The use of Other Transactions for prototyping and production are not going anywhere and will continue to increase in the coming years. The acquisition arm of the Department of Defense (DoD) should prioritize ensuring Other Transactions are used efficiently and fairly, and that they do not compromise the goals of the U.S. procurement system. The 809 Panel proposed promising reforms for the DoD’s statutory authority to engage in Other Transactions that comport with the values of government procurement, while still maintaining strategic effectiveness. But these reforms will be ineffective without improving the DoD’s Other Transaction infrastructure. A necessary arrow in the quiver of acquisition reformers will be better, more reliable, data on the use of Other Transactions, and the DoD must take steps toward bolstering its information collection on Other Transactions. Finally, a proper understanding of protest jurisdiction is necessary to fully utilize Other Transactions and attract the best and brightest defense contractors.
The Department of Defense’s (DoD) Other Transaction Authority (OTA) is playing an increasingly important role in defense procurement as a solution to a rapidly evolving defense landscape. But the overuse of this authority comes at the cost of fewer regulations, fewer competitive procedures, and fewer opportunities to protest the formation of Other Transaction agreements. For many, the first instinct upon witnessing this surge of relatively unregulated procurement is to clamp down on the Department’s authority to enter into Other Transaction agreements, but the Section 809 Panel recommends quite the opposite. Rather than enacting further regulations, the Panel recommends expanding and clarifying the DoD’s OTA because it believes Other Transactions are necessary to equip the military at the “speed of relevance.”
Although Other Transactions are technically “government contracts,” they are not governed by traditional procurement regulations such as the Federal Acquisition Regulation (FAR), Defense Federal Acquisition Regulation Supplement (DFARS), and Competition in Contracting Act (CICA). As such, many of the safeguards that ensure the integrity of the procurement system do not apply to Other Transactions, leading many to be wary about potential expansion of OTA.
This Note supports the Panel’s recommendation to expand and clarify the DoD’s OTA, but suggests two areas of Other Transaction policy that should be improved in order to mitigate the negative consequences of increasing the use of Other Transactions. First, the DoD must improve its data collection infrastructure regarding Other Transactions. Effectively and equitably using Other Transactions requires a clear understanding of how the agreements work and when to use them. Second, Congress or the Judiciary must solve the jurisdictional problem of protesting the formation of Other Transaction agreements. The current system has no clear avenue for contractors to challenge illegitimate Other Transaction agreements and the recent trend of bouncing matters between the Government Accountability Office (GAO), the Court of Federal Claims (COFC), and the U.S. District Courts serve only to alienate industry from contracting with the government. This Note examines its two suggestions and the 809 Panel’s recommendation through the lens of the cardinal goals of procurement, namely competition, transparency, and integrity. Only by promoting these three goals can the government attract precisely the type of innovation sought by OTA.
Part II of this Note will provide background for the DoD’s OTA, including a history of Other Transactions dating back to the Space Race and an explanation of how Other Transactions work. It will then examine the contemporary discourse surrounding Other Transactions by comparing the benefits and criticisms of the controversial procurement technique. The final background section will describe the 809 Panel, including its history and foundational goals.
Part III will transition into a discussion of the cardinal goals of procurement and why each is necessary for a functioning acquisition system. It will then dissect the 809 Panel’s singular, yet substantive recommendation concerning OTA—Recommendation 81: Clarify and Expand the Authority to Use Other Transaction Agreements for Production. Finally, this Note will argue, first, that improving the quality and quantity of Other Transaction data will lead to greater trust in the DoD’s OTA and increase the participation of industry and, second, that solving the jurisdictional confusion surrounding the formation of Other Transaction agreements is necessary to effectively employ the 809 Panel’s recommendation and maintain the cardinal goals of the procurement system.
With the Pentagon’s OTA obligations projected to reach $7 billion by the end of fiscal year 2019—an over forty percent increase from the previous year—the expansion of Other Transactions seems like more of an inevitability than a question. Refining the DoD’s current OTA requires understanding the origins and objectives of early Other Transactions. Section A briefly discusses the history of the DoD’s OTA and the intended purpose of this authority. Section B describes how the DoD uses Other Transactions, including different types of Other Transactions and applicable statutes. Section C examines the contemporary discourse surrounding Other Transactions by looking at the benefits and criticisms of the acquisition technique. Section D discusses the 809 Panel, a congressional committee dedicated to acquisition reform, and its singular, yet substantive, recommendation concerning the DoD’s OTA.
In 1957, as the passing of the Sputnik satellite drew U.S. suburbanites onto their lawns, Congress recognized a new need for rapid innovation and acquisition of astronautic technologies. Unwilling to fall behind the Soviets, Congress passed the National Aeronautics and Space Act of 1958, creating the National Aeronautics and Space Administration (NASA) and endowing the fledgling agency with broad acquisition authority to accomplish, among other goals, “the expansion of human knowledge of phenomena in the atmosphere and space.” For the first time, Congress contemplated the concept now known as OTA when it granted NASA the authority “to enter into and perform such contracts, leases, cooperative agreements, or other transactions as may be necessary” in the pursuit of space exploration.
