Other Transaction Authority (OTA)

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. Many 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. GAO ruled on proper use of an OT in these cases: GAO B-416061 and GAO B-416752.

OTs are a mechanism to access innovative research and development, especially from *non-traditional contractors who may be challenged by 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.

*32 CFR §3.4 defines a non-traditional defense contractor as a business unit that has not, for a period of at least one year prior to the date of the OT agreement, entered into or performed on (1)  any contract that is subject to full coverage under the cost accounting standards prescribed pursuant to section 26 of the Office of Federal Procurement Policy Act (41 U.S.C. 422) and the regulations implementing such section; or (2) any other contract in excess of $500,000 to carry out prototype projects or to perform basic, applied, or advanced research projects for a Federal agency, that is subject to the Federal Acquisition Regulation.

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.

Agencies Authorized to Use OTs

Agencies must be explicitly authorized by Congress to use OTs and Government Contracting Officers must have Agreement Officer authority to award OTs. The following federal agencies currently have Congressional authorization for OTs:

Federal Agencies with Congressional OT Authorization

 

Agency OT 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 Authorizes Research OTs and Prototype OTs. See DoD Other Transactions for detailed requirements, limitations, and restrictions.
10 U.S.C. § 2371b
DOE 42 U.S.C. § 7256 Limited to RD&D projects. Cost sharing agreement required.
Authorized for RD&D and prototype projects.
HHS 42 U.S.C. § 247-7e Limited to RD&D projects. Cost sharing agreement required.
Authorized for RD&D and prototype projects.
DHS 6 U.S.C. § 391 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 Limitations and restrictions differ based on specific research programs.
42 U.S.C. § 284n
42 U.S.C. § 287a

[1] Section 815 of the FY 2016 NDAA 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 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 Section 1502 of title 41 and the regulations implementing such section.

[2] Section 815 of the FY 2016 NDAA replaced section 845 of the FY 1994 NDAA (repealed) and provided DoD with permanent authority for prototypes, as well as increased dollar threshold approval levels for prototype projects, amended criterion for OTA eligibility, and allows a prototype project to transition to award of a follow-on production contract.

When to Use an Other Transaction

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 agreements leveraging commercial terms & conditions to reach non-traditional vendors with innovation Research & Development solutions
  • For negotiable funding arrangements, payment milestones, length of agreement to achieve research and prototype projects, and flexible approach to managing intellectual property

Although OTs may be appealing due to perceived speed to award OT agreements, the primary goal of OTs is to encourage innovation and technological advances, NOT to award fast or avoid FAR competitive processes.

OTs are not an appropriate solution for all requirements!

DoD Other Transactions

Two types of Other Transaction Authority are available to the Department of Defense (DoD). The revised USD A&S Other Transactions Guide provides conditions for use as well as guidance for planning and executing Research and Prototype OTs as well as follow-on Production OTs.

Research OTs (10 U.S.C. §2371) are applicable for basic, applied, and advanced research projects to pursue development and application of dual-use technology. Unlike Prototype OTs, Research OTs do not include authority for transition to follow-on production contracts or transactions. Research OTs require cost sharing arrangements between the government and the other party/parties, typically split 50/50, although the ratio is negotiable based on resources, previous technological investments, commercial vs. government applicability, performance risk, and nature of a project. Although the Competition in Contracting Act (CICA) is not applicable, competition should be pursued to the maximum extent practicable to incentivize high quality and competitive pricing.

Prototype OTs (10 U.S.C. §2371b) are appropriate for research and development and prototyping activities to enhance mission effectiveness of military personnel and supporting platforms, systems, components, or materials. Prototype OTs may only be used to develop limited quantities of prototypes, however, they can provide a path to directly award a follow-on Production OT or contract without having to recompete the effort. This is an important benefit of the Prototype OT approach, but programs must develop acquisition approaches for prototype projects that address anticipated follow-on activities to properly take advantage of this authorization and also ensure the organization is prepared and resourced to move forward with a successful prototype OT.

