As the saying goes, nature abhors a vacuum. So is the case for the lack of federal regulations governing other transaction (OT) agreements, which have drawn perhaps more than their fair share of scrutiny. Unlike the thousands of pages of regulations, policies and instructions that guide contracting officers in awarding a contract under the Federal Acquisition Regulation, Congress’ attempt to give the Department of Defense a flexible tool to engage non-traditional defense contractors and obtain state-of-the-art technology is rooted in the few pages of 10 U.S.C. § 4022 (formerly 10 U.S.C. § 2371b). So when the DoD Inspector General reviews 34 standalone prototype OT awards valued at approximately $5.0 billion from FY 2019 and 2020 and finds “DoD AOs awarded prototype OTs in accordance with 10 U.S.C. 2371b” this deserves recognition. See Audit of DoD Other Transactions and the Use of Nontraditional Contractors and Resource Sharing (Sept. 8, 2022).

Among other things, this DoD Inspector General’s report shares success stories that withstood auditor scrutiny. For example, a Marine Corps agreement officer correctly determined that a traditional defense company that sought classification as a non-traditional defense contractor was required to instead enter into a resource share agreement, and put appropriate controls in place to ensure compliance with the statute. Well done!

Agreements officers charged with awarding and administering OTs do have guidance in the form of the DoD Other Transactions Guide, which is not a formal policy document. The DoD Inspector General’s report identifies a number of areas where Defense Pricing and Contracting (DPC) has agreed to provide additional guidance on what and when certain decisions should be documented, as well as sharing best practices. Specifically, the IG recommends that DPC:

• Require agreement personnel to validate the non-traditional defense contractor status prior to awarding an OT and include such documentation in the OT file.
• Implement guidance for agreement personnel to consider when validating non-traditional defense contractor status.
• Develop and implement guidance for agreement personnel to validate that the non-traditional defense contractor participated to a significant extent, as proposed, throughout the duration of the prototype project.
• Reinforce the requirements in 10 U.S.C. § 4022 for approving costs prior to awarding an OT.
• Require agreements officers to follow resource-sharing procedures in the Other Transactions Guide or implement other requirements to ensure resource sharing OT files clearly document elements of the contractor contribution, agreement officer approval of costs incurred before the effective date, and verification procedures for contractor contributions.

Of note, some of the file documentation noted by the IG as missing was located after the draft of the report had been issued. That said, there is no recommendation to “tighten rules” or reduce the use of OTs. Rather, the recommendations align with Congress’ intent to authorize a flexible tool that can be adapted to specific mission needs – it’s just that when moving at the speed of relevance, agreements officers need to remember to make sure they are writing down the rationale for their decisions, and we expect that the updated Other Transactions Guide will serve as a reminder to them of where that may be appropriate.