Did The Space Force Just Ruin OTAs For Everyone?

UPDATED WASHINGTON: A contracting slip-up by the Space Force has inspired new scrutiny of a streamlined acquisition process known as Other Transaction Authority (OTA). OTAs have soared in popularity in recent years, but a story by The Washington Post — which said a Space Force contractor “acted fraudulently” and derided OTAs in general as a “loophole” — has given skeptics new ammunition in their fight for restrictions.

Some on Capitol Hill have long believed that closer oversight of OTA contracting is badly overdue, because it bypasses many of the checks & balances in the sprawling Federal Acquisition Regulation (FAR). Other experts fear that new regulations could tie OTAs down in the same slow-moving bureaucracy that they were created to escape.

In particular, the OTA award process delegates significant decision-making from federal officials to the contractors managing public-private consortia. Those firms include Virginia-based National Security Technology Accelerator (NSTXL), which had been tapped to run the Space Enterprise Consortium (SpEC). But then Texas court ruled NSTXL was in breach of contract with an events management firm on an unrelated Navy project. The ruling blindsided the Space Force’s Space & Missile Systems Center (SMC), which wasn’t aware of the litigation when it awarded the SpEC contract to NSTXL.

NSTXL slammed the Post story as “rife with incorrect interpretations, misstated findings from court documents, and … blatant disregard for the inconsistent findings of the court,” and the company and vowed to appeal the ruling. But in the meantime, the Space Force has put NSTXL’s Space Enterprise Consortium contract on hold.

That effectively freezes the flow of new OTA funds through the consortium, because the previous contract, administered by another firm called ATI, is already maxed out.

When will this be fixed?

“At this time, we are not currently projecting an award date,” Space Force Capt. Kaitlin Toner told us. “However, we are continuing the responsibility determination as expeditiously as possible.”

“The delay in awarding this follow-on consortium management agreement has resulted in the delay of releasing new solicitations,” Toner acknowledged. “The current SpEC effort has allocated its total ceiling of $1.41B and can no longer be utilized to award new prototype projects, [although] ATI will continue to manage those prototype projects already awarded.”

“The Space Enterprise Consortium (SpEC) is the premier tool for industry engagement and rapid prototype development in the space defense arena,” Toner said, “so we are intent on doing our due diligence in thoroughly assessing this matter.”

The Space Force can’t rush to a resolution, for fear they’ll miss something else the way they already missed NSTXL’s legal troubles. But the longer they take, the worse the disruption to Space Force R&D could be. An error in either direction — too slow or too fast — could bring down the wrath of Congress.

“I am always worried that someone in Congress will overreact,” said acquisition guru Bill Greenwalt, a former Hill staffer who helped write vital acquisition reform legislation, including the 2015 expansion of OTAs. “The goal of … OTAs was to drive rapid innovation and access non-traditional sources of innovation. If we look at the use of OTA consortia by Operation Warp Speed, they have more than succeeded in those goals.”

COVID, China, & OTAs

In its frantic push to develop a COVID-19 vaccine, the federal government used Other Transaction Authority to bypass cumbersome contracting mechanisms and to rush funding to firms and universities. According to a November GAO report, OTA obligations from DoD and the Department of Homeland Security combined totaled “about $10 billion” – and that’s just through Oct. 15.

The lion’s share came through DoD: about $8.7 billion. 74 percent went for research & development. R&D is the traditional purpose for which Congress created OTA in the 1950s and then expanded it in 2015. But GAO found that 26 percent, $2.1 billion, went for “large-scale antibody and vaccine manufacturing.”

Then there’s another wrinkle that GAO report did not mention. OTA funds went to a wide variety of “performers,” from academic labs to pharmaceutical companies. But many of those Operation Warp Speed awards were channeled through a single company, Advanced Technology International (ATI), which manages the Medical CBRN Defense Consortium on the government’s behalf.

This kind of public-private consortium provides the government with a vetted pool of performers that can quickly execute an OTA in their area of expertise.

“Speed was critical here, and the consortia were in place to immediately allow that,” Greenwalt told us. “Operation Warp Speed needed to rapidly get multiple companies working on a vaccine and to flexibly address Intellectual property rights. That can be done with an OTA.”

Now, the coronavirus pandemic has repeatedly killed more Americans in one bad day than al-Qaeda killed on 9/11. That kind of extraordinary crisis justifies extraordinary measures.

But the use of OTAs was already rising dramatically before the first COVID-19 case was ever diagnosed, driven by a very different kind of threat: that Russia and, even more so, China would overtake US military R&D bogged down by bureaucracy. The DoD OTA obligations soared 75 percent in fiscal 2019 alone, says GAO; over the five years 2015-2019, it’s up 712 percent.

Congress intended such OTA awards for small startups, universities, and others outside the usual defense industrial base. Public-private consortia are increasingly the Pentagon’s favorite way to connect with such innovators.

But while consortia help channel R&D funding to small firms, they’re mostly managed by a small number of big ones. According to a recent CSIS analysis, 96 percent of OTA awards featured “significant participation” by non-traditional firms – but 57 percent went through just five contractors.