Using Prototype OTs

For OTs, prototype projects are defined as “a prototype project addressing a proof of concept, model, reverse engineering to address obsolescence, pilot, novel application of commercial technologies for defense purposes, agile development activity, creation, design, development, demonstration of technical or operational utility, or combinations of the foregoing. A process, including a business process, may be the subject of a prototype project.”  (source: USD A&S and USD R&E Memorandum, Definitions and Requirements for Other Transactions Under Title 10, United States Code, Section 2371b):


One of the following conditions must be met to award a Prototype OT

  • At least one non-traditional defense contractor participates to significant extent or
  • All significant participants are small or non-traditional defense contractors or
  • One third of total cost provided by sources other than gov (if no non-traditional defense contractor participation) or
  • The Agency Senior Procurement Executive determines circumstances justify use of a transaction that provides for:
    • Innovative business arrangements not feasible or appropriate under a contract
    • Opportunity to expand defense supply base not practical or feasible under a contract

Conditions for Follow-on Production OT or Contract

Prototype OTs must specifically state the possibility for a follow-on production OT or contract in both the Prototype OT solicitation and the Prototype OT agreement. Non-competitive follow-on awards are limited to the participants in the OT prototype project and the following criteria must be satisfied (source: USD A&S and USD R&E Memorandum, Definitions and Requirements for Other Transactions Under Title 10, United States Code, Section 2371b):

  • Competitive procedures were used to select the parties to participate in the prototype project; and
  • Participants in the transaction successfully completed the prototype project provided for in the transaction

Prototype OTs must include defined conditions for the prototype agreement to be determined successfully completed and thereby eligible for a follow-on production award. Successful completion of a prototype project requires written determination by the responsible approving official stating the efforts under a Prototype OT satisfy the following criteria (source: USD A&S and USD R&E Memorandum, Definitions and Requirements for Other Transactions Under Title 10, United States Code, Section 2371b):

  • Met the key technical goals of a project;
  • Satisfied success metrics incorporated into the Prototype OT; or
  • Accomplished a particularly favorable or unexpected result that justifies the transition to production


Approvals and Thresholds

Approval authorities and thresholds for individual OT awards are as follows. Prototype OTs and follow-on Production OTs require separate approval (source: USD A&S Memorandum Authority for Use of Other Transactions for Prototype Projects Under 10, United States Code, Section 2371b)

  Value of Individual OT Transaction
Organization Up to $100M $100M to $500M Over $500M
Commanding Officers of Combatant Commands (CCMD) Commanding Officer USD (R&D) or
USD (A&S)
USD (R&D) or USD (A&S)*
Defense Agencies (DA) and Field Activities (FA) with contracting authority; Defense Innovation Unit (DIU) Director USD (R&D) or
USD (A&S)
USD (R&D) or USD (A&S)*
Military Departments Senior Procurement Executive Senior Procurement Executive USD (R&D) or USD (A&S)*
DARPA and Missile Defense Agency Director Director USD (R&D) or USD (A&S)*
* An Under Secretary must also make a written determination in accordance with section 2371 b. Additionally, the Congress shall be notified at least 30 days before this authority is exercised The Office of the Under Secretary making the written determination is responsible for Congressional notification.

 

DoD OTA Use

  • 2015 ($950M)
  • 2016 ($1.8B) Estimate
  • 2017 ($2.3B) Estimate
  • 2018 ($4.4B)
  • 2019 ($7.7B)

2019 DoD OTA Use by Component

  • Army ($4.95B)
  • Air Force ($1.56B)
  • DARPA ($400M) Estimate
  • Navy ($170M)
  • Other ($150M) Estimate

Direct OT Awards

Agencies with Other Transaction authority and Contracting Officers with Agreement Officer Authority can execute OTs, but must establish processes to solicit, evaluate, negotiate, and award OT agreements. It is not advised to leverage FAR processes to execute OTs. There is not a single established process for executing OTs. Projects or programs seeking to use OTs may desire white papers, demonstrations, competitive prototyping, phased down-selects, or any combination thereof to construct a strategy to achieve objectives.

For further guidance about how to plan and execute OT agreements, refer to the OSTP Innovative Contracting Case Studies guide or the 2018 OUSD A&S Other Transactions Guide.

OT Consortia

An OT Consortium is a relationship between a government sponsor and a collection of traditional and non-traditional vendors, non-profit organizations, and academia aligned to a technology domain area (i.e., cyber, space, undersea, propulsion) that are managed by a single entity, and focused on innovative solutions to government technology challenges that meet the intended scope and purpose of other transactions.

