48 AT&T Inc. $398,306,069 98 MOTOR OIL (HELLAS) CORINTH REFINERIES S.A. $128,058,480 

49 Teledyne Technologies Inc $396,060,345 99 Unisys Corporation $117,834,828 

Cisco Systems, Inc. $373,094,226 Matson, Inc. $114,552,141 

Figure 10.2 

59
The National Defense Industrial Association is the trusted leader in defense 

and national security associations. As a 501(c)(3) corporate and individual 

membership association, NDIA engages thoughtful and innovative leaders to 

exchange ideas, information, and capabilities that lead to the development of 

the best policies, practices, products, and technologies to ensure the safety 

and security of our nation. NDIA’s membership embodies the full spectrum 

of corporate, government, academic, and individual stakeholders who form 

a vigorous, responsive, and collaborative community in support of defense 

and national security. For more than 100 years, NDIA and its predecessor 

organizations have been at the heart of the mission by dedicating their time, 

expertise, and energy to ensuring our warfghters have the best training, equipment, and support. For more information, visit NDIA.org 

Wesley Hallman 

SVP, Strategy & Policy 

whallman@NDIA.org