The launch of Sputnik also reverberated throughout the defense community, prompting Congress to create the Advanced Research Projects Agency (ARPA) to keep the United States at the forefront of defense innovation. DARPA, as it was later renamed, was not initially granted OTA, but the changing landscape of defense development in the 1980s complicated the agency’s mission. Technological innovation no longer originated from the government, but from the private sector. Companies grew reluctant to enmesh themselves in the quagmire of the federal acquisition process and potentially risk losing intellectual property rights. In response, DARPA was granted temporary OTA for “advanced research projects.” This authority was later extended to others in the DoD and codified in 10 U.S.C. § 2371.
Since the 1990s, Congress has expanded the DoD’s OTA in an effort to attract private sector innovation by engaging in more commercial marketplace practices. For example, the DoD’s authority to engage in Other Transactions for prototyping and production saw steady expansion throughout the 1990s and 2000s, and was made permanent with the National Defense Authorization Act (NDAA) for Fiscal Year 2016. The congressional report explained the intent behind expanding the DoD’s OTA:
The conferees believe that the flexibility of the OTA authorities of section 2371 of title 10, United States Code, and the related and dependent authorities of section 845 of the National Defense Authorization Act for Fiscal Year 1994 (Public Law 103–160) as modified and codified in this provision, can make them attractive to firms and organizations that do not usually participate in government contracting due to the typical overhead burden and ‘‘one size fits all’’ rules. The conferees believe that expanded use of OTAs will support Department of Defense efforts to access new source of technical innovation, such as Silicon Valley startup companies and small commercial firms.
Notwithstanding Congress’s intentions, the defense procurement community quickly recognized that engaging in Other Transactions rather than traditional procurement procedures allowed for faster and more efficient acquisitions.
The DoD defines Other Transactions in the negative as transactions “other than contracts, cooperative agreements, and grants.” However, contrary to the statutory language, Other Transactions are indeed legally binding contracts. Other Transactions are an attractive alternative to traditional government procurement because they are not subject to the complex laws and regulations such as the FAR, DFARS, and CICA. Other Transactions also allow private industry “the freedom to negotiate intellectual property rights outside the constructs of the Bayh-Dole Act.”
Although more flexible than traditional government procurement, Other Transactions are still bound by general contract law and certain statutory restrictions. Significantly, while CICA competition requirements do not apply, competition to the “maximum extent practicable” is still required when conducting prototyping agreements.
The DoD’s OTA is generally reserved for three purposes: to “conduct research,” “develop prototypes,” or “contract for follow-on production of a successful prototype project.” This authority is for “basic, applied, and advanced research projects,” and for prototyping and follow-on production. Other Transactions are preferred to traditional procurement “in circumstances determined appropriate by the Secretary [of Defense].”
Research Other Transactions are also permitted. These Other Transactions best serve the original intended purpose of OTA by encouraging “dual-use research and development (R&D) . . . without burdening companies with [g]overnment regulatory overhead, which would make them non-competitive in the commercial (non-defense) sector.” Procurement officials are encouraged to use Research Other Transactions “particularly if they [seek] to adopt commercial practices or standards, diversify into the commercial sector, or partner with [nontraditional defense contractors (NDC)].”
Prototype Other Transactions and follow-on production Other Transactions are another form of Other Transaction. According to the Office of the Under Secretary of Defense for Acquisition and Sustainment (OUSD) Other Transactions Guide, “[S]uccessful Prototype [Other Transactions] offer a streamlined method for transitioning into follow-on production without competition.” However, Prototype Other Transactions are only appropriate in certain circumstances and follow-on production Other Transactions are dependent on whether “(A) competitive procedures were used for the selection of parties for participation in the transaction; and (B) the participants in the transaction successfully completed the prototype project provided for in the transaction.”
The DoD has additional prototyping and follow-on production authority. This grant of authority is similar to Prototype Other Transactions in that it allows the use of Other Transactions for follow-on production, but without the limiting requirement that the follow-on Other Transaction be with participants of the original prototype Other Transaction. While this sounds preferable in theory, the DoD has provided little guidance on utilizing the authority. The authority is only appropriate for an Other Transaction for “[a] weapon system component or technology prototype project,” but lacks clarification as to whether “weapon system” modifies the terms “component,” “technology,” or both. Depending on the DoD’s position, “application of § 2447d could be rather limited.” Even though competitive procedures are required under both statutes, the lack of CICA and FAR regulations raise concerns within the procurement community as to whether Other Transactions promote the policy goals of the federal procurement system.
The lack of a consistent bid protest mechanism for Other Transactions is similarly concerning. A bid protest for an Other Transaction agreement may be reviewed at the agency level, but only if protest procedures are included in the solicitation. The GAO generally will not hear protests for the award of Other Transaction agreements because they “are not procurement contracts” under CICA. However, the GAO does have jurisdiction to hear “a timely protest that an agency is improperly using its [OTA].” The jurisdiction to protest Other Transaction agreements at the COFC is unclear, although the OUSD Other Transactions Guide suggests it is possible.
