Adaptive capability through advanced contracting

The defence threats facing GCC armed forces have become more dynamic, sophisticated, and technologically complex in recent years, presenting new challenges such as asymmetric and cyber warfare. As a result, systems purchased to combat only one type of threat become less effective — even obsolete — within shrinking time lines.

To address these ever-evolving threats, it is critical to move from a traditional, rigid, and sometimes adversarial contracting approach to a more flexible and resilient model, which can adapt to the evolving threat environment.

Through extensive work with militaries, government organisations, and industry, Strategy& recommends the approach known as “advanced contracting.” Implemented correctly, advanced contracting encourages defence contractors to become defence partners, with incentives to provide a resilient, adaptive capacity.

Advanced contracting entails a progression of contracting approaches, which increasingly align the supplier’s incentives with delivering a capability solution that the customer armed force can use directly — rather than merely delivering equipment or basic support services. Advanced contracting therefore takes advantage of the scale and technical expertise of the supplier to maintain the equipment at readiness, saving the customer from having to create these elements internally a second time.

Our experience shows that the commercial and cultural changes inherent in advanced contracting dictate a gradual transition before its application to the most complex programmes. However, the proven benefits of this approach should encourage armed forces and contractors to pursue it, thereby aligning their interests and improving their responses to evolving threats.

Exhibit 1: How Advanced Contracting Works

How Advanced Contracting Works