In this episode of Acquisition Talk, we listen in on a recent event on Other Transactions Authority hosted by George Mason University’s Center for Government Contracting. Many thanks to my colleague Stephanie Halcrow for moderating a panel that included Stan Soloway, who recently authored a report on the progress of OTs, Wes Bennett, Director of the Contracts Management Office at DARPA, and Dan Fick, Vice President of SAP.
In case you’ve been asleep at the acquisition wheel the past few years, Other Transactions (OTs) allow select government agencies to flexibly contract without all the rules found in the Federal Acquisition Regulation that can make it impossible to reach startups and nontraditional contractors.
Actually, as panelist Stan Soloway noted, OTs are not technically “contracts” because the term has a specific meaning in the FAR. They use the term “agreements” and are signed by “agreements officers.” But, in the general commercial sense, OTs are binding contractual documents.
Although OTs were invented around 1958 for NASA, they were expanded for use in DoD in 1989 with 10 USC 2371. It seemed by the time Future Combat Systems used OTs and was terminated in 2009, the authority reached its nadir. With the FY 2016 NDAA, OTs were refreshed, adding the ability to transition a competitive prototype OT into production (up to $500 million). That signaled Congressional intent for increased adoption.
Taking OTs to Production
Yet Stan finds trouble in the transition to production. While OTs are meant to compress development cycle time, at the end of the prototype everything gets slowed back down as it usually flips to the FAR. Budgeting for specific colors of money contributes to this problem.
Anecdotally, from literally everybody we’ve talked to who has been through the production process or tried to go through it — virtually, every one of the non-traditional players has walked away at production. What has happened is they’ve either in some cases licensed to an OEM or licensed to the government for that immediate use case. And then they walk away… What you’ve lost access to frankly is the intellectual capital and the capability to iterate and keep driving forward.
Dan, who has been a recipient of OTs on industry’s side, explained how the system SAP is developing to replace Defense Travel Service transitioned into a normal FAR contract when it was ready to go to production. This worked out fine for SAP, because (1) the OT allowed them to collaborate with government on a prototype instead of answering questions in an RFP; and (2) they had many years of experience contracting with DoD through the FAR so the transition was smooth.
Stan noted that many nontraditionals will not have the accounting systems and other requirements to transition to a FAR-based contract. One of the major problem is in trade secrets. A company invests in solving a government problem, and then elements of the results are broadcast to everyone in an open RFP. As Stan put it, “Some company invest a lot of money, spends two years or whatever, it may work but then it’s also put out for others to bid on after.”
Companies Should Partner
OTs give the option of sole source follow on, as long as that was stated upfront. That sole source follow on, however, could be premature in some cases. Wes observed that some of the transition problem might be in the companies’ capabilities, not in the government:
I think sometimes the companies that we award OTs for prototypes for just don’t have the capabilities to move it into production. They’re not the right size and don’t have the manufacturing capabilities to push it into production. Maybe there are some cases where we pushed the FAR and that’s where they walk away. I think there are other cases where it’s just doesn’t meet their business model and they need somebody like an integrator or manufacturer to take it into production from there.
Wes argued that nontraditional contractors should think early about teaming to get over the production line and give government officials confidence that they can handle the sole source.
Dan at SAP agreed that the teaming aspect with other nontraditionals was important. For example, they went out and brought onto the team a small business that did transportation with big commercial companies like Nestle and Walmart, adding another vendor to the defense supply chain. Dan is seeing these effects in the traditional primes as well:
As far as whether I have seen that the OTs are driving more collaborations between large and small businesses, the answer is absolutely. I’ve talked to a few of my counterparts at the largest defense contractors. They’ve said that DoD’s shift to using OTs has really caused them to go back and look at the vendors that they’re using and find and cultivate some of those relationships with non traditional small R&D type companies that are driving innovation.
The Role of Agreements Officers
Here’s Wes on what perhaps makes DARPA unique:
What we focus on at DARPA that I think makes a big difference in how we execute OTs is getting with the program managers and really understanding what the goals of that research and development are. And that really drives how that acquisition professional negotiates.
If the program manager can integrate all the information about relative cost-quality tradeoff values, then the agreements officer can put trust in the deliverables and pricing. It makes sense in DARPA’s context agreements officers are also warranted contracting officers.
“We require that any agreements officer as a contracting officer first,” Wes said. “Once they show that they have the right business acumen the ability to think independently and out of the box and understand their customer’s requirements,” they can become agreements officers.
Stan responded that the Navy approached it differently. They preferred not having former 1102 contracting officers because they wanted “fresh minds — that there’s no embedded thinking, predilections at the beginning.” Stan recommended creating an “agreements officer corps” that has its own selection criteria. It shouldn’t matter the individual’s background.
This acquisition corps is important to Stan because he fears that OTs will turn out like FAR Part 12 Commercial Items in the 1990s:
We actually, in some ways solved the problem in 1994 with the acquisition reforms. And we created part 12. But since that time we’ve added 154 clauses to part 12… But the reality is there’s an entire universe of capability out there and the government is falling behind further, faster.
While Stan advocates putting a process around OTs to make them procedurally and culturally distinct from the FAR — going so far as to say there should be a “prohibition” on FAR clauses in OTs — Wes from DARPA cautioned that DoD shouldn’t have a one-size-fits-all approach:
Frankly, that’s what makes them so successful for us is the flexibility. To look at the situation, use some true business acumen ensure that we’re following adequate procurement integrity and shape that for what makes sense for that particular acquisition and requirement. And, if you start to put too many rules and regulations and best practices in place, you lose that flexibility.
I would suppose there is a spectrum where there is a formalized OT process and one of nearly complete freedom. One has templates; the other blank slates. I think where on that spectrum an organization should be depends on its context. DARPA probably fits the more open-ended process for OTs. I think the accelerators and rapid prototyping offices in the department do as well. The question seems to be whether it can expand to the remaining PEOs who spend the vast majority of the acquisition dollars. Stan’s report put a lot of focus on training. Wes observed that a properly trained workforce may reduce their reliance on the consortia model.
DARPA does not exercise OTs through consortia, which (by my own rough analysis) account for more than half of total OT use in FY 2021. Another 20 percent of OTs is awarded directly to major traditional prime contractors. They can use OTs by contributing 1/3rd cost share or by having “significant” participation of a nontraditional (either in dollars or impact).
Conclusion
I’d like to thank Stephanie Halcrow and MasonGovCon for hosting this excellent event on Other Transaction. There’s a ton more of interest I didn’t excerpt here, so listen to the whole thing! You can see a video of the webinar here. Also, be sure to read Stan Soloway and Jason Knudson’s paper, Other Transaction Authority: After 60 Years, Hitting Their Stride or Hitting The Wall?
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