Estimated reading time: 6 minutes

Defense Speak Interpreted: Other Transaction Authority

The Department of Defense (DoD) has greatly expanded the flexibility for research and prototype development through a new contracting vehicle—Other Transaction Authority (OTA). For at least the past five years, DoD leadership has bemoaned the fact that it takes too long to get advanced commercial electronics technology applied to defense needs. One very visible defense action one year ago was the split of the former Acquisition, Technology, and Sustainment Office into acquisition and sustainment under Ellen Lord and a new department for research and engineering under Michael Griffin. Organizations, such as The Defense Advanced Research Projects Agency (DARPA), now have more exposure in the new research and engineering department.

However, organizing at the top did not change the snail’s pace of procuring new technology for defense. The traditional approach, outlined in Federal Acquisition Regulation (FAR), is the lengthy process of determining needs, writing a project proposal, soliciting bids, evaluating bids, awarding contracts, and then sending budget money to accomplish the work.

The outreach to Silicon Valley for much faster defense innovation dates to efforts by Ashton Carter in 2016. In a press conference on March 3, 2016, Carter, the defense secretary at the time, stated, “Taking risks and being willing to fail to progress is imbued in the innovative community. And we have to try to imbue our [DoD] folks with the same kind of spirit [to] go out there and try something new. The DoD can't keep doing what it’s doing because the world changes too fast. Our competitors change too fast. So, it's a serious matter for us to remain open.”

Then, the White House report from Executive Order 13806 characterized this current innovation procurement effort as “requirements-driven” rather than “solutions-oriented” on page 33 [1].

“The prevalent business approach and organizational culture of the U.S. Government favors a top-down and requirements-driven process, often to the detriment of innovation. While it is possible to achieve technological breakthroughs or innovative capabilities through such a process, requirements-driven acquisition solicits solutions for specific capabilities rather than for outcomes, potentially imposing an opportunity cost on innovation.”

“There appear to be few opportunities for companies to offer services or capabilities that do not already fit within the DoD’s stated requirements and scope. The tendency to focus on requirements versus solutions—compounded by the various barriers to entry, cost of doing business, and skewed market incentives—can inhibit competition and new entrants. Companies successful in the government contracting space are often necessarily structured to comport to federal guidelines, rules, and regulations and are typically unlikely to be able or incentivized to challenge the requirements-driven process.”

OTA for defense procurement of research, prototypes, and production is grounded in 10 U.S.C. 2371b [2] first codified in 1989 but with roots going back to the formation of the National Aeronautics and Space Administration (NASA) in 1958. The OTA sections are updated almost annually in the National Defense Authorization Act (NDAA). The OTA objective is to bring commercial industry standards and best practices into defense use, especially related to high technology areas. This reflects an awareness that commercial applications, such as electronics, are now leading defense development—in some cases, by many years.

Two characteristics differentiate OTAs from traditional defense FAR contracts: participation by non-traditional defense contractors and small businesses. Let’s cover those one at a time from page 31 of the Defense Acquisition University (DUA) Other Transactions (OT) Guide [3].

A non-traditional defense contractor (NDC) is defined as, “An entity that is not currently performing and has not performed, for at least the one-year period preceding the solicitation sources by the DoD for the procurement or transaction, any contract or subcontract for the DoD that is subject to the full coverage under the cost accounting standards prescribed pursuant to Section 1502 of title 41 and the regulations implementing such section.” Further, a small business is defined by the Small Business Act (15 U.S.C. 632) dating back to 1953 and ensuring that small businesses get a "fair proportion" of government contracts and sales of surplus property.

OTAs require a minimum of at least one non-traditional defense contractor participating to a significant extent in the project or a cost-sharing arrangement requiring that at least one-third of the cost of the OTA come from non-Federal sources.

So, what kind of work can be done under an OTA? Based on page 7 of the DAU OT Guide [3]:

Research OTs (sometimes referred to as “original” or science and technology (S&T) OTs) are authorized under 10 U.S.C. §2371 for basic, applied, and advanced research projects. These OTs were intended to spur dual-use research and development (R&D), taking advantage of economies of scale without burdening companies with government-regulatory overhead, which would make them non-competitive in the commercial (non-defense) sector.

Prototype OTs (sometimes referred to as “2371b” or “prototype project” OTs) are authorized under 10 U.S.C. §2371b to acquire prototype capabilities and allow for those prototypes to transition into Production OTs. Both dual-use and defense specific projects are encouraged under section 2371b.

Production OTs are authorized under 10 U.S.C. §2371b(f) as non-competitive, follow-on OTs to a Prototype OT agreement that was competitively awarded and successfully completed. This statute requires that advanced consideration be given and notice be made of the potential for a follow-on OT. Note that the possibility of limited production must be declared at the time the prototype was undertaken. Unless the declaration is made, production will revert to the standard FAR rules.

Each of the defense services now uses OTAs; however, the Army was initially the biggest user. Each defense branch has a Service Acquisition Executive (SAE)—the office that sets the amount of the OTA awards and polices the work done under the OTA. One streamlined method to administer OTAs comes from the formation of consortia, which operate under a teaming agreement and are somewhat self-policing. A list of 25 of the existing OTA consortia, many recently formed, has been compiled [4].

One widely publicized OTA has been the Defense Innovation Unit (DIU). At the start of April 2015, this was designated as “experimental” and called DIUx. The first office was located in Silicon Valley as an outreach to that tech community mentioned in the Aston Carter comments. Further offices have been added in Boston, Massachusetts; Austin, Texas; and at the Pentagon. DIU grants contracts under a joint OTA and a parallel process called commercial solutions opening. Most of the five DIU focus areas depend on electronics: artificial intelligence (AI), autonomy, cyber, human systems, and space. At the end of 2018, DIU had funded 104 contracts with a total value of $354 million and brought in 87 non-traditional DoD vendors, including 43 contracting with DoD for the first time.

Next Time

In my next column, I will explore several of the OTA consortia doing work in electronics packaging and circuit boards.

References

1. “Assessing and Strengthening the Manufacturing and Defense Industrial Base and Supply Chain Resiliency of the United States,” September 2018.
2. “10 U.S. Code § 2371b: Authority of the Department of Defense to Carry Out Certain Prototype Projects.”
3. “Defense Acquisition University Other Transactions Guide,” October 2018.
4. “DoD Sponsored Consortia.”

Dennis Fritz was a 20-year direct employee of MacDermid Inc. and has just retired after 12 years as a senior engineer at (SAIC) supporting the Naval Surface Warfare Center in Crane, Indiana. He was elected to the IPC Hall of Fame in 2012.