Other transactions authorities (OTAs) revitalized to advance science and technology
What is an OTA?Section 2371 of Title 10 U.S.C. provides the regulatory mechanism for the use of OTAs. However, somewhat surprisingly, this section does not define what an OTA is, but rather what it is not. An OTA is defined in Section 2371 to be a transaction (agreement with the government) that is “other than contracts, cooperative agreements, and grants.” The purpose of defining this in the negative is that contracts, cooperative agreements, and grants are subject to specific Federal Acquisition Regular (FAR) contracting requirements. By stating that an OTA is not one of these instruments, the government is saying that these agreements are not subject to the FAR and some of the other requirements associated with these instruments. Since government contracts subject to the FAR can incorporate more than 100 contract clauses, the elimination of the requirements to include these clauses is a big change.
History of OTAsOther Transaction Authority, as it currently exists, began in 1989 with Congress’s enactment of legislation authorizing the Defense Advanced Research Projects Agency (DARPA) to use other transactions. OTA’s were used mainly for a limited number of small procurements except for the award of the Future Combat Systems (FCS) program in 2005. This multi-billion dollar OTA award did not fare well however. Ultimately, the agreement was converted to a FAR based contract and then terminated at a high cost to the government. This type of experience with OTAs have caused many in the government to have unfavorable opinions about the risks associated with OTAs, thus limiting their use historically.
Recent developmentsSections 861 – 868 of the FY 2018 National Defense Authorization Act (NDAA) address OTA agreements. Section 864 titled “Expanded Authority for Certain Prototype Projects” establishes an expanded authority that increases the dollar values in Section 2371b of Title 10 U.S.C. for the types of awards that can be made as an OTA significantly and allowed the use of OTA for the follow-on work after the initial prototype is complete. This section also now explicitly includes Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) awards as potential OTA awards. Another section generating interest is Section 867 titled “Preference for use of other transactions and experimental authority.” This section states “In the execution of science and technology and prototyping programs, the Secretary of Defense shall establish a preference, to be applied in circumstances determined appropriate by the Secretary, for using transactions other than contracts, cooperative agreements, and grants…” In the past, utilizing standard Federal Acquisition Regulation (FAR) based contracts provided perceived risk avoidance to the contracting officer as compared to OTAs. The many FAR clauses incorporated in contracts were designed to provide the government with many protections not ordinarily found in commercial contracts. For example, the termination for convenience clause provides the government with an option to opt out of any contract in ways that are not often found in commercial contracting. So, contracting officers were not likely to deviate from the contracting mechanisms they were comfortable with. The preference for OTAs discussed in Section 867 has the potential to change that. Now, contracting officers may have to defend why they did not use an OTA approach for those acquisitions that would appear to qualify as an OTA. This is expected to motivate government contracting officers to use OTAs more frequently, and for larger projects than was the case in the past.
Another recent development is the issuance of the “Other Transactions Guide for Prototype Projects” by the DoD in January 2017. This is the most recent guide issued by DoD and provides useful information for both the government and potential contractors.
A recent GAO decision dated May 31, 2018 in the Matter of Oracle America’s challenge of a follow-on production OTA (P-OTA) to REAN Cloud LLC, because the award did not follow Section 2371 requirements, was upheld, resulting in termination of the OTA award. This demonstrates the risks associated with awarding OTAs if all the requirements are not fully considered.
Risks and rewards of OTAs
The perception of risk related to OTA transactions appears to differ depending on roles of those involved.
Government Contracting Officer Perspective
If the award is for science and technology and prototyping programs, the question contracting officers will likely have to answer now is why they did not award as an OTA, since that is the preference memorialized in the 2018 NDAA. Contracting officers are aware that their decision to not pursue an OTA for these types of awards may be scrutinized by their superiors and the potential providers of these services. Therefore, it is much more likely now that OTAs will be considered for these types of awards. However, many contracting officers have not previously issued awards as OTAs and are not sure how the process should work. They do not want to be later criticized for how they conducted the OTA procurement. Education of the government contracting community on what should be procured with an OTA agreement is needed to further alleviate these fears.
