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This is Not Your Father's Oldsmobile or Other Transaction

This is Not Your Father's Oldsmobile or Other Transaction

This is Not Your Father's Oldsmobile or Other Transaction
Ms. Kristine Kassekert
If you’re old enough that you were the target audience for, and even remember the tune to, “this is not your father’s Olds-mo-bile” then here’s a quick guide to help you catch up with today’s use of other transaction (OT) authority within the Department of Defense (DOD).

For those of you who don’t remember (or who can sing the tune but weren’t old enough to buy a car at the time), here’s a bit of OT history so everyone is on the same page. OTs date back to their use at NASA in 1958. But members of the Government team planning for Prototype OTs under 10 U.S.C. 4022 in today’s DOD would hardly recognize them.

Take, for example, how OTs have been implemented at NASA. Yes, they were intended to enable the United States to catch up with the Soviet Union after Sputnik. But NASA distinguished the purpose of the OT awards from NASA’s Federal Acquisition Regulation (FAR)-based awards. In its current form for example, NASA uses “partnership agreements” to “(1) support the needs of the external partner where the partner reimburses government expenses (reimbursable partnership) or (2) achieve a mutual goal when working collaboratively on a no-exchange-of-funds basis (nonreimbursable partnership).” See FAQ About NASA Partnerships. NASA has successfully used these to, among other things enable commercial launch providers. Alternatively, NASA uses procurement contracts, subject to the FAR, when the “principal purpose of the transaction is to acquire property or services for the direct benefit or use of the Federal Government.” Id.

Congress initially gave what has now become the Defense Advanced Research Project Agency (DARPA) OT authority to fund basic, advanced, and applied research projects. See The Untapped Potential of the Department of Defense's "Other Transaction" Authority, 24 Pub. Cont. L.J. 521 (Summer 1995). OT authority gave DOD flexibility that permitted commercial companies to use their commercial practices almost entirely in performance of DOD-funded research and development (R&D). Id. This type of OT authority today is known as a Research OT, or by its nickname for its historical position as the “original OT.” NASA’s partnership agreements bear many similarities to Research OTs.

From the time DARPA (then ARPA) was given OT authority until June 1995, DARPA entered into nearly 100 OTs. Id. While some awards were made to single companies, others were agreements entered into with partnerships or consortia, either already existing or formed specifically to perform an DARPA-funded research program. Id.

In contrast to NASA’s approach and DOD’s Research OT authority, DOD’s Prototype authority went beyond procuring research and authorized DOD to purchase products and services pursuant to 10 U.S.C. 4022(f) for the direct benefit and use by the Government. The concept of the transition to follow-on contracts initially appeared in the FY 2004 National Defense Authorization Act (NDAA) as a pilot program. However, it was not until the FY 2016 NDAA[1] that Congress granted DoD the current authority authorizing DOD to enter into Prototype (10 U.S.C. 4022(a)) and Production (10 U.S.C. 4022(f)) OTs. Pursuant to Section 815 of the FY 2016 NDAA DOD “may carry out prototype projects that are directly relevant to enhancing the mission effectiveness of military personnel[2] and the supporting platforms, systems, components, or materials proposed to be acquired or developed by the DOD, or to improvement of platforms, systems, components, or materials in use by the armed forces.” In addition, for the first time, a Production OT could be awarded as a follow-on production contract or transaction without further competition where the prototype project was successful and competitive procedures had been used for the selection of the parties. With the introduction of Prototype and Production OTs, the ability to make a follow-on production award transformed OTs from what had been a tool for the Government to fund into basic, advanced and applied research projects into a much broader instrument that overlapped with traditional FAR-based contracts to purchase goods and services.

Around the same time, in accordance with the FY 17 NDAA, DOD reorganized its organizational structure to split what was formerly the Office of the Under Secretary of Defense for Acquisition Technology and Logistics (USD(AT&L) into USD for Research and Engineering (USD(R&E)) and USD for Acquisition and Sustainment (USD(A&S)). Today USD R&E is responsible for Research OTs under 10 U.S.C. 4021, and USD A&S is responsible for Prototype and Production OTs under 10 U.S.C. 4022.

The 2018 version of the OT Guide introduced the definition of a prototype project that solidified the use of Prototype and Production OTs to purchase goods and services for the direct benefit of and use by the Government. It defined a prototype project as addressing “a proof of concept, model, reverse engineering to address obsolescence, pilot, novel application of commercial technologies for defense purposes, agile development activity, creation, design, development, demonstration of technical or operational utility, or combinations of the foregoing. A process, including a business process, may be the subject of a prototype project.” DOD OT Guide (2018). DOD OT Guide (2018). This definition was also incorporated into Definitions and Requirements for Other Transactions under Title 10, United Staes Code, Section 2371b (18 Nov 2018). The FY 23 NDAA subsequently codified this definition of a prototype project and the FY 23 NDAA Joint Explanatory Statement indicated that this list of prototype project types is not meant to be restrictive.

