The DoD’s extensive contracting workforce is closely supporting Health and Human Services in executing Other Transactions (OT) contracts for COVID-19 under the joint Operation Warp Speed. A Beta.SAM report pulled on October 26 shows that the DoD only put $111 million onto OT contracts identified for COVID-19 through the month of May 2020, which ramped up to $400 million in June and then $4.3 billion in July alone.
DoD data has a standard 90-day lag in reporting (even though officials must enter the data into FPDS-NG within 3 days), and so more current figures are not available. However, COVID-19 OTs represented represented more than half of all OTs awarded by the DoD between March and July.
DPC Kim Herrington’s presentation on September 17 to the Mason GovCon’s advisory board showed total defense OTs for COVID-19 at $7.6 billion. DoD support of COVID-19 Other Transactions seems to remain robust. For example, the DoD awarded a $481 million OT to Cue Health on behalf of HHS to increase production capacity to 100,000 tests per day by March 2021.
Leading the OT procurement effort for the DoD is the Joint Program Executive Office for Chemical, Biological, Radiological and Nuclear (CBRN) Defense out of the Army Materiel Command. More than 97 percent of the DoD’s Other Transactions for COVID-19 came out of Army Contracting Command. Even though JPEO-CBRND is located in Aberdeen Proving Ground, the Army’s contracting center based there only executed $486 million out of $4.7 billion in COVID-19 OTs. Nearly all of the OT contracting is done out of the Army’s contracting center in Picatinny Arsenal.
Since 2015, Picatinny put more OT dollars on contract than the next six largest contracting offices combined. When COVID-19 obligations are included, Picatinny’s total OT contracts rival the rest of the DoD combined. Some of this experience came from doing a fair amount of contracting for Defense Innovation Unit.
The scale of Picatinny contracting center’s COVID-19 effort can be appreciated by referencing the past. In fiscal year 2018, Picatinny obligated $6.1 billion total, of which $479 million were OTs (8 percent). Over a five-month period March through July 2020, Picatinny put $4.2 billion onto OTs for COVID-19 and another $1.7 billion for defense missions. In other words, Picatinny contracting center obligated nearly as much to OTs in five months as it did over the entire fiscal year 2018 to all contract types.
Other DoD offices entering into OT contracts for the COVID-19 response include Air Force SBIR/STTR Contracting ($92 million), Army Medical Command ($23 million), and DARPA ($27 million).
HHS itself has OT authority under the Biomedical Advanced Research and Development Authority (BARDA), which received $3.5 billion from the CARES Act. HHS’s OT data doesn’t seem to come through the Beta.SAM report. A search of USA Spending for HHS OTs shows roughly $1.35 billion for vaccine development, antivirals, and manufacturing capabilities. This brings to total COVID-19 OTs to roughly $9 billion, greater than the sum of OTs obligated in fiscal year 2019 ($7.7 billion).
While identified OTs contracted out of HHS tend to go directly to a company, the vast majority of the DoD’s COVID-19 OTs went to consortium management firms. By far the largest recipient of the DoD’s OTs for COVID-19 was Analytic Services Inc. (ASI) (the parent of Advanced Technologies International) at $4.16 billion (87 percent) which handles the Medical CBRN Defense Consortium. The next largest recipient was Clinical Research Management at $709 million (4.5 percent).
The way OTs are reported, there is no further insight into which companies received funding for what products. NPR reported on September 29 that $6 billion in COVID-19 OTs awarded through ASI including $1.6 billion went to Novavax, $1.95 billion to Pfizer, $1.79 billion for Sanofi, and $1 billion to Johnson & Johnson. Regeneron’s antiviral funded through ASI in July was used to treat President Trump in September. It leveraged prior antiviral work started under a $284 million OT in January from HHS’s BARDA.
These OT contracts used for vaccines and antivirals weakened or excluded intellectual property clauses or Bayh-Dole clauses which allows the government to take control of the company if it engages in price gouging. Such clauses might not be necessary with the threat of authorities available under the Defense Production Act and the possibility of multiple viable vaccines or antivirals coming on the market and providing competition.
Unsurprisingly, 99.7 percent of COVID-19 OTs are for prototyping efforts. The only production effort was $14.2 million to Augustine Consulting, including at least $5 million for a situational awareness tool for the defense industrial base. However, with vaccines, tests, antivirals, and other developments maturing, the government could go straight into sole-source production using the OT vehicles or a FAR-based contract, so long as it was competitively awarded. With more than 98 percent of COVID-19 competitively awarded by the DoD, that shouldn’t be a problem.
However, the DoD still doesn’t have the muscle movements to take successful OT prototypes into sole-source production using OTs. In 2019, the DoD awarded eight production OTs work just $1 million. In 2020, the awards grew to 40 worth over $211 million (3 percent). ACC-NJ Picatinny again leads the way with $131 million in production OTs, including $111 million to Palantir, $13 million to Shield AI, and $3.5 million to IBM. That might be a good omen for the future. However, by the time a company demonstrates their COVID-19 product as safe and effective, companies may not need government financing to get it ready for commercialization and scaling.
This analysis is a working-version teaser from a bigger white paper I am writing for George Mason University’s Center for Government Contracting webinar event with Defense Acquisition University on November 10, 2020. I will be moderating a panel including DoD’s Stacy Cummings, HHS’s Joe Hamel, and GSA’s Mark Lee. Register here!
Find any mistakes or have pointers? Please write it in the comments or contact me!
(End note on Picatinny efficiency: ACC-New Jersey in Picatinny reported a civilian workforce of 302 executing $6.1 billion in FY 2018. Total DoD obligations in that year was $365.5 billion. So Picatinny did less than 2 percent of DoD obligations. This RAND paper shows 26,139 civilian contracting folks in FY 2017. That would imply that Picatinny is obligating the same quantity of dollars with 30 percent fewer contracting officials, compared to the DoD average. But Picatinny just reported 302 “civilian associates,” so that leaves out military personnel and perhaps other levels of contracting officials. In the end Picatinny is about average or perhaps more efficient at obligating dollars, despite doing a lot of R&D using Other Transactions and supporting DIU and OSD. Pretty impressive.)
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