The Next Little-Known Flexible Acquisition Authority

Stephen Speciale and Diane Sidebottom

Fiscal Year (FY) 2021 provides promise after a colossally challenging year marked by a global pandemic. Private and public sector entities will attempt to regain a sense of normalcy. However, one issue remains constant—the United States undoubtedly will see additional and increasingly complex threats from adversaries as technologies advance rapidly. National defense priorities identified in the 2018 National Defense Strategy (NDS) remain at the forefront of the Department of Defense (DoD) mission as the character of war continuously changes. To endure success and enhance its competitive advantages, the DoD must modernize its capabilities by creating and promoting the right environment, mindset, and tools to embrace innovation and reasonable risk-taking.

DoD entities are using innovative and flexible contractual instruments more and more often to pursue the acquisition pathways outlined per the Adaptive Acquisition Framework (AAF). While a handful of options exist and are more commonly used, one authority continues to be greatly underutilized—10 United States Code (U.S.C.) Section 2373, “Procurement for Experimental Purposes.” This authority, while not new to the DoD, can be incredibly beneficial for DoD entities not only in their research and development (R&D) or science and technology efforts but also their procurement actions necessary to support various AAF pathways. Unfortunately, many within DoD’s acquisition workforce are unaware of the authority or do not have leadership support to utilize the authority. This article outlines the flexible instrument and provide valuable information to assist with modernized acquisition.

Table 1. Information on PEPs Under 10 U.S.C. 2373 

• Must be used for experimental or test purposes/efforts (supported by documentation).
• Must meet one or more of the nine focus areas. 
• Are available for supplies, including parts and accessories, and designs thereof—services are not included, and their inclusion in the acquisition may only be tangential to the supply acquisition. 
• Can be used to develop new capabilities, test new capabilities created by any source prior to fielding, and enhance and/or assess existing capabilities (examples include technical evaluation, experimentation, operational utility assessment, or to maintain a residual operational capability). 
• Can be made with vendors inside or outside the United States. 
• Not the same as agreements under OT authorities (10 U.S.C. 2371 or 10 U.S.C. 2371b) but is a companion authority to the OT authorities. 
• Can support several AAF acquisition pathways. 
• Can be awarded using competitive or noncompetitive procedures. 
• Can be awarded by a warranted Contracting Officer or Agreements Officer, depending on the specifics of the legally binding agreement. 
• No specified limit on unit quantities per purchase or agreement, so long as total quantities being acquired are needed for experimental or test efforts. 
• No statutory or regulatory approval levels exist (entities should adhere to their entity’s internal processes or consult their legal counsel and HCA/SPE). 
• Can be funded by various appropriation types depending on effort purpose (as determined by fiscal law). 

Key: AAF = Adaptive Acquisition Framework; FAR = Federal Acquisition Regulation; HCA = Head of Contracting Activity; OT = Other Transaction; SPE = Senior Procurement Executive; U.S.C. = United States Code Source: The authors

The AAF Defined

The Office of the Under Secretary of Defense (OUSD) Acquisition and Sustainment (A&S) published AAF guidance and associated acquisition policies in January 2020. The OUSD (A&S) AAF initiatives were created in response to the 2018 NDS that included an objective to reform the DoD’s business practices for greater performance. These policy changes were intended to make acquisition processes more timely, more agile, and free of unnecessary or excessive bureaucracy to deliver capabilities and technology advancements as quickly as possible to the Warfighter. The AAF outlines six acquisition pathways for DoD entities to select based on program size, risk, urgency, complexity, and other characteristics. It also permits entities to utilize a combination of pathways if a single pathway does not provide the most value based on the identified requirements. Visit the Defense Acquisition University (DAU) website (https://aaf.dau.edu/) for additional AAF information.

DoD entities can select from a buffet of Federal Acquisition Regulation (FAR) and non-FAR contractual instruments when implementing the selected acquisition pathway(s). Examples include, but are not limited to, contracting by negotiation (FAR Part 15), simplified acquisitions (FAR Part 13.5), federal supply schedules (FAR Part 8.4), other transactions (OTs) (10 U.S.C. 2371 and 2371b), and procurement for experimental purposes (herein referred to as “PEPs”) (10 U.S.C. 2373). Since there is no one-size-fits-all contractual option for each acquisition pathway, DoD entities must base instrument selection on their acquisition strategy and consideration of defined requirement(s), risks, and desired outcomes.

Procurements for Experimental Purposes (PEPs) and Authorized Entities

Under 10 U.S.C. 2373 the DoD is authorized to use PEPs for acquisitions of items in certain categories:
The Secretary of Defense and the Secretaries of the military departments may each buy ordnance, signal, chemical activity, transportation, energy, medical, space-flight, telecommunications, and aeronautical supplies, including parts, accessories, and designs thereof, that the Secretary of Defense or the Secretary concerned considers necessary for experimental or test purposes in the development of the best supplies that are needed for the national defense.

