Restructured DIUx leads $36M in Q4 investments


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After a rocky start criticized by Congress and a restructuring in May, the Pentagon’s tech startup announced Thursday it had a productive fourth quarter, awarding 12 agreements totaling $36.3 million.

The Defense Innovation Unit Experimental, known as DIUx, contributed $8.3 million of that total while other Defense Department agencies joined in for the other $28 million, DIUx Managing Director Raj Shah told reporters. The turnaround to award those contracts was fast — companies got an award in an average of 59 days after submitting an initial proposal, Shah said.

A key component to the quick timing is DIUx’s development and use of a streamlined contracting mechanism called a commercial solutions opening. Shah noted DIUx isn’t the only one who can use it — the authority was granted to the whole of the Defense Department by Congress.

But DIUx is happy to be the test bed, he said.

“Whenever you try something new, there’s got to be someone that’s first, that goes through the motions and irons out the wrinkles and makes it into a repeatable process,” Shah said. “So we’re happy to play that role.”

Shah said he’s optimistic others in the department will follow suit.

The streamlined method is attractive to smaller companies who usually do not contract with the Defense Department, because parts of the contract are negotiable (like intellectual property rights) and the time to an award is much faster than the traditional contracting process, he said.

“The CSO is a reliable and transparent process where a company can quickly understand if their proposed solution is valuable to the department or not, and then what those next steps are,” he said.

What may be the most important, Shah said, is that “upon success of a prototype, the CSO allows quick transition, or transition into procurement contracts.”

What companies are getting the money?

One agreement Shah highlighted with Sonitus, out of San Mateo, California, is designed to adapt a wireless, hands-free, ears-free communication device placed in the mouth for the Air National Guard.

Earlier in the company’s development, the product was funded by In-Q-Tel, Shah said.

“And so by coordination with this company, we’re taking this technology to the next stage of its lifecycle, realizing and helping to realize return on In-Q-Tel’s initial investment,” Shah said.

In another agreement with Tanium out of Emeryville, California, DIUx is working to help the DOD CIO be more aware of what’s on the department’s network by providing near-real-time visibility and control of network endpoints.

“The end result will provide our cyber defense operators the ability to monitor and react to the rapidly changing threats with confidence and speed,” according to a document given to reporters.

Will DIUx last into the next administration?

DIUx is currently in its second iteration after restructuring driven in part by congressional criticism. The second version, dubbed DIUx 2.0, included a new reporting structure, a new director and other changes.

Recent comments from one congressional staff member indicate lawmakers are still skeptical if the group will fulfill its initial purpose, even after the restructuring.

“The original concept of DIUx was to find companies who were doing sort of groundbreaking technology and marry them up with other organizations in the DOD who need that sort of technology,” Anish Goel, a professional staff member for the Senate Armed Services Committee, said last week. “But from our perspective the problem before was not that these companies didn’t know what the needs were in DOD; it’s that they didn’t want to work with them because of all of the rules that go along with working with DOD.”

At a panel discussion hosted SRI International, Goel outlined several common problems working with the Defense Department, like the time it takes, the strings attached and the rules companies have to follow.

“So unless you fix all that other stuff in terms of acquisition and contracting…How is DIUx really contributing to that problem?” Goel said. “Having a dating service really is not the problem in our mind.”

[Read more: Senate staffer: Lawmakers still skeptical of DIUx, Obama threatens veto of defense bill over tech outpost funding]

Goel also said at the time Congress is wondering how DIUx is any different from other programs designed to drive innovation for the DOD.

Congressional questions about DIUx, Goel said then, “have heretofore remained unanswered.”

When asked where DIUx fits in to the Defense Department, especially given its other innovation initiatives, Shah said the key distinction is that DIUx is “solely focused on leveraging commercial technologies, markets and investments.”

“We are trying to find companies and products where there’s been significant amount of investment from people outside of the department, which allows us to get the capabilities that we need cheaper and more efficiently,” Shah said. “We’re also very much focused on speed.”

He also noted: “We’ve been moving very, very fast, in startup speed over the last 140 days, and so now we’re taking a pause to be able to communicate what we’ve done and why we at the department think it’s valuable.”

Another congressional concern has been that the program focuses too much on Silicon Valley, Goel noted. DIUx has added a hub in Boston and more recently in Austin, Texas.

[Read more: DIUx expands to Austin, Texas]

But so far it appears from the document provided to reporters the majority of companies awarded contracts are located in California.

Looking ahead to a changing administration, another potential concern with cementing DIUx’s future, Shah said he is optimistic “the subsequent secretary, and the subsequent secretary after that, will see the value of this engagement and will be pleased to have DIUx in his or her quiver of tools to achieve their missions and goals.”

“Clearly Secretary Carter’s interest and commitment to this has helped us to get started, but I think that no matter who is the secretary… our national security going forward will rely on a significant part on our ability to access the innovation centers that we have across our nation,” Shah said.

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Department of Defense (DOD), Departments, DIU (formerly DIUx)