When economists think about contracting, usually they think about voluntary agreements made between two or more parties.
But in the DOD, neither the customer nor the supplier generally have much choice about the structure and conditions of the contract, which must follow thousands of pages of regulations.
Other Transaction Authorities (OTAs), which have been around for decades, allow the Government to contract with industry without regard to many of the regulations associated with the Federal Acquisition Regulation (FAR).
In FY 2017, OTAs were only about $2 billion in the DOD, out of an RDT&E appropriation of $74 billion and a topline budget of $606 billion. Still, OTAs appear to have been growing rapidly since 2017. Here is Robert Tuohy on Government Matters:
Most importantly in the OTA realm, is that traditional contractors get to meet and work with nontraditional contractors who wouldn’t work with the Government if it wasn’t for the fact that they were relieved of all the onerous requirements of the Federal Acquisition Regulation. It gives access… to this innovative class of non-traditional–the garage inventor–whose come up with a very interesting enabling technology that the big companies haven’t had access to.
“Non-traditional” contractors often refuse to do business with the Government because they don’t agree to the mandatory terms. Contracting officers would love to engage a broader set of suppliers, but they must abide by the regulations too. So we are left with big traditional contractors who specialize in compliance and contracting officers with no where else to turn.
Here is Tuohy on how OTAs make defense contracting sound a bit more like the voluntary agreements between two parties :
But OTAs really aren’t a mystery. They allow both the government side and industry side to put together the clauses and the requirements and terms that both can live with, which is very powerful.
I wouldn’t have blamed you for supposing that a DOD contract was written in a way that the two sides truly consented. In reality, defense firms often will take a bad deal to get follow-on work and downstream profits. Government program offices often try to waive data reporting and other requirements. Usually getting those approvals is just too much hassle.
The Government recently imposed unilateral contract actions on Lockheed Martin for F-35 — meaning the supplier didn’t agree to the terms. Lockheed wasn’t required to perform, but it was a “take it or leave it” deal. Given that almost all of the Ft Worth facility is the F-35, Lockheed really wasn’t in a position to walk away.
So OTAs do a little to make contracting more of a voluntary thing. But it wouldn’t have solved the F-35 issue. We’ll monitor the scene for whether the pendulum of acquisition reform swings back the other way.
“But in the DOD, neither the customer nor the supplier generally have much choice about the structure and conditions of the contract, which must follow thousands of pages of regulations.”
Anyone who thinks this apparently didn’t spend fifteen years–or even fifteen days–splitting the difference for the Haze-Grey Navy…as I have.
I’m not sure I understand why the regulatory environment makes DoD contracting materially different. All contracting is subject to some form of legal framework. in the case of Defense procurement, it’s a regulatory framework, located within the four corners of various legislative acts, and mitigated by a long history of court decisions. For ordinary commercial contracts, it’s in accordance with the UCC, no doubt mitigated by many court decisions as well.
ISTM if you wanted to focus on the differences between DoD contracts and–say–commercial contracts, you’d want to highlight two issues: the constrained nature of the relationship–though I’d argue that’s no different than labor contracts.
Perhaps it’s the inexorable fact that contracting with a sovereign entity is always…problematic. But for that issue, contractors are protected by the Disputes Act and the Tort Claims Act.
But in terms of the core elements of a contract as I was taught them in MDACC (aka Contracting 101) back at Ft. Lee in 1981, they’re all there: competent (heh) parties, offer and acceptance, mutual agreement of the parties, and the exchange of consideration.
Shortly after the 1994 Federal Acquisition Reform Act became law, my boss tasked me with determining how many clauses actually were required to be included in every DoD contract. It turned out, very few, and those were mostly either EEO-type clauses (both anti-discrimination and affirmative action) or domestic-preference clauses where contractors were not permitted to buy certain items or materials offshore.
Leaving aside the latter, which were purely of political significance and changed from year to year, do you actually think you could write a commercial contract and then only hire from particular groups to perform it? I beg leave to think not.
The fact is, most DoD contracts include a multitude of clauses that are absolutely unnecessary, and which could easily be removed. The fact that they are not is a combination of laziness and the fear of bad optics.
True it’s still voluntary in the strictest sense, but I’ve certainly been party to putting terms and clauses on contracts that neither the PM, KO nor the OEM wanted, but because certain outside offices did and it was their right to do so. Another aspect of the constraint is the requirements process.