This definition of a prototype project is incredibly broad. The following distinctly different types of requests for prototype proposals would fall squarely within the current definition:
  • A traditional research project to develop or test a proof of concept or model or that otherwise creates, designs, or develops a solution.
  • An approach to reverse engineer an obsolete or anticipated-to-be obsolete item.
  • Describing a technological problem for which there is existing commercial software to solve the problem and awarding an OT to demonstrate its technical or operational utility.
  • Create new software or modify existing software using agile.
  • Take any item that currently exists and have a company demonstrate it to show its technical or operational utility.

Note the oddity of the definition’s approach, which is a list of seemingly unrelated things. A prototype project can be defined by the process which the Government uses for prototyping (e.g., agile development activity, or a demonstration of technical or operational utility), by the result or final deliverable (e.g., proof of concept or a model), or by what the Government needs to accomplish (e.g., reverse engineering for obsolescence). This means that while there is some overlap between a Research and a Prototype OT, the Government is authorized to use a Prototype OT for much more, and, upon meeting the statutory pre-requisites, can purchase quantities for use without additional competition as follow-on production. Notwithstanding the theoretical overlap between the OT statutes, the Prototype and Production authority was in addition to the “original” OT authority for Research OTs under 10 U.S.C. 4021.[3]

With the expansion of the OT authority, DOD had to adapt to the increased demand and the Congressional signal to increase the use of OTs. DOD executed 4,391 total actions in FY 2022. See Report to Congress on the Use of Other Transaction Authority for Prototype Projects in FY 2022. For those that worked with DARPA’s version of consortia under Research OTs, the model of awarding only to consortia when the consortia were formed specifically to carry out an individual project award made sense given that DARPA made awards at a rate of approximately 100 awards over a six-year period for research projects. The Untapped Potential of the Department of Defense's "Other Transaction" Authority, 24 Pub. Cont. L.J. 521 (Summer 1995). In order to award and administer this significantly larger number of prototype projects, current DOD OT practitioners have created a variety of consortia models, including some that leverage a consortium manager in carrying out their goals. See What the Heck is a Consortium Anyway?

These various consortia models comply with 10 U.S.C. 4022(a) which authorizes DOD to “carry out prototype projects that are directly relevant to enhancing the mission effectiveness of personnel of the DOD or improving platforms, systems, components, or materials proposed to be acquired or developed by the DOD, or to improvement of platforms, systems, components, or materials in use by the armed forces.” The words “carry out prototype projects” do not limit DOD to making awards only to those entities who are themselves performing work on the prototype project. Moreover, the FY 2018 NDAA amended the follow-on production authority to allow for follow-on production to individual subprojects under a transaction to a consortium of industry and academic institutions. The FY 21 NDAA required DOD to gather a list of consortia with the stated purpose to make available opportunities known – a nod to the consortia model championed by the Army where a consortium manager forms a group of members surrounding a particular area of expertise and supports its members and then competes opportunities among those members. Thus, DOD’s approach to consortia, including the consortium manager model, does not violate 10 U.S.C. 4022.

The Oldsmobile campaign ultimately failed by alienating the older generation of Oldsmobile owners (who knew what the rocket emblem stood for), as well as the younger generation it was intended to attract. Unable to adapt to changes in the industry, GM ultimately shut down the Oldsmobile product line. Let that be a cautionary tale for the naysayers who want DOD practitioners to structure and execute OTs as they did decades ago.

[1] 10 U.S.C. 2371b has subsequently renumbered and currently is 10 U.S.C. 4022.
[2] The statute has subsequently been amended to replace “military personnel” with “Department of Defense” personnel, among other things.
[3] Note that 10 U.S.C. 4022 lacks a requirement that DOD justify the use of the authority for what could otherwise have been issued as a traditional FAR-based award. One potential barrier to issuing a follow-on production award in the form of a FAR-based contract is that for a prototype project that is expected to cost the DOD in excess of $500,000,000, among other things, OUSD A&S must make a written determination that the use of the authority of this section is essential to meet critical national security objectives. If the follow-on production award is issued as an OT, the determination may indicate the performer will not accept certain FAR terms. However, if the follow-on production award is a FAR-based contract, such a basis would be inapplicable. Also on a related note, Congress removed the requirement that the Government explain why a standard contract, grant or cooperative agreement was not feasible or appropriate in 10 U.S.C. 4021 in the FY 2022 NDAA.