PEPs are not new to the DoD, as the statute was enacted in FY 1994 at the same time as the Prototype OT authority (10 U.S.C. 2371b). Similar in purpose to OT agreements, but distinctly different in application, PEPs are another unique and flexible acquisition instrument for DoD entities to use (if they have been delegated the authority) that are not required to adhere to the major laws and regulations that govern traditional procurement contracting. See additional information on PEPs in Table 1.

PEPs are flexible for various important reasons:

• There are no federal laws or DoD regulations or policies that specifically define what is included in each of the nine focus areas. The terms describing the focus areas are extremely broad and open to reasonable interpretation. Thus, DoD entities can be creatively compliant with program requirements relative to the authority.
• Since the statute includes the terms “supplies,” “parts,” “accessories,” and “designs,” DoD entities can procure a wide range of items that may include platforms, systems, components, materials, drawings, and more. Unfortunately, one common type of acquisition is not included in the statute—services. The main focus of the acquisition must be on the supply item and any associated services that are acquired with it must be tangential to it. As currently written, the statute does not allow for an acquisition that is solely or primarily for services, even if the services fall within one of the topic areas.
• Neither the statute nor DoD policy limits purchases to a maximum dollar amount or quantity per PEP agreement. Quantities, regardless of number, may be based on the entity’s available budget and verification as long that the number is limited to what is necessary for experimentation or test purposes. As a result, DoD entities have individual discretion to establish and adhere to their own processes and procedures relative to agreement amounts (prices), quantities, or required approval authorities. Entities should be cautious, however, to not misuse this authority to purchase more items than are reasonably necessary for the test or assessment. The needs of each situation will differ but must be documented to ensure that the rationale meets the authority’s intent.

PEPs clearly are another innovative tool that could have significant importance to national defense and they have been supported by Congress for many years. Within the National Defense Authorization Act for FY 2018, Congress required the Secretary of Defense (SECDEF) to establish a preference for using PEPs and OTs when executing science and technology and prototyping programs. Additionally, Congress has expanded the list of topic areas regularly since the statute was enacted, signaling a continued interest in this authority and desire for its use. It is very important, however, that those who wish to use the PEP authority understand that this is a separate and distinct authority from the two OT authorities, as explained in Senate Report 114-49, Section 826. The agreements awarded under 10 U.S.C. 2373 will not be called OTs, but each will be a unique agreement with custom content and format. Entities are free to choose a name for these agreements as well as freely negotiate the terms and conditions as long as the authority cited in the agreement is 10 U.S.C. 2373.

Key: AAF: Adaptive Acquisition Framework; CICA = Competition in Contracting Act; DFARS = Defense Federal Acquisition Regulation Supplement; FAR = Federal Acquisition Regulation; GAO = Government Accountability Office; NDS = National Defense Strategy; OT = Other Transaction; RDT&E = Research, Development, Test & Evaluation; U.S.C. = United States Code Source: The authors

Unfortunately, not all DoD entities have been delegated the PEP authority. While the military Service Secretaries have the authority by statute and can delegate it within their organizations, the SECDEF maintains the responsibility for delegating PEP authority to the defense agencies. As of September 2020, only a handful of DoD entities have been delegated PEP authority by their leadership, including the Navy, Army (select commands), Air Force (select commands), and the Defense Advanced Research Projects Agency (DARPA). Before any DoD entity plans to use this authority, workforce members must make sure that they have been properly delegated the authority. Personnel can review their organization’s “charter” within the DoD’s Directives library or consult with legal counsel to validate the PEP authority delegation. For instance, DoD Directive 5134.10, “Defense Advanced Research Projects Agency (DARPA),” delegates 10 U.S.C. 2373 authority to DARPA and requires DARPA’s Director to establish PEP-related authorities and responsibilities. Alternatively, DoD Directive 5105.85, “Defense Innovation Unit (DIU),” and DoD Directive 5136.13, “Defense Health Agency (DHA),” do not delegate 10 U.S.C. 2373 authority to either DIU or DHA.

Comparing and Contrasting
PEPs and OTs

PEPs and OTs are both flexible and innovative contractual instruments. While they have similar characteristics, they cannot be confused with one another. Table 2 illustrates the similarities and differences between the instruments (NOTE: The information in Table 2 is current as of September 2020).

