OTAs and beyond: Scaling innovation in Defense contracting

Eric Lofgren, a senior fellow with the Center for Government Contracting at George Mason University, explains why limits to the growth of OTAs can lead to the n...

Contracts using other transaction authority saw another year of growth in the Department of Defense, but only when excluding awards for COVID-19. Obligations unrelated to COVID-19 went from $7.6 billion in fiscal 2019 to $8.6 billion the year after, and $11.5 billion in 2021. OTAs identified with COVID-19 were $7.7 billion in 2020 and $3.1 billion the last year.

Encouragingly, production OTAs have grown from $339 million to $1.1 billion in 2021, spread across a wide range of offices from all the services. High ceilings have also been awarded for the Space Enterprise Consortium ($12 billion) as well as the Army’s Integrated Visual Augmentation System ($22 billion) and Future Vertical Lift ($18 billion) programs.

While OTAs are an important tool for defense contracting, many of the barriers to innovation are rooted in the culture of procurement. Substantial flexibilities already exist within the regulations and yet they are inadequately leveraged. That could spell bad news for the future of OTA adoption unless the culture question is addressed.

There are already signs that OTA growth may soon reach a crescendo. An analysis of OTA data at the lower levels gives some cause for concern. Of the 18 defense agencies funding non-COVID OTAs in 2020, seven decreased their OTA obligations in 2021.

A similar trend is apparent for defense contracting offices. Of the 93 contracting offices identified with OTAs, more than one-third decreased their OTA obligations in 2021. The total number of contracting offices with year-over-year declines in OTA obligations was just two in 2019, 26 the next year and 32 in 2021.

Funding offices have pulled back further, with nearly half decreasing OTA obligations in 2021. Of the $2.9 billion in total OTA growth, 96% came from the top five funding offices, while 350 other offices netted the remaining 4% of growth.

OTA growth in part depends on budgetary growth for the advanced component development and prototypes account, which has doubled from $14 billion in 2016 to $28 billion in 2021. The President’s budget requested another 11% increase for 2022. Budget increases cannot be an enduring source of growth for OTAs.

More worrisome, Stan Soloway and Jason Knudson, both former Defense officials, found that many OTAs have language from the Federal Acquisition Regulation creeping in. Soloway noted that up to 160 new clauses were added to commercial item contracts since the 1990s, fearing a similar outcome for OTAs. Intellectual property and audit requirements were highlighted by the Government Accountability Office as areas of particular concern in their review of OTAs for COVID-19.

As extensive growth through higher budgets and contracting office adoption slows down, the question remains whether intensive growth, or increased demand from existing OTA users, can fill the void. While OTAs still have room for growth, many of the barriers appear cultural rather than regulatory.

Many government needs for flexible contracting are available within the FAR. Excellent resources include the TechFAR Handbook, Federal Acquisition Institute’s Periodic Table, General Service Administration’s Tech Guides and Playbooks and the Procurement Innovation Lab’s Bootcamp.

An important new resource is the Acquisition Next playbook by the Center for Government Contracting at George Mason University. It finds plenty of tools within the FAR that can allow for modern, iterative development practices with non-traditional vendors. In addition to commercial item procedures, simplified acquisition is useful for product demos, firm fixed price level of effort for labor services and consumption-based solutions for anything “as-a-service.”

Multiple-award IDIQs provide another example. They are exempt from burdensome source selection and competition requirements, allowing for the use of oral presentations, comparative evaluations and streamlined procedures. The FAR allows the contracting officer to “exercise broad discretion” and “keep submission requirements to a minimum.”

IDIQs are the only contract type in which the FAR recommends the use of modular contracting. Repeated ordering of a six-month base award-plus-four options often works well. When paired with agile work statements that remove much of the technical direction from the contract, government can start doing business in a way recognizable to commercial industry and tech startups.

Multiple-award IDIQs can have other features of OTAs. Awards under $25 million are not subject to bid protests. When using fixed-price tasks, they are exempt from the six business system requirements including for cost accounting. Moreover, intellectual property statute favors specially negotiated rights, and non-traditionals may receive commercial data rights without a commercial item determination.

The modern acquisition practices of modularity and iteration must replace the industrial age fixation on linearity and prediction. We at the Center for Government Contracting call this mindset Acquisition Next. It can be accomplished by using existing authorities in new ways. The newly released playbook shows how, making the transition accessible to a larger swath of government programs than OTAs alone.

Eric Lofgren is a senior fellow with the Center for Government Contracting at George Mason University. He manages a blog and podcast on weapon systems acquisition.

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