Commercial Paths For Acquiring Innovative Technologies

Stephen Speciale and Danny Poskey

Department of Defense (DoD) entities increasingly use Commercial Solutions Openings (CSOs) to fulfill a wide range of needs with innovative, advanced technology from the private sector. DoD’s use of CSOs likely will increase further due to statutory changes in the Fiscal Year (FY) 2022 National Defense Authorization Act (NDAA) that made CSO authority permanent.

DoD modernization priorities include critical technology areas such as hypersonics, microelectronics, quantum science, autonomy (unmanned systems), and cyber technology. In March 2022, the DoD clarified that companies (particularly those that may have not previously done business with the government) are already developing solutions for the commercial market relating to DoD’s critical technology areas.

Commercial technology leads in most of the focus areas—and, in fact, commercial industries spend nearly 10 times more than the government on research and development (R&D).

CSOs are flexible, competitive solicitation instruments that DoD entities can use to acquire innovative commercial products, technologies, services, and other R&D needs. Depending on authorities granted, DoD entities can execute or award a variety of business arrangements through CSOs including, but not limited to, Federal Acquisition Regulation (FAR) contracts, Other Transaction (OT) agreements, Procurement for Experimental Purposes (PEP) contracts or agreements, and Cooperative Research and Development Agreements. The 2018 National Defense Strategy noted that commercial technology will change the character of war. Therefore, rapid use and integration of commercially driven technological breakthroughs are critical for our military to maintain its competitive advantage. This article, specific to CSOs, outlines the history, recent statutory changes, potential applications, recent real-world uses, and answers to common questions. This article is also intended to expand CSO awareness among DoD and Defense Industrial Base (DIB) personnel and assist with future business collaborations necessary to contribute to future technological breakthroughs for military use.

...rapid use and integration of commercially driven technological breakthroughs are critical for our military.

History of CSOs

In response to laws and DoD leadership direction, DoD entities completed various initiatives over the last several decades to expand acquisitions of commercial products and services; however, the initial CSO process was established by the Defense Innovation Unit (DIU) in 2016.

DIU originally was established as the Defense Innovation Unit Experimental; its primary mission is to accelerate the adoption and integration of leading-edge commercial technology across the military and strengthen the national security innovation base by growing the number of technology vendors. To move at commercial speeds, DIU developed a unique CSO process. This process enables the facilitation of atypical business arrangements between DoD entities and vendors with promising solutions. DIU does not possess traditional contracting authority to award FAR-type contracts. Rather, DIU uses OT authority to award agreements for prototype projects that meet any of their six focus areas.

DIU’s CSO is a three-phase competitive process that results in one or more prototype OT agreements. The process starts with a problem statement. Interested vendors respond with a short brief or white paper—a minimum upfront investment compared to traditional government solicitation methods. The second phase involves an interactive pitch session where selected vendors provide demonstrations of their solution and the government elaborates on its intended use case. The final phase involves selected vendors collaboratively developing a statement of work with the government and negotiating (prices and terms) before reaching a prototype OT agreement. The process is fast, flexible, and collaborative, resulting in a wide range of solutions from the most innovative vendors.

DIU’s initial success with its CSO process resulted in expanded CSO-type action across the DoD. For instance, Congress provided the DoD temporary CSO authority through a CSO pilot program per the FY 2017 NDAA Section 879. The pilot program, while much different than DIU’s CSO model, authorized DoD to use a competitive solicitation process through FY 2021. The program objectives were to close capability gaps and provide technological advances through commercial items, technologies, or services necessary to meet DoD program needs. DoD could also use the program to acquire R&D solutions for requirements falling between component development and operational systems development. In another instance, the Defense Information Systems Agency (DISA) developed a CSO-like process, using DIU’s process as the model, to acquire innovative information technology and security-related products and services.

The Under Secretary of Defense for Acquisition and Sustainment (USD[A&S]) released a memorandum in June 2018 to expand existing policy and guidance for entities planning to use the CSO program authorized by the FY 2017 NDAA. Some requirements for DoD entities include publishing CSO notices on SAM.gov (the government-wide point of entry website), utilizing standard procurement instrument identifiers for each CSO solicitation, using mandatory evaluation factors for selecting proposals for award, and limiting contract award types to fixed-price and fixed-price incentive.

