If you followed the National Defense Authorization Act for Fiscal Year 2018 (“FY 2018 NDAA”) or the recent cloud computing award to REAN Cloud, you likely heard the term “other transaction authority,” but may have wondered what it means. The term is an invention of lawmakers to give the U.S. Department of Defense (“DOD”) maximum flexibility in obtaining innovation without the trappings of traditional procurements. Contractors looking to take advantage of “other transaction authority” or “OTA” need to know some basics.
By statute, OTA is for “prototype projects” that are directly relevant “to enhancing the mission effectiveness of military personnel and the supporting platforms, systems, components, or materials proposed to be acquired or developed” by DOD or “to improvement of platforms, systems, components, or materials in use by the armed forces.” 10 U.S.C. § 2371b(a). This authority is intentionally broad and reflects an expansion from the original purpose of developing weapons and weapons systems.
Although around for decades, OTA was made permanent in the National Defense Authorization Act for Fiscal Year 2016. Most recently, Congress doubled the dollar thresholds for required approvals of OTA in the FY 2018 NDAA. As a result, a DOD contracting officer may approve the use of an other transaction agreement for up to $100 million. For other transaction agreements in excess of $100 million but not in excess of $500 million, a written determination is necessary from the senior procurement executive for the agency or, for DARPA and MDA, by the director. And other transaction agreements in excess of $500 million must be approved by the Under Secretary of Defense for Acquisition, Technology, and Logistics with notice to Congress.
OTA may only be used when one of the following conditions is met:
- There is at least one nonprofit research institution or “nontraditional defense contractor” participating to a “significant” extent in the prototype project. A “nontraditional defense contractor” is an entity that is not currently performing and has not, for at least the one-year period preceding the solicitation of sources by DOD for the transaction, performed any contract or subcontract for DOD that is subject to full coverage under the cost accounting standards. The intent is to encourage participation by commercial entities that are hesitant to do business with the government (think Silicon Valley).
- All significant participants in the transaction other than the government are small businesses (as defined by the Small Business Act) or nontraditional defense contractors.
- At least one-third of the total cost of the prototype project is to be paid out of funds provided by sources other than the government.
- The senior procurement executive for the agency determines in writing that exceptional circumstances justify the use of a transaction that provides for innovative business arrangements or structures that would not be feasible or appropriate under a contract or would provide an opportunity to expand the defense supply base in a manner that would not be practical or feasible under a contract.
Importantly, an other transaction agreement is not a contract. It is not subject to the FAR or DFARS. The transaction also is not subject to procurement statutes like CICA and the Procurement Integrity Act. These transactions cannot be protested to GAO, although an agency-level or Court of Federal Claims protest may be possible.
Entities entering other transaction agreements can be a single company, joint venture, prime contractor with subcontractors, partnership, or consortium. Forming or joining a consortium appears to be the common approach. Consortia are formed by contractors, non-traditional contractors, and academia based on industry/specialty. Below is a sample list of OTA consortia:
• System of Systems Consortium (SOSSEC, Inc.)
• Vertical Lift Consortium (VLC)
• National Spectrum Consortium (NSC)
• Medical CBRN Defense Consortium (MCDC)
Each consortium creates rules for its members and often has a management group to oversee the other transaction agreement. For instance, Consortium Management Group, Inc. manages both Consortium for Command, Control and Communications in Cyberspace and Consortium for Energy, Environment and Demilitarization. Commercial entities and academic institutions may apply to join a consortium as a member. These applications are relatively simple and widely available online. Consortium members are then subject to terms of membership, which may include an annual membership fee and a fixed-percentage applied to each project awarded to the consortium. DOD customers issue calls for white papers to a consortium and, upon selection, deliver funding to selected consortium members.
If you are interested in pursuing OTA, one possible avenue is researching the existing consortia and identifying one with a mission that overlaps your company’s services or products. Once you identify a viable consortium, submit your membership application online. Be sure to review the membership agreement to confirm that you have no issue with the terms. Then, be prepared to sell your offering in a white paper.
About the Author: Megan Connor, a partner with PilieroMazza, focuses her practice in the areas of government contracts, small business administration programs, business and corporate law, and litigation. She may be reached at email@example.com.