Increased OTA use from COVID contract boom caused transparency issues, watchdog agency says

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For several years, agency acquisition shops have been getting more comfortable with buying outside of the Federal Acquisition Regulation. Both Defense and civilian agencies have been increasing their use of what are known as other transaction authorities. That revved up during the COVID pandemic spending. And it meant a few transparency problems. Federal Drive with Tom Temin heard more from Marie Mak, the director of Contracting and National Security Acquisitions Issues at the Government Accountability Office.

Interview transcript:

Tom Temin: Ms. Mak, good to have you back.

Marie Mak: Thank you for having me to speak on this important topic.

Tom Temin: So what did we discover? Give us the overview of OTA spending, I guess, especially by the National Institutes of Health — Health and Human Services — during the pandemic, and maybe it’s not over yet.

Marie Mak: When it comes to actual OTA pandemic spending, as of March 2021, we included three agencies — the Department of Defense, Health and Human Services, and Homeland Security. And with those three apartments, that were the ones that we could find that used OTAs, they obligated at least $12.5 billion using the OTAs. And this is significant, because when you look at prior year spending on OTAs, like for instance, in 2019, those three agencies only spent about $7.8 billion. When it comes to the overall picture, OTA spending represented about 23% of the total spending for those agencies within that timeframe. So it’s really from March 2020 to March 2021.

Tom Temin: So it was a good portion of the money that was not otherwise designated by Congress for direct payment to individuals? In other words, this is for the agency operations, and acquisitions of their own, aside from relief money.

Marie Mak: Well, OTA is worse spent on things that we needed in terms of vaccine awards and things like that. It’s not for internal use, it’s for external use. The main reason why they used OTAs instead of federal procurement, the main factors that agency official cited was speed in awarding these OTAs. They can expedite large vaccine development, manufacturing awards, because it streamlined the competitive process for evaluation and selection of awardees. And then there was another reason that agency official cited, was to engage with companies that may not have otherwise entered into a contract with the federal government, like non traditionals. For instance, like Pfizer, and Fitbit, those were thin contractors that may not have engaged with the federal government. And then the last benefit that agency cited was that it’s more flexible, and there’s a lot less administrative work. So essentially, OTAs are not subject, like you mentioned, to the Federal Acquisition Regulations. And they enabled agencies and companies to start with a blank sheet of paper to negotiate contractual terms and conditions.

Tom Temin: And from what you can tell, did they do the OTAs according to the…there was a statute for OTA and there are some guidelines — agencies have issued their own guidelines, in lieu of the FAR, for OTA — was most of the spending in compliance with those statutes and guidelines?

Marie Mak: That was not a particular focus of our review, but there are not a lot of statutory requirements and guidelines for using OTAs. That’s intentional. It’s not meant to have a lot of rules, because otherwise, then they go to just use the procurement contract that is FAR based. And it’s important to recognize, though, that Congress only provides certain agencies with authorities to award OTAs. And for example, contractors, when they use an OTA, contractors may not have to establish a government unique cost accounting system, or they automatically aren’t required to provide certain intellectual property rights — concerns that most startup companies will doing business with the government in the past have avoided. So, there are definite benefits with using an OTA.

Tom Temin: We’re speaking with Marie Mak, she’s director of Contracting and National Security Acquisitions Issues at the Government Accountability Office. And the issue of speed is a curious one, because not too long ago, when there have been some big natural disasters, the question came up on, why couldn’t the government act faster to acquire, say, what FEMA needed and so forth? And the theme that emerged in the interviews I did and other sources reported is that, well, golly, the FAR does have lots of provision for rapid acquisition, people just need to know how to do it. And maybe they had neglected that particular FAR muscle for too long. So how come this time around OTAs are the answer, instead of the rapid acquisition that is allowable and doable under the FAR, do you think?

Marie Mak: Well, OTAs are also used for only certain purposes. By statute, they are only allowed to be used for research, prototyping, and production. For instance, production of prototype purposes. So when it came to vaccine development, that was really important. In a lot of other cases, you still are required to use procurement contracts. In some of the things, for instance, you wouldn’t use OTAs for buying typical things like masks and things like that because that would already be done with the FAR. And it’s not for novel technology. OTAs are more used for those types of things, where you would use them for things that you may not be able to do in terms of a contract fast enough.

Tom Temin: Sure. So like a vaccine for COVID is not an off-the-shelf commodity, at least at the outset of the whole thing.