DoD entities have utilized OTs with ever-increasing frequency and in greater numbers while PEPs rarely have been used since the authorities were enacted. The reasons are simple: (1) more DoD entities have authority to use OTs than those with authority to use PEPs; (2) the OUSD has published OT guidance and policies, but none for PEPs; and (3) the DoD has various training events specific to OTs, but none for PEPs. However, PEP popularity and usage will increase significantly if Congress continues expanding the PEP focus areas, the SECDEF delegates PEP authority to more DoD entities (such as DIU, DHA, and others), and the OUSD creates PEP guidance and related training.

Table 3 outlines broad, hypothetical examples that can assist entities that highlight when PEPs would be an appropriate contractual instrument given a requirement (assuming PEP authority exists).

Table 3. Examples For Using PEPs

PEP Example 1

A DoD entity received authority and funding for a new program in response to a Government Accountability Office audit that identified the DoD did not have safe or effective medical products for U.S. Warfighters. Specifically, the audit found that DoD did not have adequate medical products or supplies to treat Warfighters’ injuries in battlefield settings. The new program was approved to follow the “Urgent Capability Acquisition” pathway from the AAF, with program requirements to expedite the development and distribution of safe and effective medical products for Warfighters. Significant experimentation, testing, and operational assessments will be required for some of the highest priority items, such as blood products, therapeutics, and vaccines. It would be appropriate for the DoD entity to consider using PEPs since the effort relates to one of the nine focus areas (medical), will involve experimentation and testing, and directly supports national defense. If the entity proceeds with a PEP, the entity should consider what appropriate future activities should be used to realize the program goals. 

• Did the entity find an existing technology or product that would satisfy the entity’s needs? If so, a subsequent purchase of larger quantities would be planned and implemented. 
• Did the entity determine that additional R&D efforts are needed to modify or amend an identified technical solution and improve its satisfaction of the entity’s needs? The entity could then consider proceeding with an R&D procurement contract or a Prototype OT agreement, depending on the situation. 
• Did the entity determine none of the existing solutions were feasible, and therefore needs to start from scratch to create a new solution? Perhaps a grant or cooperative agreement would make sense. 

Remember, PEPs are not appropriate for purchasing quantities beyond those needed for experimentation or testing purposes. Also, there is no allowance for a non-competitive follow-on acquisition option with PEPs as there is with Prototype OTs under 10 U.S.C. 2371b. If an organization wishes to pursue a future acquisition, it will need to consider all of the available options, and the rules associated with each, to accomplish the subsequent requirement.  

PEP Example 2

A DoD entity needs to procure tablet computers and related communications equipment to better assist Warfighters in
combat areas. Current computers and communications equipment in inventory are heavy, have short battery lives and slow
processing times, rarely connect to cellular networks, and cannot be used for video-conferencing or to view presentations.
Commercial technologies have advanced so rapidly that the DoD is considering leveraging the advancements for military
use. The program anticipates that testing activities will be required before any new computers or communications
equipment can be purchased for operational purposes or go into inventory.

It would be appropriate for the DoD entity to consider using PEPs since the effort relates to more than one of the nine focus
areas (signal and telecommunications), will involve testing and capabilities assessments, and directly supports national
defense. PEPs can provide immediate benefits since time is of the essence, the effort will most likely involve the commercial
sector, and the standard procurement rules and regulations, including the Competition in Contracting Act,) do not apply,
allowing for opportunities to purchase test items from multiple sources quickly and on commercial terms.

PEP Example 3

A DoD entity has a requirement to upgrade its existing aircraft (in the field for 10 years) that will provide significant
improvements relative to the original aircraft form, fit, and function. Upgrades include modernized machine guns,
modernized avionics displays, a lighter ballistic protection system for the cargo loading system, and a new communications
system. Although all 300 aircraft in the fleet ultimately will be upgraded, the entity only plans to test 10 of them.
It would be appropriate for the DoD entity to consider using PEPs since the effort relates to at least two of the nine focus
areas (ordnance and transportation), will involve testing, and directly supports national defense. The entity, however, should
carefully evaluate its acquisition and contracting strategy since it is only planning to test 10 of the 300 aircraft. PEPs are not
appropriate for quantities associated with full-rate production or other quantities intended to be placed into inventory with
experimentation or testing. Rather, PEPs should only include quantities for technical evaluation, experimentation, operational
utility assessment, or to maintain a residual operational capability. Entities should strategically plan the use of PEPs and
how PEP results could help inform plans for future Prototype OTs, FAR-based contracts, or other contractual instruments
as appropriate.

PEP Tips

The following tips are intended to assist with PEP usage, including planning, execution, and administration functions.

Successful PEPs require collaboration, confidence, and business competence.

Use the Authority. If You Don’t Have It, Request It.