OT Consortium Model

OT Consortia generally have 3 components, although some government sponsors opt to manage a consortium in-house rather than hire an industry Consortium Manager or Consortium Management Firm. The Consortium Manager is awarded an OT agreement by the government (base OT agreement) and manages OTs awarded to its consortium member organizations (project OT agreements) under the base agreement.

 

consortium model graphic

 

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Consortium Sponsor (Government Sponsor and Contracting Office)

 

 

  • Awards Other Transaction agreement to a Consortium Manager to execute administrative processes and workload (base OT agreement) for a specific technology domain area
  • Establishes consortium objectives and overarching guidelines to execute the consortium
  • Selects projects to be awarded to the consortium based on compatability with consortium objectives and appropriateness of project for an OT award
  • Approves evaluation selection criteria and project OT award selection/s

 

Consortium Manager (specifics will vary among consortia)

  • Establishes processes for consortium application, membership terms, collects membership fees – initial and annual*
  • Executes consortium member agreements with each member organization
  • Collects a % of fee for each project OT awarded under the base OT agreement*
  • In collaboration with the government sponsor, supports government customers to: develop problem statements, requests for white papers, requests for prototype proposals (RFPPs), determine whether demos will be requested, develop phased selection processes, develop criteria to evaluate proposals, etc.
  • Communicates requests for white papers/RFPPs to consortium members, usually via internal website or portal (some announcements may be public, but the details are usually available only to consortium members)
  • Facilitates demos and other communication between consortium members and government customer; support demo evaluation and determinations to advance to next phase of selection process
  • Manages proposal evaluations and project OT agreement award selection/s, negotiations, and cost analysis (gov sponsor ultimately approves)
  • Manages post project OT agreement award administrative activities on behalf of government customer such as monitoring deliverables, invoice/payment tracking, and reporting (gov customer is responsible for day to day activities with contractor/s)
  • Maintains “library” of proposals not selected/not funded for potential future use for current gov customer or new gov customer

*membership fees and % of fee for award vary among consortia

 

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The Consortium

  • A consortium is established to support a specific technology domain area (i.e., cyber, space, undersea, propulsion)
  • Consortium membership is open to all qualifying US entities:
    • Traditional/non-traditional contractors
    • Non-profit organizations
    • Academic institutions
  • Consortium members are subject to terms of membership, which may include an annual membership fee and a fixed-percentage fee applied to each project OT agreement awarded
  • Qualifying entities may join one or multiple consortia
  • Some consortia open to foreign entities
  • Members have access to requests for white papers, RFPPS, etc from government customers specific to the consortium
  • Some consortia managers may facilitate partnering opportunities among members
  • Members may partner with other members to propose solutions
  • Traditional contractors must be prepared to meet cost-sharing requirements of other transaction authorities
  • Members may negotiate unique terms and conditions for individual projects
  • Members that receive project OT awards will be assessed a % of fee by the consortium manager in accordance with consortium terms and conditions

Pros and Cons of Consortia

Pros
  • A pool of vendors aligned to consortium focus area (i.e., cyber, space, undersea, propulsion) promotes an environment for collaboration with the government and with other consortium members.
  • Consortia execute OT agreements which allow for a more collaborative process than traditional FAR processes that are bound by rigid source selection statutes and regulations.
  • Consortia have established streamlined processes that quickly move through white papers, demos, proposals, evaluations, and selections and often execute awards more quickly than traditional government acquisition programs.
Cons
  • Non-traditional vendors, non-profit organizations, and academic organizations may be challenged by the financial considerations of consortia membership due to fees and % of award fees charged by consortia.
  • Some consortia are in high demand by government customers and are thereby resource constrained. This can due to volume of work for the consortium or by the availability of the assigned government contracting office. 
  • Many consortia do not award follow-on production activities. 

Sample organizations in each component of the OT Consortium Model

for illustrative purposes only | all organizations not represented

consortia model graphic

Questions to Ask in Shaping OT Strategy

  • 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 OTs and Agreement Officer authority?

While using an OT is not exactly unchartered 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 OTs currently in use is increasing and the community of acquisition professionals who are familiar with OTs continues to expand. This risk should be assessed in comparison with the risk of using standard procedures.

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