In this Part 3 of PilieroMazza’s blog series, “The Rise of OTA in Defense Contracting,” we discuss tactics and best practices defense contractors should deploy when negotiating terms once selected for an OT award. This is essential guidance to strengthen your position and protect your interests throughout the contract’s lifecycle. Visit this link to access Parts 1 and 2 in this blog series.
Flexibility = Negotiation
As discussed in the previous blog, the flexibility of DOD’s OTA is key to achieving its goals of engaging with nontraditional defense contractors, advancing innovation, and implementing efficient business practices. Since the Federal Acquisition Regulations (FAR), Defense FAR Supplement (DFARS), and Competition in Contracting Act (CICA) do not apply to OTs, DOD has significant flexibility in structuring the OT award. This means that, aside from terms required by statute, the government and contractor collaborate from the start by negotiating the terms of the OT agreement.
Whether the OT is for research, prototyping, or production, contractors should carefully negotiate the terms of the agreement and consult with experienced counsel before executing the agreement. Contractors should also be especially aware of the following considerations, which can make or break an OT award:
- Intellectual and Physical Property
- Modifications, Disputes, and Termination
- Payments, Accounting, and Auditing
Intellectual and Physical Property
Because innovation is inherent to OTA, it’s important for contractors to note that—unlike FAR-based awards—OTs are not subject to the Bayh-Doyle Act (35 U.S.C. § § 201-204), which governs the government’s rights in inventions and patents, as well as other DOD-specific requirements regarding license rights in technical data and computer software. While the government may begin with FAR and DFARS provisions relating to intellectual property (IP), contractors should negotiate to address the following:
- the contractor’s rights to retain ownership of any IP it develops under the OT;
- the government’s license rights to any IP developed under the OT;
- the contractor’s license rights to the IP it develops under the OT; and
- whether the government will receive any license rights to the contractor’s pre-existing IP it may use in performing under the OT, among other considerations.
Physical property created or acquired under an OT is subject to similar considerations. The starting point is whether the government or the contractor will take title. If the contractor is taking title, it should carefully negotiate terms that specify conditions on the disposition of property at the end of the OT, as well as terms for determining the value of that property if the parties are sharing the costs. If the government is taking title, the list of considerations grows, including the major question of who will be responsible for the maintenance, damage to, or loss of the property once the government takes title.
Modifications, Disputes, and Termination
Again, OTs are not subject to the same regulations as FAR-based contracts, where the government must have the ability to unilaterally modify FAR-based contracts in some respects. This is not a requirement for OTs, so contractors should think through which modification structure (i.e., unilateral, bilateral, and the circumstances that call for either) will work best for their scope of performance and negotiate based on these terms.
Similarly, the Contracts Disputes Act (CDA) has no power over OTs. Contractors may wish to negotiate an alternative dispute resolution (ADR) process for the parties if a dispute arises under the OT. Those used to FAR-based contracts may welcome this change as a potentially faster method to resolve disputes than the CDA, but it would still be prudent to discuss any ADR choices with counsel before signing the final agreement, since not all ADR methods are created equal.
Finally, termination isn’t as simple as the government’s convenience and the contractor’s default under an OT. Contractors have a chance to meaningfully negotiate the terms of the OT’s termination with the government and, where possible, may even be able to impose conditions on the government’s ability to terminate the OT (i.e., effectively eliminating the possibility of a termination for convenience).
Payments, Accounting, and Auditing
The name of the game is flexibility, and payments on an OT are as flexible as practical. The parties can agree on advances for large expenditures, fixed-price schedules based on hitting planned milestones, or reimbursements for costs, among other schemes. It’s important for contractors to know the costs up front and negotiate for the payment scheme that makes the most sense for the contractor and the OT.
Contractors looking to enter into a cost-reimbursement or resource-sharing agreement should note that while OTs are technically not required to impose FAR-based accounting system requirements or audits, it’s often a sticking point for the government for OTs with these types of payment structures. Again, DOD wants its OTA to remain a flexible alternative to its other contracting vehicles so, where possible, contractors should advocate for that flexibility at every turn (i.e., not having to change existing accounting systems, seeking a waiver for audits, etc.).
Consortia
It’s worth noting that there may be additional considerations for consortia—not just in negotiating the terms of their OT award, but also in submitting the proposal and convincing the agreements officer that its structure is best-suited to facilitate the government’s purpose. Stay tuned as we discuss DOD’s OTA with respect to consortia in next week’s blog.
If you have questions about OTA or were impacted by any of the administration’s recent executive orders, please contact Cy Alba, Josie Farinelli, or another member of PilieroMazza’s Government Contracts Group. Remember to visit our Government Contract Executive Orders resource center for additional coverage.
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If you’re seeking practical insights to gain a competitive edge by understanding the government’s compliance requirements, tune into PilieroMazza’s podcasts: GovCon Live!, Clocking in with PilieroMazza, and Ex Rel. Radio.
