Defense Contracting Is Broken. We Want to Fix It.

I’ve spent my career building companies around the conviction that you can do well by doing good. At Rally Health, we bet that aligning incentives around patient outcomes (not activity) would produce better results and better returns. It did. I want to apply that same logic to the Department of War.

Today, Red Cell announced an agreement with the DoW’s Chief Digital and Artificial Intelligence Office (CDAO) to pilot shared savings. The agreement is structured as an Other Transaction Authority (OTA), with a ceiling of up to $100 million in the first year. Under this model, vendors cover all upfront costs and are paid a percentage of the savings they generate for the Department. If they don’t deliver, they don’t get paid.

The incumbents who have held DoW contracts for a decade without serious competition won’t like this. Good. The vendors who profit whether or not they deliver won’t like it either. Also good. America’s defense industrial base operates on the corrosive assumption that showing up is the same as performing. This allows billions to flow into cost-plus contracting arrangements that reward spend instead of outcomes. While the warfighter waits, readiness suffers, and the taxpayer funds it. In an era of accelerating threats, this is unacceptable and dangerous.

I strongly believe shared savings is the structure to fix it. Here’s how we’ll pilot it over the next year:

We serve as the prime. Our platform team handles go-to-market, contracting, and project management. Our portfolio companies provide the technology, expertise, and forward-deployed engineers to do the actual work. When a portfolio company operating under this contract—like Trase or Andesite—delivers capabilities that reduce costs, it will receive a percentage of the savings and provide ongoing capabilities at a significantly lower cost than other vendors.

This is the first time a venture studio has won an agreement that fulfills contracts this way. The structure deliberately aligns technology builders, investors, and DoD customers around speed and outcomes.

Precedent exists for shared savings in private and public use cases. For example, this approach returned $2.5 billion to Medicare in a single year. Applied to bloated audit contracts, bid protests, and authority-to-operate packages, the opportunity is measured in tens of billions. The dollars recovered can be put to better use elsewhere, namely bolstering national security and supporting the warfighter.

For nearly two years, we have worked alongside CDAO and the Navy to define how shared savings could eliminate inefficiencies via agentic AI. Now it’s time to execute. This agreement is the first step toward a model that places performance over promises and outcomes over incumbency. It is the blueprint for how the government should procure technology, and one we intend to validate and scale.