Other Transactions have proven to be an efficient alternative to traditional procurement contracts in many situations, as they arguably allow the DoD to adapt to the rapidly changing defense landscape. But the lack of regulations and unclear protest jurisdiction has provoked the ire of many procurement traditionalists. However Other Transactions are perceived, they are here to stay, and they play an increasingly important role in defense acquisition. How should OTA be refined in order to accomplish the dual, yet often conflicting, goals of efficiency and competition?
The efficiency and speed of Other Transactions for defense contracting is often at odds with the overarching goals of the U.S. procurement system, such as competition. Defense officials praise Other Transactions as the solution to the rapidly evolving defense landscape. Former Under Secretary of Defense for Acquisition & Sustainment Ellen Lord argued that “OTAs allow innovation to bypass bureaucracy, reducing timelines and lowering costs to provide the best capabilities to our men and women in uniform.” Secretary of the Army Ryan McCarthy concurred in a discussion with the Center on Military and Political Power, noting that “[i]t took too long to bring a relevant technology to the field and . . . have it utilize[d] in a formation [of a procurement contract].”
The Defense Department’s attitude toward Other Transactions is reflected in the nearly 300% increase in dollars spent on Other Transactions from fiscal year 2016 to 2018. Since Congress codified the DoD’s authority to use Other Transactions for prototyping and follow-on production in the National Defense Authorization Act for Fiscal Year 2016, spending on Other Transactions increased from $1.4 billion to $3.7 billion. These statistics suggest the use of Other Transactions will continue to increase.
The proliferation of the Other Transactions has attracted critics who believe the DoD is employing Other Transactions to circumvent traditional contracting regulations. As Scott Amey, General Counsel of the Project on Government Oversight, cautioned:
We have to seriously consider how we are using [OTs]; whether we are using them as intended, whether we are getting the goods and services that we really want and need, whether we are getting them at the best cost and process, and we are using this procurement vehicle as a way to just circumvent the rules and have contractors not have the administration and oversight they need to hold them accountable. I’m just afraid this is going to result in a lot of waste, fraud, and abuse in the future.
Others warn that the government does not maintain enough data on its use of OTA. The primary source for OTA data is the Federal Procurement Data System–Next Generation (FPDS-NG). Unfortunately, the FPDS-NG data is “not fully reliable” as “[t]here are quality issues relating to accuracy, completeness, and timeliness of data.”
This section will examine the benefits and risks of using Other Transactions and how the procurement community has responded to the rapidly increasing utilization of the controversial acquisition technique.
The first major benefit of Other Transactions is the ability to obtain state-of-the-art defense technology more rapidly than traditional procurement methods. Other Transactions “[a]llow for leveraging private-sector research and development investments that have military utility, thereby lowering required DoD investment and reducing development lead time and the cost of fielding capabilities.” Military and procurement officials find the reduction in speed and cost attractive because “the current pace at which we develop advanced capability is being eclipsed by those nations that pose the greatest threat to security, seriously eroding our measure of overmatch.”
The second benefit is the lack of cumbersome regulations. Because Other Transactions are agreements “other than contracts,” regulations such as the “Truth in Negotiations Act, Cost Accounting Standards, the FAR and DFARS cost principles, government property requirements, and government-unique subcontracting requirements” do not apply. The lack of regulation increases the Other Transaction’s flexibility and allows the government and contractors to negotiate more favorable agreements. The Other Transaction’s flexibility also hastens the entire procurement process. For example “rapid prototyping and rapid fielding” can be accomplished in two to five years, rather than ten to fourteen years for traditional major systems procurement.
Due to the lack of certain regulations and the ability to negotiate agreements, the third benefit of Other Transactions is a more equitable distribution of intellectual property rights. Unlike traditional FAR procurement, which is governed by the Bayh-Dole Act, government officials engaging in Other Transaction agreements are encouraged to negotiate terms such as “royalty provisions, limited licenses (scope, duration, manner), options, conditions, right-of-first refusal, and exclusive dealing terms, amongst others.” The government may then negotiate short or long term plans to ensure proper “maintenance and support of fielded prototype technology when the technology is no longer supported by the commercial market.” To encourage efficient negotiation of intellectual property rights, the National Defense Authorization Act for Fiscal Year 2018 directed the DoD to “establish a cadre of intellectual property experts to advise, assist, and provide resources to program offices who are developing intellectual property strategies for contracts and agreements.”
These three characteristics of the Other Transaction attract industries that would not otherwise participate in the defense contracting process. The Other Transaction was initially intended “for commercial businesses to work with the Government on more appealing terms.” This flexibility is particularly important for smaller technology companies that now dominate U.S. innovation. Each year, the Defense Department’s need for cutting edge technology such as artificial intelligence, cloud computing, and robotics increases. The over 1000% increase in Other Transaction spending since fiscal year 2009 tends to support that Other Transactions encourage more non-traditional commercial involvement.
