Go Beyond the FAR with an OT
What is an “Other Transaction?”
Other Transactions (OTs) are procurement instruments other than contracts, grants, or cooperative agreements enabling flexible business arrangements to acquire research and development to support technology advancement or to quickly develop a prototype. Most laws and regulations governing federal contracts do not apply to OTs (i.e., Federal Acquisition Regulation (FAR) and the Competition in Contracting Act (CICA)), however, the Procurement Integrity Act applies and competitive practices are applicable. OTs may be protested to the U.S. Court of Federal Claims, and GAO has limited jurisdiction to review OT decisions.
OTs are a mechanism to access innovative research and development from non-traditional contractors who are challenged by the standard requirements of traditional contracts, grants, or cooperative research and development agreements. OTs can be used with traditional contractors when statutory requirements are met. OTs provide flexibility that allows for increased speed, flexibility, and accessibility for research and prototyping activities than permitted under statutes and regulations that apply to traditional FAR based contracts. OT agreements may be fixed-price, expenditure based, or hybrid.
48 CFR §212.001 defines a non-traditional defense contractor as an entity that is not currently performing and has not performed, for at least the one-year period preceding the solicitation of sources by the Department of Defense (DoD) for the procurement or transaction, any contract or subcontract for the DoD that is subject to the full coverage under the cost accounting standards prescribed pursuant to 41 USC §1502 and the regulations implementing such section.
The White House Office of Science & Technology Policy (OSTP) stated in a 2014 publication that “OTs allow agencies and their contracting partners to enter into flexible arrangements tailored to the particular projects and needs of the participants.” Section 867 of the FY18 NDAA requires the Secretary of Defense to establish preference for use of OTs and experimental authority in execution of S&T and prototype programs.
Although OTs may be appealing due to perceived speed to award OT agreements, the primary goal of OTs is to encourage/engage non-traditional performers to support government needs, NOT to award agreements quickly or avoid FAR competitive processes.
OTs are well suited:
- For Research & Development activities to advance new technologies and processes and prototyping or models to evaluate feasibility or utility of a technology
- To address barriers to entry and perceived obstacles to doing business with the government by non-traditional vendors to include intellectual property rights and compliance with cost accounting standards
- For flexibility to tailor commercial-like agreements to reach non-traditional vendors with innovation Research Development and Demonstration (RD&D) solutions
- For negotiable funding arrangements, payment milestones, length of agreement to achieve research and prototype projects, and flexible approach to managing intellectual property
Why Use An OT?
“An OT is a transaction (other than a contract, grant, or cooperative agreement) to which most of the laws and regulations governing federal contracts – including the FAR – do not apply.” – DIUx guide
- Deliver capability faster
- Reduce administrative overhead and bureaucratic delay
- Simplify the contracting procedure
- Reduce barriers to entry for non-traditional vendors
- Provide a flexible approach to managing intellectual property
- Establish a streamlined path to a full production contract
While OT’s provide significant flexibility, there are also some limitations. While OTs are exempt from FAR and are not required to follow a standard format or include standard terms and conditions, Agencies must be explicitly authorized by Congress to use OTs. Eleven federal agencies currently have Congressional authorization for OTs:
|Agency||OTA Authority||Agency Specific OT Requirements, Limitations, and Restrictions|
|NASA||51 U.S.C. § 20113(e)||No limitations or restrictions.|
|DOD||10 U.S.C. § 2371||
Authorized for prototype projects directly relevant to enhancing mission effectiveness of military personnel and the supporting platforms, systems, components, or materials in use by the Armed Services.Meet one of the following conditions:
· At least one non-traditional defense contractor participating to a significant extent
· All significant participants in the transaction other than the Fed Gov are small businesses OR non-traditional defense contractors
· At least 1/3 of total cost of prototype project paid out of funds provided by parties to the transaction other than the Fed Gov
The agency senior procurement executive determines that exceptional circumstances justify use of a transaction not feasible or appropriate under a contract or provides opportunity to expand the defense supply base in a manner not practical or feasible under a contract
|DOE||42 U.S.C. § 7256||Limited to RD&D projects. Cost sharing agreement required.|
|HHS||42 U.S.C. § 247-7e||Limited to RD&D projects. Cost sharing agreement required.|
|DHS||6 U.S.C. § 391||Authorized for RD&D and prototype projects.Prototype projects require a non-traditional contractor and cost sharing agreement.|
|DOT||49 U.S.C. § 5312||Limited to RD&D focused on public transportation.|
|FAA||49 U.S.C. § 106(l)||No limitations or restrictions.|
|TSA||49 U.S.C. § 114(m)||No limitations or restrictions.|
|DNDO||6 U.S.C. § 596||No limitations or restrictions.|
|ARPA-E||42 U.S.C. § 16538||No limitations or restrictions.|
|NIH||42 U.S.C. § 285b-3; 42 U.S.C. § 284n; 42 U.S.C. § 287a||Limitations and restrictions differ based on specific research programs.|
Another restriction is that OT’s can only deliver limited quantities of prototypes rather than full-scale production arrangements. The term prototype is not fully defined in federal law, so most agencies have relatively broad, flexible definitions of the term. The DIUx guide defines it as “A prototype project can generally be described as a preliminary pilot, test, evaluation, or agile development activity used to test the viability, technical feasibility, or military utility of a technology, process, concept, end item, system, methodology, or other discrete feature.”
