The DIB is shrinking even as military spending increases- small and large firms are both declining each year

President of Etherton and Associates, a consulting and lobbying firm specializing in defense acquisition, industrial base, and cybersecurity policy; Communications Manager at the Acquisition Research Program at the Naval Postgraduate School (NPS); The Slow Destruction of the Defense Industrial Base; Acquisition Research Program Department of Defense Management Naval Postgraduate School; Excerpt from the Proceedings of the Nineteenth Annual Acquisition Research Symposium; Acquisition Research: Creating Synergy for Informed Change May 11–12, 2022

The NSIB is shrinking. According to a recent report by the U.S. Government Accountability Office (GAO), from FY2011 to FY2020, the number of small businesses receiving DoD contract awards decreased by 43% (dropping from 42,723 to 24,296), even as obligations to small businesses increased by approximately 15% (GAO, 2021). This phenomenon extends to all businesses, as companies of all sizes are choosing not to work with the DoD. As the GAO (2021) pointed out, “The number of larger businesses receiving contract awards fell by 7.3 percent per year on average from 2011–2020, while the number of small businesses receiving contract awards fell by 6 percent per year” (p. 9). Analysis from Bloomberg Government (2021) shows this trend continuing in FY2021. By their count, the number of prime vendors declined from 142,000 to 97,000 in the past decade. As they point out, The federal industrial base is shrinking even as contractors are asked to respond efficiently to increasingly complex requirements and crises … A decade-long, 23% increase in contract spending since fiscal 2012 means larger and fewer contracts are going to larger and fewer companies while agencies rationalize burdensome portfolios to keep pace with urgent priorities such as pandemics, cyberattacks, wars, climate change, and infrastructure modernization. (Bloomberg Government, 2021) The past decade has seen variability in defense toplines, averaging a 10% decline from 2011 to 2020 (adjusted for inflation). However, this decline does not align with the 31–36% drop in vendors (Duffin, 2021). The decline in industry participation in the government marketplace also stands in sharp contrast to the overall U.S. economy. U.S. GDP grew by 34% from 2011 ($15.6 trillion) to 2020 ($20.9 trillion; The World Bank, 2022). The total number of businesses in the U.S. economy also grew, increasing 7% from 2010 to 2019 (U.S. Census Bureau, 2021). As the above data indicate, even increased defense and government spending is not a sufficient enough incentive to persuade companies to work with the DoD.