The most attractive feature of the Other Transaction is also its most significant weakness. The lack of substantial regulation and oversight leads many to believe that OTA is a method by which the Defense Department circumvents traditional procurement rules. Procurement regulations protect the government’s interest and taxpayer money from entities that would take advantage of the essentially limitless budget of the federal government. Similarly, Other Transactions “are also exempt from many of the socioeconomic policies put in place by Congress to promote public policies, including some Buy America requirements.” Thus, Other Transactions fail to uphold one of the fundamental goals of the acquisition process: to promote collateral public policy solutions.
For their part, members of Congress voiced concerns arose over the use of Other Transactions to avoid regulation in the case of the Future Combat System (FCS). FCS was a “multibillion dollar U.S. Army program that was intended to create a modernized system of numerous manned and unmanned systems and vehicles tied together by a communications and information network.” The initial contract, awarded to Boeing and Science Applications International Corporation, allowed for twenty-one subcontracts to research and develop weapons systems. Controversy emerged when the DoD then awarded Boeing an Other Transaction for follow-on production. Senator John McCain criticized the program as a means to avoid procurement laws when contracting with a large defense contractor. Senator McCain sardonically challenged FCS program manager Claude Bolton, saying, “Now, what you’re saying is we don’t need those laws. You can do the job yourself better than enforcing laws that were passed by the Congress of the United States.” Senator McCain continued on to inform Bolton that acquisition reform is within the domain of Congress, not the Executive.
Other Transactions have also been criticized for their lack of transparency. In the aftermath of the Oracle JEDI contract protest, one commentator wrote, “[t]he problem was not with the OTA mechanism, which remains an essential element of reforming Pentagon procurement. Rather the problem was with a lack of transparency with how the mechanism was employed.” The Defense Department has also been criticized for its lack of data collection related to Other Transactions. The Congressional Research Service (CRS) found that the “[DoD] lacks authoritative data that can be used to assess OT effectiveness and better understand broader trends associated with these agreements.” The CRS also reported that “[DoD] officials acknowledge that they do not have sufficiently reliable data upon which to conduct analysis on the use of OTs and are taking steps to try to improve the data.” Further, the CRS suggested the DoD’s “regulations and guidance on OTA use are vague and insufficient, and the department’s workforce is insufficiently prepared to use OTAs.”
Critics of Other Transactions claim the process degrades the core values of the U.S. procurement system. The next section will provide background for the Section 809 Panel. The Panel conducted one of the more substantive investigations into the DoD’s OTA and its recommendation to clarify and expand the use of the DoD’s OTA is the subject of the Note.
The 809 Panel was authorized by Section 809 of the National Defense Authorization Act for Fiscal Year 2016 to “identif[y] ways to enhance, streamline, and improve the defense acquisition system” in order to keep pace with a rapidly evolving threat landscape. The Panel consisted of sixteen “recognized experts in acquisition and procurement policy with diverse experiences from the public and private sectors.” The Panel’s main goal was to accelerate the procurement process by reforming current regulations to better mirror the commercial marketplace and to “adopt a mission first approach.” The Panel clearly stated that “rapidly and effectively acquiring warfighting capability and delivering it to Service Members takes precedence over achieving other public policy objectives.”
Over the last three years, the Panel presented ninety-eight recommendations to Congress, all aimed at modernizing current procurement regulations and “moving defense acquisition into the [twenty-first] century.” Of the ninety-eight recommendations, only twenty-six have been incorporated into recent National Defense Authorization Acts. Notably absent is Recommendation 81, which demands that the DoD “[c]larify and expand the authority to use Other Transaction agreements for production.” Section 809 Panel Chairman Dave Drabkin warned Congress and the Defense Department that “people are using OTAs to avoid using the [FAR],” and that “[t]he abuse of OTAs is going to lead to an event where Congress is going to do what it normally does and take them away from us.” This Note examines only Recommendation 81 and how several of the Panel’s proposed amendments to 10 U.S.C. § 2371b will promote the cardinal goals of the procurement system. This Note also considers the many criticisms surrounding the use of Other Transactions and argues that, if the Panel’s recommendations are to be applied, improvements to the data collection and protestability of Other Transactions are necessary to preserve competition, transparency, and integrity in the procurement system.
Given the Department’s increasing reliance on Other Transactions, should the DoD’s OTA be expanded in order to maximize the technique’s potential for rapid defense prototyping and acquisition, or should it be reduced by enacting more restrictive regulations? The 809 Panel recommends the former by clarifying and relaxing the current Other Transaction statutes, 10 U.S.C. § 2371b(f) and 10 U.S.C. § 2447d, in order to expand the DoD’s ability to enter into Other Transaction agreements and to streamline the transition from prototyping to production. But these changes must not come at the expense of competition, transparency, and integrity. While some of the Panel’s recommendations will serve to promote these goals, any increase in the use of non-competitive procedures, particularly with regard to follow-on production contracts, must be mitigated.