For clarification, the requirements for CSO use under the authority of the FY 2017 NDAA (and the corresponding USD[A&S] policy memorandum) are independent from CSO use by DoD entities not using the FY 2017 NDAA CSO authority. Therefore, DoD entities using CSOs separate from the FY 2017 NDAA (such as DIU, DISA, and others) are not constrained by those requirements and can uniquely conduct business that promotes competition and maintains fair and transparent processes.

DoD’s overall use of CSOs has increased significantly in recent years. Per DIU’s FY 2021 Annual Report, DIU awarded 245 vendors a total of 279 CSO-related agreements with a total value of $892.7 million between FYs 2016 and 2021. DIU awarded 86 percent of its agreements to nontraditional defense contractors (NDCs), some of which included vendors working with DoD for the first time. NDCs are defined by 10 United States Code §3014 as “an entity that is not currently performing and has not performed, for at least the one-year period preceding the solicitation of sources by the Department of Defense for the procurement or transaction, any contract or subcontract for the Department of Defense that is subject to full coverage under the cost accounting standards prescribed pursuant to section 1502 of title 41 and the regulations implementing such section.”

DIU’s agreements also included awards to vendors based in eight separate allied nations. Specific to FY 2021, DIU had record high CSO solicitations, proposals received, and total prototype OT agreements awarded off of CSOs. Separately, the USD(A&S), within its FY 2021 Defense Pricing and Contracting Annual Report, reported a substantial increase in CSO usage within DoD and total actions made under the FY 2017 CSO authority. In FY 2021, DoD entities completed 93 CSO actions with total obligations of $1.9 billion, much higher than the 45 actions completed with total obligations of $37.7 million in FY 2020. Much of the substantial increase in CSO awards was due to the DoD’s engagement with industry for innovative solutions in response to the COVID-19 pandemic.

Table 1. Major Requirements for Using CSO Authority (FY 2022 NDAA Section 803)

Key: BA = Budget Activity; BAA = Broad Agency Announcement; CSO = Commercial Solutions Opening; DoD = Department of Defense; R&D = Research and Development;
SAE = Service Acquisition Executive; SME = Subject Matter Expert; USD(A&S) = Under Secretary for Defense Acquisition and Sustainment ...
Source: The authors

Recent Law Changes Impacting CSO Authority

Congress changed DoD’s CSO authority and pilot program created by the FY 2017 NDAA and is the primary reason for increased CSO interest around the DoD. Through the FY 2022 NDAA Section 803, Congress made CSO authority permanent for DoD entities. Similar to the initial pilot program, the USD(A&S) released a policy memorandum in February 2022 outlining policy and guidance. Table 1 highlights major requirements for DoD entities when using CSOs per the authority granted by the FY 2022 NDAA (emphasis added).

Potential CSO Applications and Real-World CSO Uses

The DoD can employ CSOs in various ways to acquire a broad range of R&D solutions and innovative capabilities from industry. CSOs differ in that some include broad areas of interest while others identify more focused needs. DoD entities using the NDAA CSO authority must post CSO solicitations on SAM.gov. Alternatively, DoD entities not using the NDAA CSO authority (i.e., DIU, DISA) typically post CSO solicitations on their respective public-facing website(s) but may also post solicitations on SAM.gov or other media such as trade publications and LinkedIn.

CSOs are typically open to many potential sources, including traditional defense contractors, NDCs, small businesses, nonprofit organizations, federally funded research and development centers, academia, and foreign entities, unless the entity’s CSO specifically states otherwise. Some CSOs are open for responses for one month, and some are open for several years. Some CSOs specify the potential for FAR-based and non-FAR-based awards, while others may specify awards of only FAR-based instruments or only non-FAR-based instruments. CSOs could involve white-paper evaluations, oral presentations or pitches, technology demonstrations, and cash prizes. Finally, a unique CSO process could be extremely beneficial for DoD entities with OT and/or PEP authority.

When this article was being written, DoD had 43 active CSOs listed on SAM.gov. Some of the active CSOs involve DoD entities seeking capabilities for solutions in electromagnetic warfare, flight line lighting, measures to counter the proliferation of weapons of mass destruction, acquisition of optical character-recognized text-to-text translation technology, modernization of Army installations, and making operational advances for Air Force end-users. Table 2 outlines recent, real-world CSOs by DoD Services and 4th Estate agencies to illustrate the widespread uses and potential benefits of the flexible solicitation instrument.