However, if an OT is used in combination with a prototype and/or MVP that has been demonstrated and the “military utility” confirmed, the OT mechanism allows a program office to directly award a full production contract to the vendor, without having to recompete the work. This is an important benefit of the OT approach. Section 815 of the FY2016 NDAA specifically allows follow-on production contracts resulting from an OTA, limited to the participants in the OTA prototype project. This may be done without the use of competitive procedures if the following criteria are satisfied:
- Competitive procedures were used to select the parties to participate in the prototype project; and
- The participants in the transaction successfully completed the prototype project provided for in the transaction
To take advantage of this authorization, programs should develop acquisition approaches for prototype projects that address anticipated follow-on activities.
The options for an OT fall into two basic categories: use an external organization’s OT vehicle, or establish an internal OT vehicle.
DIUx established a mechanism called a Commercial Solutions Opening (CSO) to solicit solutions to warfighter needs under an OT. The CSO mechanism is available for any DoD entity to use, and the process begins by visiting the Work With Us page on the DIUx website. A detailed explanation of the process is provided in the CSO How To guide quoted on the first page of this document. One benefit of the DIUx CSO is the wide scope of technology that can be developed using this vehicle. However, the color of money is limited to R&D funds. For examples of current projects being supported by this mechanism, download the latest DIUx Quarterly Report. According to this report, “as of March 2017, DIUx has awarded 25 agreements for a total of $48.4M.”
The Air Force Research Laboratory site in Rome, NY, runs an OT vehicle similar to DIUx’s and has run 20+ projects. This vehicle is managed by an entity named the System of Systems Consortium. AFRL’s OT vehicle is limited to C4ISR systems only, and as with DIUx, can only use R&D funding. AFRL published a 10 Step Guide which walks the reader through the process of using their OT. The AFRL approach is slightly faster than DIUx because rather than issuing an entirely new OT for each customer (as DIUx does), AFRL simply issues a Task Order under their existing OT.
Lastly, the Space Enterprise Consortium (SpEC) was awarded in November 2017 by the U.S. Air Force Space and Missile Systems Center (SMC). SpEC is comprised of both large and small organizations, as well as both traditional and non-traditional defense contractors. SpEC has a growing list of current members, currently totaling 250+. Any company, university, or research organization with expertise in at least 1 of the 10 technology areas can join the consortium. SpEC acts as a bridge between commercial industry and the Government, helping industry prepare for federally funded space-related prototype projects, and helping the Government identify and prioritize their challenges and opportunities.
There are a growing number of consortia to help agencies draw innovators who are not traditional federal contractors, as well as companies with long government service, to tackle tough, intractable challenges.
Internal OT Vehicle
A program office or Agency could establish its own OT vehicle, following the DIUx and/or AFRL model. This is the most flexible approach in terms of technical scope and also takes the longest (potentially 6 months). For further guidance about how to do this, refer to the OSTP Innovative Contracting Case Studies guide)or the Jan 2017 Other Transaction Guide, published by the Director of Defense Procurement and Acquisition Policy. Under current policy, a Senior Procurement Executive has authority to approve an OT up to $250M. Note that personnel at DIUx and AFRL alike have publicly expressed a willingness to help government entities develop their own OT’s. DIUx in particular has a strong emphasis on scaling the OT practice by “sharing guidance… with organizations across the DoD.”
Questions To Ask
- Does my organization currently have Congressional authorization for OTs?
- What is the timeline for using an OT mechanism? How soon can the program office begin and how well does the OT timeline align with existing schedule plans?
- How will the funding arrangements work (timing, amounts, color of money, etc.)? When are funds available?
- Will the organization’s approval authorities grant permission to use an OT? What additional information is necessary to gain their approval?
- Do our contracting officers have experience with OT’s?
While using an OT is not exactly uncharted territory, the number of relevant precedents is admittedly limited. There is thus a certain amount of unpredictability inherent in this option. However, the number of OT’s currently in use is increasing and the community of acquisition professionals who are familiar with OT’s continues to expand. This risk should be assessed in comparison with the risk of using standard procedures.
Actions You Can Take
- Download a How To guide from DIUx, AFRL, or other OT expert (see links below).
- Contact personnel at DIUx, AFRL, etc to begin the conversation about leveraging their OT vehicles.
- Develop a short problem statement that can be addressed with a prototype.
- Other Transactions Guide, USD (A&S), Dec 2018
- OTA page on AiDA
- Debunking the Hype Involving OTAs, Contract Management Magazine, Mar 2019
- DoD Use of OTA: Background, Analysis, and Issues for Congress, CRS, Feb 2018
- Definitions and Requirements for Other Transactions Under Title 10, United States Code, Section 2371 b, USD A&S and USD R&E, Nov 2018
- Authority for Use of Other Transactions for Prototype Projects Under 10 USC 2371b, USD A&S, Nov 2018
- Defense Commercial Solutions Opening Pilot Program, DPAP, Jun 2018
- DISA OTA Process Guide, DITCO, Jun 2018
- DIUx: Pathways to Commercial Innovation and OTAs, DAU, Apr 2018
- Using Other Transactions – The Good, Bad, and the Uncertain, Diane M. Sidebottom, DAU, Apr 2018 (video)
- OTA Basics Video, Diane Sidebottom, DAU, Apr 2018
- SOSEC 10-Step Process OTA, Air Force Research Lab (AFRL), Aug 2016
- Commercial Solutions Opening (CSO) Guide, DIUx, Nov 2016
- Use of Other Transaction Agreements (OTAs) Limited and Mostly for R&D Activities GAO, Jan 2016
- OTA Summary, Air Force, Sep 2015
- OTA Resources, DPAP
- Other Transaction Authority, Air Force Transformational Innovation
- Innovation in Contracting, DPAP