“Between FY 2015 and FY 2019, the top DoD OTA vendors were Analytic Services Incorporated, Advanced Technology International, Consortium Management Group Incorporated, the National Center for Manufacturing Services, and the System of Systems Consortium (SOSSEC),” CSIS scholar Rhys McCormick wrote. “These five vendors, all consortia, accounted for 57 percent of total DoD OTA obligations between FY 2015 and FY 2019.”

An earlier GAO study, which covered only the years 2016-2018, found that the top vendor for that period managed so many consortia that it alone accounted for 49 percent of OTA awards. That company? Advanced Technology International. ATI is the same firm that handled many of the coronavirus OTAs and which ran the original Space Enterprise Consortium contract.

CORRECTED CSIS’s data for 2015-2019 gives the No. 1 spot to Analytic Services Inc., better known as ANSER. CSIS calculates that ANSER administered a third of all Defense Department OTA awards over those five years. But ANSER and ATI finalized their merger in 2017.

NSTXL’s Troubles

When the Space & Missile Systems Center — then part of the Air Force — originally created the Space Enterprise Consortium, it awarded the management contract to ATI. But that contract only covered $1.4 billion of OTA awards, a ceiling that’s already been reached.

So the Space Force decided to award a follow-on contract, with the winner to administer up to $12 billion in OTA awards over the next 10 years. This time, instead of ATI, the service picked National Security Technology Accelerator, NSTXL — which is not on any list of the top consortium management contractors.

In fact, it’s not evident that NSTXL had ever run an OTA consortium before. UPDATE BEGINS The company has told us they have extensive consortium management experience, but we’re still trying to sort out details; we’ll post an update when we have them. UPDATE ENDS

For whatever reason, the Space Force didn’t realize the firm was involved in what the Post called “long-running litigation” over alleged breach of contract. After a Texas judge ruled against the company in November, calling it out for “fraud” – which NSTXL notes was not the actual charge – the Space Force held up the consortium award.

At least some experts were against the SpEC from the beginning, long before NSTXL’s troubles came to light.

“The whole SpEC consortium is stupid in the first place,” a former senior defense official told us. “What SMC has basically done is outsourced its job, and basically admitted, ‘it’s easier for us to outsource our job than it is for us to go ahead and get good at our job.’ That is the problem.”

“There’s a belief that the way to solve the space systems problem in the Air Force is to move faster. That is not the way to go,” the former official added. “The way to solve it is to move more intelligently.”

Congress has already taken a first, tentative step to improve OTA oversight. True, it was Congress itself that jumpstarted the recent rise of OTAs by making them easier to use. But their exponential growth since that 2015 reform has exceeded expectations. Section 833 of the National Defense Authorization Act for 2021 —  recently passed over President Trump’s veto – would require the defense secretary to publish and keep updated a comprehensive list of OTA consortia.

Some reformers want to go much further. The Post has repeatedly called OTAs a “loophole” and calls consortium management firms an “outsourced procurement office.” (They are neither in plain English nor in legal terms a “loophole,” any more or less than any other acquisition reform might be.) The concern is that the government has delegated too much information-gathering and even decision-making to contractors like NSTXL and ATI, allowing private companies to perform – without proper accountability –“inherently governmental functions” that should be reserved for public servants.

The Space Force’s spokesperson, Capt. Toner, told us the service conducts painstaking, multistep oversight of its consortium management contractors.

“While OTs [Other Transactions] are generally not subject to procurement laws and regulations, they are subject to laws and regulations whose applicability is not tied to a particular award instrument (such as fiscal law). Therefore, AOs [Agreements Officers] work with the requiring activity, legal, finance, and other functional experts to ensure appropriate laws and regulations are addressed in subsequent awards,” Toner told us. “With regards to transparency, all OTs are reported in FPDS [the Federal Procurement Data System] and, separately, through OSD to Congress.”

Is this enough oversight? On such knotty technical questions of how federal agencies do business, Congress often heeds the expertise of the GAO, which serves as its in-house watchdog agency. Years of GAO reports have raised some concerns about the OTA consortia.

“Our prior work has noted that their use carries the risk of reduced accountability and transparency,” GAO’s COVID study says. But the agency hasn’t made any formal recommendations for reform – at least, not yet.

“We identified some challenges in how DoD reports awards made to consortium members, which may obscure who is actually performing the work and the degree of competition for specific projects,” Tim DiNapoli, a GAO director, told us. “We didn’t make recommendations in our November 2020 report, in part based on DoD’s recognition of the issues and their plans to enhance transparency in the near future.”

In other words, Congress’s own experts are willing to let the Pentagon clean up its own mess, at least for now. As NSTXL appeals the Texas judgment against it, and the Space Force tries to get its OTA process unstuck, we’ll find out whether this particular mess gets big enough to change that calculus.

 

Correction: The original version of this story referred to ATI and ANSER as competitors. While they were indeed competitors for the earliest years covered by the GAO and CSIS data, they merged in 2017.