This Note supports the 809 Panel’s recommendations, but suggests two key improvements in order to safeguard against the abuse of expanded OTA. First, the DoD must enhance its data collection with regard to its use of Other Transactions. The system cannot work without a clear understanding of how and when to use Other Transactions, which is only attainable through extensive record keeping. A robust and public data collection system will level the playing field by ensuring the DoD and industry are acting on the same information.
Second, there must be a clear path for contractors to protest the improper use of Other Transactions. The courts and boards are currently unsure where challenges to Other Transactions may be brought, leaving contractors without an avenue for redress. Industry will be more likely to participate in Other Transaction negotiations if contractors know they can challenge illegitimate Other Transaction agreements.
Section A will describe the cardinal goals of a procurement system and why any reforms, such as those suggested by the 809 Panel, must maintain a balance of these goals. Section B will examine in detail the 809 Panel’s recommendation, including an analysis of its potential effects on the cardinal goals. Finally, Sections C and D will present this Note’s two recommendations, demonstrating how better record keeping and clearer protestability can mitigate the potential for reduced competition that accompanies expanded OTA.
Among the goals of the U.S. procurement system, three stand out: competition, transparency, and integrity. All three of these goals are arguably threatened by the misuse of Other Transactions. But it may be possible to reform or regulate current Other Transaction use in a manner that would preserve these procurement goals. This section will explain what these goals are and why they matter to the procurement system.
Competition is the cornerstone of the U.S. procurement system. The general idea is that the government will receive the best value for its investment in a competitive marketplace. Procurement policy has evolved around the desire to maintain full and open competition. The drafters of CICA, for example, believed that “more competition for procurements would reduce costs and allow more small businesses to win federal government contracts.” Competition, however, requires a large and diverse marketplace that encourages contractor participation.
Both contractors and the public must trust the procurement system in order to maintain high levels of competition. The system must be transparent, employing “procedures by which offerors and contractors (and even the public at large) ensure that government business is conducted in an impartial and open manner.” Current procurement regulations attempt to maximize transparency by maintaining strict notice requirements and data collection. Transparency also requires efficient protest venues for contractors to challenge deficient competitions. Compared to the government, the private sector does not value transparency “at a premium,” so many of the regulations promoting transparency discourage commercial participation.
A procurement system with integrity is one that maintains strict rules of conduct for outside contractors and its own personnel. “Bribery, favouritism, or unethical behavior have no place in a successful procurement system.” Competition flourishes when all parties trust and understand how the system works.
Many of the appealing characteristics of Other Transactions run counter to the goals listed above. The 809 Panel’s recommendation, particularly with regard to non-competitive follow-on production, threatens competition, but ultimately provides a necessary improvement to the DoD’s use of Other Transactions. Further, the recommendation fails to address two of the glaring problems with OTA, lack of data and unclear jurisdiction, which lessens both transparency and integrity. The following section will dissect the Panel’s Recommendation Number 81, demonstrating where it succeeds in promoting the cardinal goals and where it falls short.
The 809 Panel frames the issue thusly: “[t]he current statutory authorities do not adequately allow use of Other Transaction agreements (OTs) for follow-on production and use of OTs for rapid fielding existing technologies when necessary.” The Panel suggests that the statutory preconditions for follow-on production have been interpreted so narrowly as to frustrate the original purpose of OTA and impede the DoD’s ability to leverage the flexibility of Other Transactions. In many situations, Other Transactions are only as valuable as the technology generated by the prototyping process, so Other Transactions must allow for an efficient transition from prototype to production.
The GAO’s decision in Oracle America, Inc. in 2018 highlights two major limitations on this transition. In Oracle America, Oracle protested on numerous grounds the award of a $950,000,000 sole-source, follow-on production contract for cloud computing services issued under 10 U.S.C. § 2371b(f). In June 2015, the Defense Innovation Unit (DIU) issued a Commercial Solutions Opening (CSO)—“a merit-based source selection strategy for the [DoD] to acquire innovative commercial items, technologies or services”—for prototype projects under 10 U.S.C. § 2371b. The CSO stated that there was “[p]otential follow-on funding for promising technologies . . . and possible follow-on production,” and that the agency considered the CSO a competitive procedure.
In 2017, DIU agreed to assist Transportation Command’s (TRANSCOM) search for a cloud migration service and, in May of 2017 after receiving twenty-one solution briefs, entered into a Prototype Other Transaction agreement with REAN Cloud with a total value of $2,426,799. In August 2017, TRANSCOM executed a modification that added work to the agreement. In February 2018, TRANSCOM concluded REAN had completed the prototyping, notwithstanding the fact that the modified work had yet to be completed, and entered into a follow-on production Other Transaction agreement with a not-to-exceed limit of $950,000,000. Oracle protested the follow-on production Other Transaction agreement on the grounds that TRANSCOM failed to comply with the statutory requirements of 10 U.S.C. § 2371b.