DoD entities that have PEP authority should seek to maximize their use of the authority to provide their workforce with yet another innovative acquisition tool that will help the DoD maintain its competitive edge. DoD leaders must proactively support authority usage and empower their workforce, especially since the DoD’s requested FY 2021 budget included the largest amount in its history to support urgent technology development. PEPs are ideal for entities with requirements in areas such as cyber, space, artificial intelligence, missile defense, ground vehicles, spares and obsolescence alternatives, medical supplies and devices, radios, and phones. Such areas are all but certain to touch one or more of the nine current focus areas outlined in the statute, but represent just a small sample of potential uses of the authority. It also is a useful option for entities that don’t have situations that would be appropriate for OTs and other innovative contractual options and/or that may not have RDT&E funding. This authority allows for entities performing operational or sustainment type functions to seek alternative products or solutions that may already largely exist in the commercial market for their ongoing needs. On the other hand, leaders of DoD entities that lack PEP authority should collaborate with their respective contracting heads and legal counsels or contact the OUSD through their respective chains of command to request authority.

Include Personnel from Different Functional Areas.

PEP subject-matter experts simply are not sitting idle or readily available on rosters within DoD entities. Also, since only a few DoD entities have PEP authority, PEPs most likely will be a new learning experience for many DoD personnel. To endure success with PEPs, DoD entities must assign dedicated personnel with diverse functional area experience to support the team from effort initiation and throughout the life cycle. Involvement should expand to, but not be limited to, personnel in program management, contracting, engineering, logistics, legal, financial management, cost estimating, and small business. Similar to OTs or any other innovative acquisition approach, PEPs require personnel with sufficient business acumen, sound professional judgment, and expertise with planning, executing, and administering complex acquisition instruments.

Create PEP Guidance and Training.

Successful PEPs require collaboration, confidence, and business competence. Each DoD entity with PEP authority should develop guidance to assist its workforce with PEP-related actions. The guidance should identify key responsibilities and provide best practices for personnel to follow, including warranting contracting officials and PEP planning, execution, administration, and reporting functions. An entity’s PEP approach will provide value to personnel and programs so long as the guidance is consistent with the flexibility provided by the statue and does not hinder innovation or creativity.

To communicate and explain the guidance, entities should develop training to educate their personnel who are expected to perform or support PEP-related actions. Among other things, the training could encompass the statute, PEP significance to national defense priorities, the entity’s internal best practices and lessons learned, historical examples of PEP usage and applicability, relationship to other contractual instruments (FAR and non-FAR based), intellectual property and data rights, government property implications, and reporting requirements. This specific PEP training event will benefit personnel and programs because the DoD (including DAU) currently has no PEP training courses available to DoD’s workforce.

Create and Maintain Appropriate Supporting Documentation.

While PEPs are a flexible instrument to assist with certain needs, personnel must still create and maintain appropriate documents to justify and support PEP-related business activities. All DoD entities are responsible for ensuring the effective stewardship of taxpayer resources received and gaining maximum value for every dollar spent on national defense. PEPs are no exception. There are various forms of PEP supporting documentation that personnel should consider, depending upon the individual circumstances, including: need determination or requirements identification, market research or intelligence performed, designated approval authority, contracting or agreements officer, documentation explaining rationale, acquisition strategy, publicizing/soliciting/evaluating actions, schedules, transition plans, cost estimates, funds availability statements, agreement awards/modifications, and legal opinions rendered. Appropriate documentation will provide assurance that an entity’s PEP usage is efficient, effective, compliant, and adequate to prevent improper use of the authority.

Conclusion

As Nelson Mandela said, “It always seems impossible, until it is done.” So long as technologies continuously advance and adversaries challenge the United States with new threats, the DoD will unquestionably seek to capitalize on innovation opportunities and advancements to respond to those threats. Experimentation and test activities, as a part of any acquisition effort, remain critical elements of DoD’s priorities, given the current environment. Also, DoD’s future priorities will certainly necessitate experimentation and testing to determine suitability and applicability to the situation at hand. Thus, DoD entities, where appropriate, should maximize PEP usage as another acquisition tool that may provide an appropriate path to providing the War­fighters with the technologies they need. Use the authority, cherish the authority, but certainly do not abuse the authority. 

Read the full issue of
Defense Acquisition magazine

SPECIALE is a Senior Acquisition Specialist supporting the Department of Defense. He is a Certified Defense Financial Manager–Acquisition (CDFM–A) and Certified Fraud Examiner (CFE).

SIDEBOTTOM is a Senior Policy Advisor with the Contracts Management Office at Defense Advanced Research Projects Agency (DARPA). Prior to her tenure at DARPA, Sidebottom was the Learning Director for Other Transactions at the Defense Acquisition University and has taught extensively about government contracting as an independent consultant. This article represents the opinions of the authors alone.

The authors can be reached at [email protected] and [email protected].

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