Public Contract Law Journal

"Other Transactions" Are Government Contracts, and Why It Matters

by Nathaniel E. Castellano

Nathan is an associate in the Government Contracts & National Security practice group of Arnold & Porter and an adjunct professor at The George Washington University Law School. After graduating from GWU Law as a Murray Schooner Procurement Scholar, he served as a law clerk for the Honorable Jimmie V. Reyna at the United States Court of Appeals for the Federal Circuit. Nathan greatly appreciates the thoughtful comments provided by Charles Blanchard, Mark Colley, Kara Daniels, Steven Feldman, Ronald Lee, Ralph C. Nash, Jr., Lt. Col. Daniel Schoeni, Stuart Turner, and Eric Valle. The views expressed herein, particularly those that may prove to be in error, are the author’s own.

Readers of this Journal are likely aware of the burgeoning interest in Other Transactions and Other Transactions Authority (OTA). Some believe that agencies endowed with OTA are free from the traditional rules of procurement contracting when forming Other Transactions. With the freedom of OTA, the theory goes, agencies can contract with the most innovative commercial firms, which might otherwise decline the boilerplate terms and compliance burdens associated with procurement contracting. This article is a reminder that the authority to create an Other Transaction is, at bottom, the authority to create a government contract. It first explains why Other Trans- actions qualify as contracts and then begins exploring the implications of the contractual nature of Other Transactions. Any private party entering into an Other Transaction should be aware of the significance of contracting with the United States. OTA might clear away many burdensome procurement statutes and regulations, but principles of sovereign immunity and separation of powers, along with the pervasive precedents of the United States Court of Appeals for the Federal Circuit, will continue to ensure that doing business with the federal government, even by “Other Transaction,” is never quite the same as doing business in the commercial market.

I.  Introduction and Context

The United States government is looking beyond its cohort of traditional contractors and seeks to build relationships with groundbreaking commercial firms in order to maintain technological and battlefield superiority.1 These relationships are unlikely to be built entirely through traditional procurement contracts, because the most innovative commercial firms often are not dependent on federal funds for revenue and will not accept the boilerplate terms and compliance obligations associated with federal procurement.2 As alternatives to traditional procurement, the U.S. government has recently encouraged use of various non-traditional methods to stimulate and obtain access to commercial innovation, including prize contests,3 public-private partnerships,4 and — the subject of this article — Other Transactions Authority.

OTA is the authority to enter into an Other Transaction.5 Despite its recent popularity, OTA is not new.The term “Other Transaction” and the first grant of OTA were crafted by Paul Dembling, drafter of the National Aeronautics and Space Act of 1958 (the “Space Act”) and former General Counsel of the National Aeronautics and Space Administration (NASA).7 To ensure NASA would have all the authority needed in the “Space Race” against the Soviet Union, Dembling drafted the Space Act to afford NASA broad power “to enter into and perform such contracts, leases, cooperative agreements, or other transactions as may be necessary in the conduct of its work and on such terms as it may deem appropriate.”8 Explaining his intent, Dembling later revealed that “other transactions” was a “catchall phrase” intended to provide NASA freedom from traditional procurement regulations and flexibility to structure agreements in line with commercial business practices:

I tried to cover everything else that was [raised by others when discussing NASA’s needs]. When somebody said, well, suppose we have this kind of a transaction or that kind of a transaction, I figured, it may not be covered under contracts, leases, and cooperative agreements. I couldn’t think of any other terminology to use, so I used “other transactions as may be determined or necessary in the conduct of its work.” So it was a sort of catchall phrase that I tried to use [A]n “other transaction” is not a procurement contract, cooperative agreement, or grant, and, therefore is not subject to the laws, regulations, and other requirements applicable to such contracts, agreements, and grants. It is this flexibility which provides authority to structure agreements in accordance with standard business practices.9

In the sixty years since Congress granted OTA to NASA through the Space Act, Congress has granted OTA to other agencies as well, including the Department of Energy (DOE), the Department of Health and Human Services (HHS), the Department of Homeland Security (DHS), the Transportation Security Administration (TSA), the Department of Transportation (DOT), and the Department of Defense (DoD).10

DoD now has two distinct types of OTA, currently codified at 10 U.S.C. §§ 2371 and 2371b. The first, § 2371, covers Other Transactions for “basic, applied, and advanced research,”11 and the second, § 2371b, covers Other Transactions for prototype projects.12 Providing a method for DoD to facilitate transition from a prototype project to a production contract, § 2371b allows that, if DoD awards an Other Transaction for a prototype project using “competitive procedures,” then DoD may also issue a follow-on production contract or transaction without the use of further “competitive procedures.”13 One of the primary attributes of OTA is that traditional procurement statutes and regulations — such as the Competition in Contracting Act (CICA), the Federal Acquisition Regulation (FAR), and the Cost Accounting Standards (CAS) — do not apply, and OTA provides freedom to negotiate intellectual property rights outside the constructs of the Bayh-Dole Act.14 Clearing away onerous procurement laws may enable the government to attract today’s leading innovators as business partners.15 Eliminating the FAR’s strict requirement for full and open competition may also allow agencies, at least in theory, to reduce acquisition lead time.16

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