The GAO held that TRANSCOM: “(1) failed to provide for a follow on production contract in its initial prototype OTA instrument, and (2) issued its sole-source follow-on production order before the prototype was complete.” The decision underscores two significant limitations on the DoD’s OTA. First, follow-on production for a Prototype Other Transaction is allowed only where the original agreement provides for a follow-on production award. Second, follow-on production is only appropriate where a prototype project has been “successfully completed.” The 809 Panel’s recommendations to loosen these statutory limitations serve to increase the DoD’s acquisition efficiency by alleviating these two major limitations.
The 809 Panel recommends amending 10 U.S.C. § 2371b(f) to require that a “[P]rototype [Other Transaction] affirmatively reserve the option of the follow-on production contract or transaction to use the noncompetitive follow-on production authority.” Overall, the Panel’s proposed amendment will relax the statutory burden imposed on parties to an Other Transaction agreement without negatively affecting competition, transparency, and integrity.
The relevant language of 10 U.S.C § 2371b(f), interpreted strictly in Oracle America, reads: “[a] transaction entered into under this section for a prototype project may provide for the award of a follow-on production contract or transaction to the participants in the transaction.” In other words, the Prototype Other Transaction agreement itself, only seen by the government and awardee as participants, must “provide for the award of a follow-on production.” This requirement can lead to absurd results, as in Oracle America, where an existing Other Transaction is “left without the option of a follow-on production transaction” even when the “publication and solicitation of the [P]rototype OT provided notice of the potential for sole-source follow-on production award to the awardee of the [P]rototype OT.” The policy seems asinine when considering that the purpose of § 2371b(f) appears to be the preservation of fair competition and transparency. Instead, a policy that requires notice for follow-on production at the solicitation stage would better preserve competition and transparency.
The requirement for the follow-on option is notably absent from OTA under 10 U.S.C. § 2447d. The Panel recommends removing the language from 10 U.S.C. § 2371b(f) to “harmonize the two production OTAs.” However, because 10 U.S.C. § 2447d is a relatively new grant of OTA, its application to technologies unrelated to weapon systems is unclear.
The 809 Panel recommends amending the statutory text of 10 U.S.C. § 2371b(f) to read: “[a] . . . prototype project under this section may be selected . . . for a follow-on production contract or transaction.” The amendment would bring the requirements for follow-on production under 10 U.S.C. § 2371b(f) more in line with 10 U.S.C. § 2447d, which would consequently bring “greater consistency in what is required to be provided for in a prototype transaction will be beneficial to those negotiating and entering into these transactions among the [DoD] and industry.”
When operating among the vast unknowns of OTA, the importance of a uniform procurement policy cannot be overstated. Although not among the cardinal goals of procurement listed above, uniformity is essential in fostering competition, transparency, and integrity. Additionally, a system where all players know the rules operates more smoothly, which is paramount for a defense industry that operates at the “speed of relevance.”
Follow-on production agreements are also limited by the statutory prerequisite that “the participants in the transaction successfully completed the prototype project provided for in the transaction.” When the GAO considered Oracle America in 2018, the statute did not carve out any exceptions for this requirement, leading the GAO to hold that TRANSCOM “did not comply with the statutory requirements” because the prototype project had not been completed. Since Oracle America, 10 U.S.C. § 2371b has been amended to allow the Secretary of Defense to determine whether a prototype has been successfully completed. Nevertheless, the 809 Panel recommends further amendment and clarification for the “successfully completed” requirement.
The current statutory scheme raises two issues with regard to a successfully completed prototype project. First, it is unclear what “successfully completed” means. Forced to make this determination in Oracle America, the GAO held that “the plain meaning of the phrase ‘completed the prototype project provided for in the transaction’ is the entire prototype project described in the transaction, i.e., the instrument itself.” The 809 Panel posits that Congress did not intend the statutory prerequisite to yield such a result, and that the GAO should not be the “ultimate arbiter of what constitutes a successfully completed prototype.”
The decision in Oracle America “supports the idea of strict compliance of a statute intended to be interpreted broadly,” and “incentivizes agencies to modify transaction agreements prior to awarding a follow-on transaction to remove requirements that are incomplete.” The Panel notes that “in the absence of CICA applicability, such modifications cannot be challenged.” The lack of any legal fora in which to challenge agreements worth potentially billions of dollars will severely damage the integrity of the procurement system and “fuel the argument that the regulatory free space that OTs operate in lacks transparency and fairness.”
The second limitation imposed by the “successfully completed” prerequisite is that only the Secretary of Defense may determine whether a project has been completed. The Panel recommends expanding the authority of Service Acquisition Executives (SAE)—executives who “carry out all powers, functions, and duties of the Secretary concerned with respect to the acquisition workforce”—to include the authorization of follow-on production Other Transactions. An SAE could then determine “exceptional circumstances exist to award a production OT” when confronted with the question of whether a prototype project has been successfully completed.
