UPDATE 3/16/2018: A DIUx-sponsored contract for cloud services took a major hit this week, with DOD shrinking the value from almost-$1 billion to only $65 million. Get the full scoop here.
After our primer on contract action types, EZGovOpps will provide a look at the “Other Transaction Authority” (OTA) that DOD holds. This authority allows for DOD to enter into transactions other than contracts, grants or cooperative agreements. Growing in use, these types of OTA transactions can reach up to $250 million in value.
The current form of other transaction authority was codified in the National Defense Authorization Act (NDAA, which we have emphasized before for its powerful contracting power) of fiscal year 2016. With this authority, the director of the Defense Advanced Research Projects Agency (DARPA), Secretaries of the military departments, or others designated by the Secretary of Defense may enter into an other transaction (OT) agreement for a prototype project worth up to $250 million. However, this $250 million contracting authority is not a blank slate which can be used for any non-contract agreement, as it must meet at least one of the following requirements to justify its use, per the new section 2371b(d)(1) of the U.S. Code:
- There is at least one nontraditional defense contractor participating to a significant extent in the prototype project.
- All significant participants in the transaction other than the Federal Government are small businesses or nontraditional defense contractors.
- At least one third of the total cost of the prototype project is to be paid out of funds provided by parties to the transaction other than the Federal Government.
- The senior procurement executive for the agency determines in writing that exceptional circumstances justify the use of a transaction that provides for innovative business arrangements or structures that would not be feasible or appropriate under a contract, or would provide an opportunity to expand the defense supply base in a manner that would not be practical or feasible under a contract.
A relatively new Defense agency has taken full advantage of this new contracting authority: the Defense Innovation Unit Experimental (DIUx). DIUx was founded in 2015 to leverage commercial solutions for military problems. DIUx will solicit a commercial product or service which solves a pressing Defense problem, and proceed to a pilot contract if discussions with the commercial entity prove successful. With OTA, DIUx states that this entire process usually takes less than 90 days. By the end of FY17, DIUx reported awarding around $184 million for 59 contracts. With a goal of OTA being increased private sector involvement, DIUx also reported an increase in private research and development funding for these projects.
However, DIUx specifically thanks the new Other Transaction Authority provision in their quarterly report for a reason that we have not yet covered. If a prototype contract is completed successfully, OTA allows for a direct transition into a full production contract, without the competition normally required in DOD contracting. As of October 2017, DIUx -in partnership with Army Contracting Command/New Jersey (ACC-NJ)- has now awarded 2 follow-on production contracts worth a combined ceiling exceeding $1 billion, which can be used by any DOD entity “without each such entity having to allocate time and resources into putting a new contract into place.”
OTA, and DIUx for that matter, is still a relatively new contracting initiative with great potential for expansion across DOD. With contracting offices always hoping to improve acquisition speed and areas like IT modernization requiring not only fast action, but evolving solutions, OTA may prove to be an important procurement tool across DOD .
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