Marie Mak: Correct.

Tom Temin: All right, that makes sense. And just a detail question. The report refers to customizing agreements several times under the OTAs — the agreements with vendors. What does that mean, customizing the agreements in the federal procurement context?

Marie Mak: That goes back to what I mentioned earlier in terms of allowing agencies and companies to start with that blank sheet of paper — to negotiate contractual terms and conditions specific to the OTA. For example, let’s go back to this vaccine OTA. DoD officials stated that they were able to put in flexible payment plans based on milestone schedules, like if you have to pay a certain amount when you deliver this many vaccines. There’s flexible termination provisions. And then there’s customer rights for intellectual property, and regulatory deliverables, which usually in a FAR contract, there’s much more specified agreements that are required to be met.

Tom Temin: So getting back to the subtitle of your report, Actions Needed to Enhance Transparency and Oversight — that’s really the heart of it — this spending is more difficult to see then, than regular FAR spending?

Marie Mak: Correct. What we found was there’s definitely a lack of transparency when it comes to OTA spendings. And that was in two ways. One was how much was spent, and then who performed the work. When it comes to how much was spent, we found that OTA spending can appear in that Federal Procurement Database System in two different modules, or they can appear somewhere else all together, because there is no requirement to report it. So the lack of consistency where OTA spending is reported, is something we recommended to address. For example, in that March 2020 to March 2021 timeframe, we found in the federal database system, that if you look for it, it was only $10.9 billion is what was actually reported. In reality, when we looked at some of the other ways of reporting, there was like at least $12.5 billion spent. So that’s a big problem. It’s not clear how much is actually being spent on OTAs. And then when it comes to who performed the work, when federal agencies award OTAs through a consortia, they don’t report which consortium members actually received the award. This is because, again, the Federal Procurement Data System only captures the consortium management firm that received the award and not the actual contractor. So knowing who the ultimate recipient of those funds and who was actually doing the work is really important. More specifically, let’s look at DoD. They were the ones that used a consortium management firm. And that consortium management firm, a little background is that they act as a liaison between the members and the government in the OTA awards. But the system indicated that management firm received $7.2 billion in OTAs. In actuality, the management firm distributed nearly all of the awarded firms to five pharmaceutical companies, and that wasn’t widely known or publicly known.

Tom Temin: Interesting. So, it gets to a point that Congress made in enabling all of this money for pandemic relief — a couple of emergency bills, big ones — the oversight and transparency of all that spending was a key provision. And there was lots of pages of those laws devoted to making sure, and there’s a whole IG set up, GAO got assignments and so forth, specifically for the purpose of tracking this. Do you think Congress overlooked a little detail to say make sure OTA spending is tracked and recorded and related just as deeply as you would FAR spending?

Marie Mak: Well, the fix doesn’t necessarily have to lie within Congress. Agencies have options of ways to fix this. And I think that’s a really good question. Because there is not one-stop shop for attracting this type of information, that’s where our recommendations went to the agencies. Agencies likely are tracking it internally in their own ways, it’s just a matter of there are ways to do it in a more public tracking system, like for instance, they could put it into, there’s an OTA module in the Federal Procurement Data System, they could go there, but they also have to specify how do you track it in that OTA module. And typically, in the past where other emergencies, other disasters, they are tracked by using what we call the National Interest Action [NIA] code. And that is in for procurement modules to consistently track data on contract actions related to emergencies or contingency responses or net other nationally significant events. There is not a national interest code for OTAs. So, they could do that, or they could have come up with another systematic approach. We weren’t questioning how they wanted to do it. But we felt like one of the easy ways is add a national interest code to the OTA module so that that oversight can be seen and that insight into what OTAs are used for responding to national emergencies is available.

Tom Temin: Right. And the point is, that kind of reporting and transparency would no way affect the flexibility and speed that they get from using OTAs in the first place.

Marie Mak: Correct. Absolutely. Flexibilities of OTAs is likely to be…it was very important, I think, in this case to get out vaccines quicker than under a regular procurement contract. And as future national emergencies arise, whether they’re natural disasters, contingency ops, or another health crises, we believe that OTAs will likely play a significant role in these events. So there needs to be that good oversight and transparency of these mechanisms. And that’s what our recommendations focused on.

Tom Temin: Marie Mak is director of Contracting and National Security Acquisitions Issues at the GAO, thanks so much.

Marie Mak: Thank you.

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