Leveraging the Working Capital Fund Model to Scale and Sustain Innovation

Abstract

The Department of War is undergoing an ambitious acquisition transformation, but the underlying fiscal architecture that governs how capability is funded, scaled, and sustained has remained unchanged since 1949. This paper argues that the Working Capital Fund (WCF), authorized under 10 U.S.C. § 2208, is an underutilized instrument of incentive architecture that, if reinterpreted, can deliver the patient capital that the defense innovation ecosystem requires. Drawing on structural comparisons between the current Defense Working Capital Fund (DWCF) and commercial working capital fund models, the paper proposes an Innovation Working Capital Fund (IWCF) that retains every element required by the break-even mandate and the Financial Management Regulation while replacing the input-based denominator (direct labor hours) with an output-based denominator (availability units), recognizing government-contributed assets through four explicit equity offsets, embedding an Innovation Premium within the rate under existing § 2208(c) and § 2208(e)(1) authority and assigning the Portfolio Acquisition Executive the role of fund manager.