White Paper

3 This white paper discusses • A changing DoD Procurement Landscape- Pending Goldwater-Nichols reforms • How a pure play defense electronics model can help drive innovation in support of the primes and DoD • How commercial companies can help support DoD technology initiatives to drive the DoD Third Offset Strategies • How pre-integrated solutions are necessary to meet the DoD's growing requirement to "out-innovate faster than anyone else" • The increased need for open and affordable security to be built-into key defense platforms A Changing Defense Procurement Landscape- Pending Goldwater-Nichols reforms In 1986, the Reagan era landmark Goldwater-Nichols De- fense Reorganization Act went into law. This important legisla- tion ushered in badly needed reforms that were intended to help streamline and modernize the DoD, eliminate inter-service rivalries, simplify the chain of command and importantly drive shared and centralized procurement. For the most part this law has helped accomplish at least some of its stated goals. With that said, the House and Senate Armed Services Committees and the Secretary of Defense have all spoken out on and even drafted proposals to reform the now 30 year old legislation. Although there are some differences between parties, the overall theme toward Goldwater-Nichols reforms are: clearer definition of the role and powers of the Joint Chiefs of Staff, additional defense acquisition reform including the sometimes controversial discussion around a less centralized armed services specific approach, a better balance of influence among combatant commands to eliminate potential redundancy and conflict, and the potential for making the US Cyber Command a full combatant command. Generally speaking we support the efforts towards Goldwater-Nich- ols reform. As Secretary Carter, Chairman McCain, and others have pointed out, the legislation needs, at a minimum, a face lift. There is no way to know, as of the publishing of this white paper, precisely where these reforms will end up and on what time table. One thing we can be sure of however, is that the political and mili- tary sands around defense procurement reform continue to shift, po- tentially dramatically. For this and other reasons it is important that the defense industrial base, including commercial enterprises like Mercury Systems, never lose sight of the key goals of Better Buying Power 1.0, 2.0 and 3.0. The stated need to "Do More Without More" is likely to remain a constant. Also a constant is the overall mandate of the Better Buying Power initia- tives towards the "implementation of best practices to strengthen the Defense Department's buying power, improve industry productiv- ity, and provide an affordable, value-added military capacity to the Warfighter." In our Next Generation Business Model white paper published in January 2015 we highlighted the need to make the emerging Firm Fixed Pricing model work. We reiterate our belief that in order for it to work it needs to be a shared model. There is a willingness of commercial companies to invest significant amounts of their own money in R&D, innovate relentlessly and place necessary "bets" on key programs, technologies and capabilities that are believed to be important to achieve both commercial and military success. At the same time we also reiterate our strong belief, which we practice daily, in driving profitable innovation so we and others like us can remain viable, growing businesses that can continue making critical investments to meet the needs of our country and our allies. That means, in part, it is important we make sure we are allowed and encouraged to retain the intellectual property we invest in and develop. This will help support continued innovation, and further enable our customers to deliver affordable but profitable solutions. Yet let's not lose sight of the fact that whatever the new face of Defense Procurement may become, there needs to be an on-going drive toward shared risk, more rapid innovation, and the creation of a defense industry that can profitably deliver affordable solutions to its customers. Thesis: Whatever the outcome of Goldwater-Nichols reform, the DoD needs to continue to drive innovation and open systems and let the defense industry profitably but affordably support key programs.

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