These recommendations cannot operate as effectively without the legal infrastructure to support this unconventional procurement method. Two such improvements are better record keeping and data acquisition on the use of Other Transactions and a clear jurisdictional hook for challenges to Other Transaction agreements. The next section will expand on improving the government’s data collection concerning Other Transactions and the following section will cover the lack of clear jurisdiction for challenges to the formation of Other Transaction agreements.
Better data collection to assess the use and effectiveness of OTA will promote more transparency and integrity in the defense acquisition process. Trends suggest the use of Other Transactions will continue to increase, so it is paramount that the Defense Department invest in more efficient data collection and dissemination procedures. The CRS raised a number of questions concerning the availability and reliability of data that Congress may wish to explore:
1. To what extent, if any, should the current reporting requirements be consolidated to create a more streamlined and consistent flow of information to Congress?
2. What specific data does Congress need in these reports to effectively conduct oversight? For example, what percentage of research OTs result in prototype projects and follow-on production?
3. To what extent is data sufficiently reliable, and will such data be easily retrievable in the future, to allow Congress to conduct effective, timely, and ongoing oversight? If the data is not sufficiently reliable or accessible in the future, what other data collection and tracking methods could Congress mandate to ensure ongoing access to reliable data?
4. How are OTs being used?
a. Where and when in the acquisition lifecycle is the authority being used?
b. To what extent is the requirements process being circumvented when D[o]D awards an OT follow-on contract for a major system?
Recall that the FPDS-NG is currently the “primary source for tracking data on contract obligations, including other transactions for prototypes and follow-on production,” but the CRS suggests the data system is unreliable. Congress and the Defense Department are taking steps toward better data collection, such as more in-depth annual reports including “organizations involved; number of transactions; amounts of payments; and purpose, description, and status of projects.” Congress has also required that the GAO submit a report on the use of Other Transactions since fiscal year 2016.
The most relevant effort to improve data on Other Transactions came from section 819 of the National Defense Authorization Act for Fiscal Year 2020 (FY2020 NDAA). Under section 819, the Secretary of Defense shall submit a report detailing “the use of other [OTA] to carry out prototype projects during the preceding fiscal year,” including the purpose, description, and status of projects; quantity of projects; amount of payments made toward projects; and examples of successful projects. More stringent reporting requirements will hopefully improve the amount and quality of data on Other Transactions and will improve the transparency and integrity of the system.
Other FY2020 NDAA sections seek to improve the acquisition workforce. Section 835 seeks to improve acquisition education in civilian institutions and section 861 would modify existing acquisition workforce management. A more educated and properly managed workforce operating with higher-quality information will encourage more contractors, traditional and non-traditional, to participate in the competitive process, thereby increasing the systems integrity and competition. An improved workforce is particularly important when considering the 809 Panel’s recommendation to grant SAEs the authority to determine when a prototype is successfully completed and when to award a follow-on production Other Transaction.
Most recently, section 833 of the National Defense Authorization Act for Fiscal Year 2021 requires the DoD to publish a list of the consortia used to announce OTA opportunities. Lifting the veil on these consortia will hopefully provide more information on how defense spending flows through these big businesses. Increasing transparency in a traditionally opaque system will surely encourage more participation from a wider variety of potential contractors.
Clarifying protest jurisdiction for Other Transaction agreements may also mitigate the complications of expanding the DoD’s OTA. A procurement system that is competitive, transparent and has integrity must have a well-structured protest system in place. Contractors must be able to challenge decisions they believe to be unfair and must be provided with adequate reasoning for the success or failure of those protests so that they and others may alter their acquisition approach in the future.
Because Other Transactions are not formal procurement contracts, “bidders” often experience difficulties protesting the formation of an Other Transaction due to lack of jurisdiction. Unlike Other Transactions, the solicitation and award of traditional FAR-based procurements can be protested in three fora: the awarding agency, the GAO, or the COFC. The fora are not authorized exclusive jurisdiction, allowing protestors to “double dip” by, for example, bringing an adverse GAO decision to the COFC. This protest jurisdiction is clearly defined in FAR 33.1, ensuring notice to all the parties to a procurement.
Conversely, deciding where to bring an Other Transaction protest is not so clear. This question may best be approached by asking first whether fora have ruled definitively on jurisdiction over the formation of Other Transaction agreements. The short answer is they have not, with courts and contract boards of appeals relying heavily on the specific facts presented before them.
For its part, the GAO has declined to hear protests concerning the solicitation or award of Other Transaction agreements because Other Transactions are not considered procurement contracts. In April of 2019, MD Helicopters Inc. challenged an agency’s evaluation of proposals for an Other Transaction agreement under 10 U.S.C. § 2371b at the GAO. The GAO dismissed the claim because the Office “generally does not review protests of awards, or solicitations for awards, of agreements other than procurement contracts.” In dismissing the claim, the GAO explained that, while it has jurisdiction to hear “protests concerning alleged violations of procurement statutes or regulation,” Other Transactions are not procurement contracts and are, therefore, not under the GAO’s protest jurisdiction.
