Army photo

A soldier from the Army’s offensive cyber brigade during an exercise at Fort Lewis, Washington. (file)

Pentagon leaders love to talk about OTAs as a contracting device that will break the department’s famously brutal acquisition cycle. But do they actually work? To answer that question, Stan Soloway, CEO of Celero Strategies and a former Deputy Undersecretary of Defense teamed up with Jason Knudson, a Vice President of Second Front Systems, a former Naval officer and Program Manager at the Defense Innovation Unit, for a deep dive into OTAs. Below, they detail what they found. 

During the first fifty years that they existed, total spending through Other Transaction Authorities (OTAs) was far below $1 billion per year. Then, five years ago, Congress expanded the OT authority beyond its initial research and development parameters to include follow-on scale production — and everything changed.

Since then, OT use has grown nearly twenty-fold and could approach or exceed $12 billion by the end of the current fiscal year. Even though a significant portion of the most recent growth came as OTs were used to assist in the development of the COVID vaccine, the growth has still been tremendous.

Not surprisingly, with that growth comes a parallel set of questions and debate: Are OTAs being used properly? Where are they appropriate? Are they actually delivering on their promise? It is against that backdrop that, under the auspices of the IBM Center for the Business of Government, we took a deeper look at OTAs in our report, titled “Other Transactions Authorities: After 60 Years, Hitting Their Stride or Hitting the Wall?

In so doing, we sought to answer two key questions: First, to what extent are OT agreements consistent with the ethos of public procurement? And second, to the extent that gaps in practice or policy exist, can they be adequately addressed within the context of OTs? If the answers to these two questions are “yes.” then there is really no reason OTs could not become a peer or near-peer alternative to the FAR. Of course, if the answer to either question is “no,” then it would be logical to conclude that OT use would remain limited.

Through dozens of interviews with practitioners and other experts, and a review of a half dozen randomly selected and redacted OT agreements, the answers became clear: OT agreements, as executed today, are largely consistent with the basic tenets of public procurement, namely transparency, accountability, and competition.

Simply put, those core tenets are reflected in the OT process and in the agreements themselves. Further, the available data confirm that the process is, in fact, bringing non-traditional companies into the government market. And, while there are challenges that must be addressed, they can be overcome without upending the essence of OTs.

That is not to say that all is well. Specifically, the acquisition system continues to struggle to detach itself from the culture of the FAR, despite the clear and intentional statutory authority to do exactly that. For example, follow-on production authority is not yet driving the hoped-for results. Virtually every practitioner we interviewed reported that, while the expanded authority helps attract new entrants and capabilities, the attraction is too often short-lived. Many new market entrants are exiting the market at the point of transition, after licensing the capability, for the immediate use case only, to a traditional prime contractor or government customer.

Why? Call it “FAR Creep” — the introduction at transition of FAR and FAR-based clauses into the OT agreement. “FAR Creep” has in many ways diluted the effectiveness of FAR Part 12 (commercial items) contracts, and it is similarly weighing down OTs.

This is particularly true when it comes to intellectual property rights and government-unique audit clauses. With regard to IP, the government still struggles to adapt to commercial models for IP rights. We heard of multiple cases in which the government was unable or unwilling to separate out actual technology development funded by federal dollars — for which robust IP rights might be appropriate — and the prototyping or adapting of already-proven technology to a government need, which comes with different IP rights issues. Similarly, while OTs are subject to audit, those audits are generally conducted under Generally Accepted Accounting Principles (GAAP), which are the commercial standard. However, there is evidence that the government is increasingly seeking to impose its unique Cost Accounting Standards (CAS) at the point of transition, thus creating yet another significant barrier to ongoing engagement.

It is also clear that while a great deal of data about OTs exists, it is largely inaccessible and contained in disconnected silos. Moreover, most of the data focuses on how many dollars go to non-traditional contractors, while failing to assess the actual impacts associated with a given investment. Since good data is essential to measuring performance and building trust, and much of the data already exists, a regular, comprehensive, outcomes-based data reporting framework should be a top priority going forward.

However, as demonstrated by the challenges we identified, including “FAR Creep,” the biggest challenge to the future of OTs lies in building a workforce and culture with the requisite skills and leadership.

OT’s are not “just another contract type,” but a specialized authority and process that requires and merits a different knowledge base, culture, and even leadership. That is why we are convinced that it is time to create a specialized “agreements officer corps” for OTs, that would operate in parallel with the FAR contracting officer corps, and in which significant training and development investments are made.

There are several positive efforts in this regard already underway. The Navy is currently running a pilot program where it recruits OT agreements officers from outside its traditional contracting officer workforce. Similarly, DARPA pulls its agreements officers from their contracting corps, but uses a rigorous selection process to identify those with the aptitude and unique skills necessary for OTs. And the Defense Acquisition University has recently revised its OT training and is leading the development of a robust OT community of practice. All of this is a start; but it’s just that.

At the end of the day, OTs are actually not an exotic, alternative method of acquisition. Properly executed, OTs provide flexibility and access that the FAR does not, in a manner consistent with the tenets of public procurement. With empowered leaders and an equally empowered workforce, it’s possible for the use of OTs to become ever more common at DoD and beyond, at a time when top officials are hammering home the need for new ideas and a faster pace of innovation.

Throw out the question of where OTs are appropriate, and ask a different one: where are they not?