Table 2. Real-World CSOs

Key: CRADA = Cooperative Research and Development Agreement; CSO = Commercial Solutions Opening; DARPA = Defense Advanced Research Projects Agency;
DISA = Defense Information Systems Agency; DIU = Defense Innovation Unit; DoD = Department of Defense; FAR = Federal Acquisition Regulation; FY = Fiscal Year;
NDAA = National Defense Authorization Act; OT = Other Transaction; PEP = Procurement for Experimental Purposes; PPE = Personal Protective Equipment
Source: The authors

Figure 1. Comparing BAA and CSO Effort Scopes

**DoD entities may also leverage BAA “like” and/or CSO “like” solicitation instruments and processes to uniquely solicit business opportunities to industry. Examples include CSO processes used by DIU and DISA. Such instruments/processes are not required to comply with the FAR and DFARS (for BAAs) and NDAA (for CSOs), but DoD entities should ensure the solicitation methods are fair and transparent.

Key: BA = Budget Activity; BAA = Broad Agency Announcement; CSO = Commercial Solutions Opening; FAR = Federal Acquisition Regulation; DFARS = Defense Federal Acquisition Regulation Supplement; NDAA = National Defense Authorization Act; RDT&E = Research, Development, Test and Evaluation
Source: The authors

Conclusion

Technology will continue to change rapidly, so DoD needs to embrace and integrate commercial solutions at the speed of relevance. CSOs can serve as a significant enabler to achieve this. If DoD does not adapt or modify its business practices and preferences for engaging with industry, DoD will struggle to enhance the DIB, access state-of-the-art technologies, and maintain a competitive advantage over adversaries.

As the USD(A&S) February 2022 report on DIB competition states, “To counteract the trend of overall shrinking of the DIB, DoD should endeavor to attract new entrants to the defense marketplace by reducing barriers to entry. This will be accomplished through small business outreach, support, and use of acquisition authorities like Other Transaction (OT) authority and Commercial Solutions Opening (CSO) that provide DoD the flexibility to adopt and incorporate commercial best practices to reduce barriers and attract new vendors.”

CSOs are modern, flexible solicitation instruments that may be used in various ways to bring DoD entities and industry partners together. Since CSOs can help foster new relationships and ultimately produce technological breakthroughs to support national defense, DoD entities should seek to use CSOs to the greatest extent, where appropriate.

Frequently Asked CSO Questions and Answers

Question 1: What is the difference between BAAs and CSOs?

Although BAAs and CSOs can be similar in terms of solicitation procedures, the two concepts are distinct. First, BAAs are not intended for specific DoD program needs (system or hardware requirements), whereas CSOs are intended for DoD entities to acquire innovative commercial items, technologies, or services that directly meet program requirements. Second, BAAs and CSOs each serve different purposes since they pertain to different budget activities (BAs) as outlined in the DoD’s Financial Management Regulation. Figure 1 portrays the respective BAs for BAAs and CSOs.
As seen in Figure 1, BAAs and CSOs serve different purposes, but there is some overlap where they can both be used for efforts appropriate for DoD BAs 3 and 4 (Advanced Technology Development and Advanced Component Development and Prototypes).

Question 2: What special authority, if any, do DoD entities need to use CSOs?

DoD entities, whether the Services or 4th Estate agencies, do not require special authority to use CSO authority per the FY 2022 NDAA or a CSO-like process. CSOs are solicitation instruments that DoD entities can innovatively use to award FAR-based contracts and/or non-FAR-based agreements. CSOs, however, are primarily useful for DoD entities fulfilling R&D requirements, specifically those ranging from advanced component development through operational systems development.

Question 3: Are CSOs only intended to allow NDCs to participate?

It depends. While CSOs are competitive solicitations, some CSOs may be open to all sources (traditional defense contractors, NDCs, small businesses, etc.) while others may be intentionally limited to NDCs or other source types per the DoD entity’s preference. Remember that the key reason for CSOs is for DoD to identify technological breakthroughs for military use; thus, DoD entities may have to approach industry in nontraditional fashions to acquire nontraditional capabilities.

Read the full issue of
Defense Acquisition magazine

SPECIALE is an advanced acquisition and program management analyst supporting the Department of Defense (DoD). He is a Certified Defense Financial Manager–Acquisition, and a Certified Fraud Examiner. 

POSKEY is a DoD supervisory contract specialist and agreements officer. 

The authors can be contacted through [email protected] 

The views expressed in this article are those of the authors and not the Department of Defense. Reproduction or reposting of articles from Defense Acquisition magazine should credit the authors and the magazine.