The GAO has, however, found that it has jurisdiction when an agency is alleged to have misused its statutory OTA. In Oracle America, the GAO stated it may review “only whether the agency’s use of its discretionary authority was proper, i.e., knowing and authorized.” Similarly, in ACI Technologies, Inc., the GAO allowed a protest alleging the DoD improperly entered into an Other Transaction agreement for duplicative research. The GAO relied on language in 10 U.S.C § 2371(e) mandating that the Secretary of Defense shall not enter into an agreement for “research that duplicates research being conducted under existing programs carried out by the Department of Defense.” In sum, unless a protestor approaches the Office with a procedural defect in relation to statutory authority, the GAO is unlikely to grant jurisdiction over Other Transaction formation protests.
In contrast, the COFC maintains a relatively more defined approach to the jurisdictional question. Under 28 U.S.C. § 1491(b)(1), the COFC may review protests concerning “solicitation[s] by a Federal agency for bids or proposals for a proposed contract or to a proposed award or the award of a contract or any alleged violation of statute or regulation in connection with a procurement or a proposed procurement.” Like the GAO, the COFC has determined that Other Transactions are neither procurement contracts, nor are they “in connection with a procurement.” In Space Exploration Technologies Corp. v. United States, the COFC compared Other Transactions to cooperative agreements, which the Federal Circuit had previously held to be outside its jurisdiction, in declining to grant jurisdiction for a launch vehicle prototype Other Transaction. The COFC further explained that the agreement was not in connection with a procurement because the agency would not be purchasing or procuring any of the prototypes. This reasoning will present significant complications if applied to protests of Other Transactions with follow-on production agreements and should be examined further. Notably, the COFC did grant Space Exploration Technologies Corp.’s (SpaceX) motion to transfer venue to the United States District Court for the Central District of California, which highlights the final fora worth considering; federal District Courts.
After being dismissed from the GAO for lack of jurisdiction, MD Helicopters, Inc. brought an Administrative Procedure Act (APA) claim to the United States District Court for the District of Arizona. The Court explained the Administrative Dispute Resolution Act (ADRA) limits the APA by granting sole jurisdiction over procurement protests to the COFC. The Court found that, unlike the Other Transaction in Space Exploration Technologies Corp., here the follow-on production option included in the Other Transaction qualified it as a procurement or in connection with a procurement.
In October 2020, the United States District Court for the Central District of California denied SpaceX’s motion for judgment on its APA claim and ruled that the Air Force had reasonably excluded SpaceX from launch prototype deals, but omitted any discussion on the jurisdictional issues. This implicit grant of jurisdiction stands in stark contrast to the Arizona District Court’s dismissal of the MD Helicopters protest. The key distinction between the two cases may be drawn from the specific factual circumstances of the Other Transaction.
Although the rulings in Space Exploration Technologies Corp. and MD Helicopters do not necessarily conflict, they highlight the uncertainty in classifying Other Transactions as procurement contracts and where protests may be brought. It is also possible that a different court could rule differently on a similar matter, which is precisely the type of confusion legislation like the ADRA attempts to avoid. In its dismissal, the District Court in MD Helicopters implied that the COFC likely had proper jurisdiction, while the District Court in Space Exploration Technologies Corp. assumed it had jurisdiction.
The foregoing cases and regulations demonstrate just how muddled protesting an Other Transaction agreement can be. This creates a jurisdictional black hole for Other Transaction agreements; the GAO does not have jurisdiction over Other Transaction because they are not “procurement contracts,” but a District Court does not have jurisdiction to hear a contract claim under the APA, and cannot hear a claim “connected” to a procurement under the ADRA.
Following the 809 Panel’s recommendation to expand the DoD’s use of its OTA would likely lead to more protests and claims. The clear lack of consistency for protest jurisdiction over Other Transaction formation warrants further consideration by both Congress and the Defense Department. Without a proper venue to hear protests, private industry may have less incentive to engage in Other Transactions with the DoD because the risk may outweigh the benefits. This threatens the integrity of the procurement system and harms competition by excluding potential participants.
The use of Other Transactions for prototyping and production will continue to increase in the coming years. The acquisition arm of the DoD should prioritize ensuring Other Transactions are used efficiently and fairly, and that they do not compromise the goals of the U.S. procurement system. The 809 Panel proposed promising reforms for the DoD’s statutory authority to engage in Other Transactions that comport with the values of government procurement, while still maintaining strategic effectiveness. But these reforms will be ineffective without improving the DoD’s Other Transaction infrastructure. A necessary arrow in the quiver of acquisition reformers will be better, more reliable, data on the use of Other Transactions, and it appears the DoD is currently taking steps toward bolstering its information collection on Other Transactions. Finally, a proper understanding of protest jurisdiction is necessary to fully utilize Other Transactions and attract the best and brightest defense contractors.
This Note is meant to encourage OTA reform in the most effective and responsible manner. Implementing these suggestions will not only enhance the core pillars of the procurement system, but will encourage the DoD to effectively and efficiently utilize the power Other Transactions offer as a contracting vehicle.
