Acquisition

The Defense Department clarifies how to use other transaction authority

Other Transaction Authority (OTA) acquisitions have become popular in the Defense Department and other agencies, to the tune of billions of dollars a year. OTA'...

Tom Temin@tteminWFED

July 26, 2023 12:15 pm

8 min read

Other Transaction Authority (OTA) acquisitions have become popular in the Defense Department and other agencies, to the tune of billions of dollars a year. OTA’s have guardrails against abuse of this method of buying. The Office of the under secretary of Defense for acquisition and sustainment earlier this month released fresh OTA guidance that seeks to dispel what it calls some of the myths. For analysis, Federal Drive Host Tom Temin turned to Haynes Boone procurement attorney Zach Prince.

Interview Transcript:

Tom Temin Zach, let’s begin with the fundamental question. OTA Guidance by the Armed Services individually and from the undersecretary has been around for many years, as it has been for a lot of the other agencies. Why do you think they issued new guidance now?

Zach Prince Well, this is becoming an increasingly popular procurement vehicle, and there are a lot of open questions about how it is to be used. There have been different guides that have been out there. DOD had a guide, but it was growing dated. And the more that the acquisition community is using this type of purchase mechanism, the more they need concise guidance with examples. Myth busting, as DOD has done for procurement for many years, or FPP did that ten years ago with those myth busting one, two and three. It’s just important to have a single resource that you can turn to to understand how to set up the acquisition and how to administer it.

Tom Temin I guess for the uninitiated, we should remind people that OTA means an acquisition that’s not done under the Federal Acquisition Regulation or the Defense FAR, the D-FAR, and it was initiated by NASA. Congress gave NASA that authority, I think, back in what was it, 1959 or something like that, to be able to do this for the purposes of buying prototypes because there was no commercial equivalent out there. And that’s what OTAs are all about. Is that a pretty good synopsis?

Zach Prince That’s a great synopsis. It started back in 58. Maybe the act was called the Act of 58, but that’s very, very close and it ultimately has grown to reach other agencies. DOD now uses it a lot. Usually used for research, for prototypes and also for production. So it has a wide variety of potential uses.

Tom Temin Right. And it could be that the new guidance came out because Congress keeps an eye on this, too. And they are probably supersensitive to, you know, the abuse that is at least potentially could happen under OTAs.

Zach Prince But I think it’s a mix of concerns about potential abuse and excitement, about the potential flexibility with this procurement vehicle that DoD can spur growth and the defense industrial base in ways that they really can’t with traditional FAR, D-FARs covered vehicles.

Tom Temin All right. And so what is going on now in OTA? I mean, where do we see it happening? What are some of the spending levels? And is it all it’s not all DoD, but it’s primarily there.

Zach Prince It’s a heck of a lot of DoD. And I’m seeing it mostly in the DoD world. But NASA’s still has OT authority, I believe Homeland Security does. A few other agencies that might surprise you do. Energy has authority to use it in certain ways. It gets confusing because the statutory grants of authority differ slightly by agency. And so you really need to know what agency you’re talking about. But in many respects, it is the Wild West, because when you’re dealing with a procurement, you know, traditional FAR covered, you know what to expect there are clauses that have to be there and even if they’re not in there, are going to be read in there as a matter of law. Then when you get into the OT world, you sort of scratch your head. Now it’s cost reimbursement. What does that mean? Are the cost principles applicable and what rights does DoD have to audit? You know, what sort of payment mechanisms are they going to establish, what level of buy in from the from industry are they going to mandate? It varies wildly.

Tom Temin And these are not pro-testable, is that correct? An OTA award?

Zach Prince Usually not. There’s a little piece in the guide that talks about protest and emphasizes that generally DoD would like them not to be protested. Agencies can set up their own mechanisms for agency level protests of OTAs that they want them to be protectable, but usually no.

Tom Temin And right there in the beginning of this guidance, number two about this guide, the flexibility of OT agreements and their limited use across the Department of Defense has led to misunderstandings as well as several myths. A list of the common OT myths, along with a discussion of facts or somewhere in the appendix they tell people to go to. What are some of the myths that have grown up that they’re trying to knock down here?

Zach Prince One myth is what actually applies to an OTA. There is a belief and within certain parts of the acquisition community that some elements of the FAR or D-FARs do have to be read in or have to be included. Usually they don’t. There are few statutory exceptions, like the Tik-tok ban actually is required for OTs. Same with the Huawei ban and Kaspersky lab ban. So there are times where Congress gets really uptight about how particular, particular foreign actors and puts that into all acquisitions. But generally speaking, you don’t have to have any FAR clause at all in a OT.

Tom Temin We’re speaking with attorney Zach Prince. He’s a partner at Haynes Boone. We’re in the fourth quarter of the federal fiscal and people are worried about funds running out, lapse of appropriation, all of these things going on. And so a lot of contractors want a quick hit to make their numbers at the end of the year. And there’s no time for full and open FAR competitions at this point. Realistically, between now and the end of the fiscal year, to what extent is it kosher then to explore with your agency if you’re a vendor? Well, can we do this under an OTA?

Zach Prince You could go that route, but they are limited in what can be done. They’re really only for research, prototyping or production, and there has to be some careful thinking by DoD of what they’re authorizing and whether it falls within the statutory grant. They don’t want to just create this mechanism for avoiding full and open competition. This is only to be spurring these specific types of activities.

Tom Temin And when you say production, it means production of that which was developed under the prototype. With an OTA, you can’t just go buy, you know, 67 printers because it’s easy to do it with an OTA. That would be wrong.

Zach Prince That’s right. That’s an important caveat. They’re follow on OTs is to prototype OTA agreements.

Tom Temin And to what extent is it possible to use OTAs on existing GWAC types of vehicles that might have been established using FAR type of processes?

Zach Prince My suspicion is there are very few circumstances where that would be appropriate.

Tom Temin So it’s direct government to that vendor.

Zach Prince Yeah, that’s right. I mean, you would need to be able to really justify how this is appropriate. You can’t always do single source OTs either for production in particular. You can have a sole source OT for production if it was a competitively awarded prototype OT. But otherwise you are supposed to be soliciting as the agency a number of different offers.

Tom Temin And is the theory behind using an OTA for production that even though it is production, it is nevertheless not commercial because it was created as a prototype initially under an OTA. And so there’s presumably no commercial market for that which is being produced.

Zach Prince Usually there might be a commercial market, but it might be the type of circumstance where what DoD needs is slightly different. Or DoD wants to get industry to focus on an area that they otherwise wouldn’t. And so they’ll come up with a complicated mechanism where there’s more industry buy in, the company has skin in the game, they’ll get a benefit if this succeeds or a potentially absorb a loss in a way that a FAR contract wouldn’t allow for.

Tom Temin All right. So this guidance that just came out from the Undersecretary for Acquisition and Sustainment is 51 pages, no pictures or charts. So it’s like all reading. What should people know about this?

Zach Prince It is very well drafted, frankly. You know, it is true. It is a lot of reading and maybe lawyers will take more from it than others. But it does a very good job of laying out this is what an OT is. This is how you set up a procurement. These are the entities that can get involved. And it’s broken up with great case studies of types of work that’s been done through OTs that have been successful and what has made them successful. So now for every few pages, you have to slog through some arcane definitions. You then get to understand in practice what this actually is used for.

Tom Temin And some of these case studies go back a few years. Here’s one from 1994 for the Global Hawk drone. And so certain eternal truths never fade away, do they?

Zach Prince They don’t. Some of them are more reset. You’ve got one where performance only ended in 2022 for robotic servicing of geosynchronous satellites, which is some really interesting cutting edge tech.