Speaking during Lockheed Martin’s second-quarter 2026 earnings call, Taiclet said new multiyear munitions framework agreements provide a template for changing the relationship between the U.S. government and its suppliers. The central issue, he said, is whether contractors have enough long-term certainty to commit capital ahead of formal procurement decisions.
“We must embrace commercially inspired long-term enforceable agreements and contracts that can’t be changed at the whim of the government,” Taiclet said. “We need the confidence to act as we would act in a commercial environment to make investments to solve these national defense problems.”
The argument goes beyond the structure of individual missile contracts. Taiclet is advocating an acquisition model in which defense companies can commit money to production capacity and technology before a requirement has moved through the traditional government contracting process.
“Yes, we are investing in the manufacturing and design capabilities, before the orders come in, and I think that’s the right way to run the company,” Taiclet said. He described the approach as part of a broader change in how Lockheed Martin identifies military needs and develops systems before formal requests for proposals are issued.
Taiclet said the current Pentagon leadership has an opportunity to establish contracts durable enough to survive future changes in budgets and political leadership. Such agreements, he said, could encourage both major defense groups and newer market entrants to invest ahead of government orders.
“I think this is the leadership team in government that can actually leapfrog what’s ever gone on before when it comes to commercial-type agreements,” Taiclet said. He said companies willing to “invest ahead of time, think ahead of time, and put development effort into non-ordered, non-contracted systems” should have a contracting structure capable of protecting those investments.
For Lockheed Martin, the debate is also shaped by its previous experience with the C-130 program. Taiclet said the company would no longer accept comparable investment risk without a counterparty prepared to operate under commercially credible terms.
“We don’t plan to ever put ourselves in a risk position where we don’t have that confidence in the contract that we didn’t have for the C-130,” Taiclet said. “We’re not doing that anymore. We’re not taking that kind of risk without a counterparty that’s willing to work on a commercial basis right along with us.”
A second part of Taiclet’s argument concerns the incentives created by traditional government cost accounting. He said existing practices can discourage contractors from financing productivity improvements because lower production costs can subsequently lead to lower contract prices.
Taiclet illustrated the point with a hypothetical $10 million investment in robotics at Lockheed Martin’s Camden operations that cuts the unit cost of a weapon from $100,000 to $90,000. If the government then reprices the contract by the same 10%, he argued, the manufacturer loses much of the financial incentive to make the investment in the first place.
“Who would invest $10 million to get their price down 10% and bleed out all of that benefit?” Taiclet said. “That’s the issue with our industry, is essentially that accounting system.”
The multiyear frameworks are intended to change that calculation by allowing contractors to retain more of the financial gains generated by higher efficiency, provided they meet production and performance commitments. Taiclet said the structure gives industry a stronger reason to invest in automation, tooling and other measures that can lower costs while accelerating output.
“What the framework agreements do is take that away,” Taiclet said, referring to the traditional repricing dynamic. “If we get efficiencies while we ramp up our product line, we get to keep in our own profitability. Now we have to do it, we have to perform.”
Chief Financial Officer Evan Scott said Lockheed Martin is moving framework agreements toward long-term multiyear contracts designed to reward cost and schedule performance. Those agreements will also require the company to meet aggressive production ramps.
Scott said the emerging structure gives Lockheed Martin greater visibility over production and allows suppliers to plan around a seven-year horizon. It also provides funding allocations and cash terms intended to protect the capital committed at the start of a production expansion.
“The UCAS are really key because they allow us to get going at full speed,” Scott said. “We can optimize around a seven-year production run and get our suppliers aligned to that. It gives us a funding allocation, and it gives us the cash terms to allow us to protect the upfront investment.”
Lockheed Martin also expects the model to allow the government to share in longer-term productivity gains rather than simply transferring all of the benefit back to the customer through annual repricing. Taiclet said contractors would retain stronger profitability when they successfully remove costs, with additional gains ultimately shared with the government.
“We get to keep a significant ramp-up in profitability to industry if we can perform,” Taiclet said. “There’s a point where we get to where we share ratably with the government those future benefits.”
For Taiclet, the policy question is ultimately whether Washington can create procurement terms that make private investment in defense production economically rational while still protecting taxpayers. He said a system that rewards efficiency rather than immediately repricing it away would give industry a stronger reason to invest early and respond faster to rising weapons demand.