Government Service Provider Perspective
The perspective of the service provider will depend on whether they have fully compliant FAR based accounting, estimating and billing systems. If they have climbed the mountain of rules and regulations needed to demonstrate compliance in these areas, they may not appreciate the attempt by the government to ignore these business systems under an OTA. We can expect backlash from some of these large, entrenched contractors if work that they would have had advantage on due to their mastery of FAR based contracting is now awarded as an OTA to a firm that doesn’t have FAR compliant systems. That will be interesting to watch unfold. For those entities that have not developed these FAR based business systems, this does present a golden opportunity to perform science and technology work for the government that they likely would not win in the past. Entities interested in performing science-and-technology work for the government should watch for these opportunities and pursue them. Understanding how to see these opportunities is one area that these companies may not have expertise in. These entities will need to become familiar with government sites such as FedBusOps to identify opportunities. I recently searched FedBusOps and noted a significant number of OTA opportunities. This should only increase as Contracting Officers attempt to comply with the OTA preference for new opportunities.
Some examples of recent OTA solicitations include:
- US Army solicitation to award up to 5 OTAs for next generation squad automatic rifle development (NGSAR)
- Air Force F-16 Cockpit Control Panel Organizer (C3PO) OTA opportunity
Key differences between FAR based contracts and OTAsA primary difference is that OTAs are not subject to the FAR. In addition, OTAs are not subject to certain other acts as well. The Competition in Contracting Act (CICA), Contract Disputes Act, and Procurement Integrity Act are examples of statutes that do not apply to OTAs. In 2000, the American Bar Association (ABA) published a monograph which addressed the question of the applicability of procurement statutes to other transactions. That document appears to remain the best source to determine which procurement statutes are applicable to OTAs.
Intellectual property (IP)FAR 52.227-14 (Rights in Data – General) is included in FAR based contracts to protect the government interests in IP. This clause limits the contractor’s ability to utilize data first produced in the performance of the contract for other purposes. For computer software, for example, this includes an “irrevocable worldwide license to reproduce, prepare derivative work and perform publicly.” Under certain conditions, for data not first produced in the performance of the contract, the contractor must “grant to the government” the same type of license for computer software as for data first produced on the contract. Therefore, source code developed by the company with company funds, could then fall under this clause and potentially restrict the company’s ability to use the code for other purposes in the future. This is an example of why many companies that have cutting edge technology refuse to do business with the government. These companies cannot afford to give away their ability to use their IP for other future projects. This is one of the reasons that OTA is so promising. It enables the government to avoid including this clause and instead negotiate IP terms that can make sense for all parties involved.
Cost estimating, accumulating and allocationAs discussed, the FAR, and the related Government Cost Accounting Standards (CAS) are not applicable to OTA transactions. The ramifications of this are significant. Those contractors that have compliant systems in these areas can attest to the enormous additional cost to develop and maintain FAR and CAS compliant systems. Any contracts that are performed that are subject to these regulations are likely to be subject to an exhaustive audit to determine the allowability, allocability and reasonableness of costs estimated or claimed under these contracts. This isn’t the case with OTAs. This could enable a whole new category of government contractors: science and technology companies that have filled only commercial contracts. This could foster the modernization of government systems and capabilities at a time when the need is becoming ever more evident.
ConsortiumsSection 864(d) of the 2018 NDAA states, “…a transaction includes all individual prototype sub-projects awarded under the transaction to a consortium of United States industry and academic institutions…” This is important because it enables a consortium to involve several different organizations, each performing a part of the work, but still under OTA authority. This enables a significant size and scope of work to be awarded under the OTA that involves not just prototyping but also follow on production.
Some governmental entities have established special partnerships such as the one discussed at https://www.sofwerx.org. The purpose of this partnership includes helping to facilitate OTA transactions and provide an “ecosystem” of OTA interested parties. This is a partnership between the Doolittle Institute and the United States Special Operations Command (USSOCOM). Joining this ecosystem enables the company advantages as it attempts to identify OTA opportunities.
ConclusionOTAs present opportunities for the government to deviate from contracting practices of the past to embrace science and technology improvements of the present and future. While there are still barriers to the government embracing this type of procurement on a large scale, those barriers are being tested by the OTA process. Contractors who understand the advantages and processes of an OTA and can help guide the government will be the most successful.
 Other Transaction Authority report to congress dated July 15, 2011, Page 5
 Other Transaction Authority report to congress dated July 15, 2011, Page 31
 GAO Decision, Matter of: Oracle America, Inc. File: B-416061 dated May 31, 2018
 Other Transaction Authority report to congress dated July 15, 2011, Summary section
 American Bar Association, Section of Public Contract Law, Ad Hoc Working Group on Other Transactions, Department of Defense “Other Transactions”: An Analysis of Applicable Laws, American Bar Association, 2000, p. 26.
Subject matter expertise
CPA, Partner - Managing Partner, Advisory - Global Consulting Solutions and Government Contracting Industry Leader
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