In recent decades, the focus and pace of innovation in leading technology areas have shifted from the Government to the commercial sector. In 2000, the private sector accounted for 69.4 percent of U.S. research and development (R&D) expenditures and the federal government 25.1 percent. After a period of slight decline, businesses’ share of the total R&D expenditure has risen steadily since 2010. According to the Congressional Research Service, it reached an all-time high of 73.1 percent in 2020*.
Yet, cutting-edge commercial firms with large R&D investments and many non-traditional contractors are reluctant to work with the Government. This is mainly due to the slow traditional procurement process and the complex and often cumbersome regulations governing government contracts. In addition, some complain that the Government’s approach to intellectual property (IP) rights allocation in a typical contract can be overreaching. However, the Department of Defense (DoD) needs to work with and leverage the commercial sector to maintain a technological advantage on the battlefield.
10 USC §4022, an R&D authority at its heart, authorizes the Department of Defense (DoD) to utilize Other Transaction Agreements (OTA) to carry out prototype projects of basic, applied, and advanced research. This flexible tool enables the DoD to access technology that might otherwise be unavailable. An OTA is a legally binding instrument between the Government and the Agreement holder. It is mainly defined by what it is not – a procurement contract, grant, or cooperative agreement. Therefore, specific laws, rules, and regulations do not apply to an OTA.
What does NOT apply to an OTA?
• Competition in Contracting Act (CICA) [Federal Acquisition Regulations (FAR), Defense Federal Acquisition Regulation Supplement (DFARS)]
• Truth in Negotiations Act
• Contract Disputes Act
• Procurement Protest System
• Strictly speaking, an OTA can be protested, but the Government Accountability Office (GAO) can only decide whether the OTA should have been a FAR contract instead. It does not have bid protest jurisdiction over OTAs because CICA and FAR do not apply to them. Therefore, protests to GAO regarding OT awards are rare. Accordingly, any protest should follow the awarding agency’s procedures. In the alternative, protests can be filed at the U.S. Court of Federal Claims, but such protests are also rare.
• DoD Grant and Agreement Regulations (DoDGARs)
• Uniform Commercial Code
• Bayh-Dole Act (relating to invention/patent rights) and 10 USC 3771- 3775; 3781-3786 (relating to technical data rights and validation)
• However, many in the DoD like to use the typical FAR and DFARS Data Rights provisions as the starting point, but everything is negotiable on a project-by-project basis. Thus, these FAR/DFARS clauses can be modified as appropriate for any particular OTA, and licenses customized to be suitable to both the Government and the Agreement holder in a given situation. As an indication of the importance the Government places on data and software rights, the agreement officers appointed to award and administer OTAs are expected to possess experience and working knowledge of the creation, acquisition, use, and maintenance and protection of IP and rights in it.
Everything is negotiable in an OTA, but for a few exceptions. So, what are these exceptions?
What DOES apply to an OTA?
• Procurement Integrity Act
• Criminal law (e.g., false claims/statements)
• Federal fiscal law
• Security and operational security requirements
• Laws of general applicability (such as the Civil Rights Act, environmental laws, and import/export control laws)
• Accounting for government-furnished property
• Fair competition in the solicitation, evaluation, and award of the OTA
• However, under certain conditions, a follow-on production contract or transaction may be awarded to the participants in the previous transaction without using competitive procedures.
What is an OTA prototype project?
A particular category of OTA authorized by 10 U.S.C. §4022 and gaining prominence in the DoD is that of “prototype projects,” which may be physical, virtual, or conceptual in nature. There is no established definition of “prototype" in the statute. But a recent OT guide issued by the Office of the Under Secretary of Defense for Acquisition and Sustainment defines a prototype project as a project that addresses the following: a proof of concept, model, reverse engineering to address obsolescence, pilot, novel application of commercial technologies for defense purposes, agile development activity, creation, design, development, demonstration of technical or operational utility, process, or combinations of the preceding. A process, including a business process, may be the subject of a prototype project.
Also, under the 2023 NDAA (National Defense Authorization Act), the DoD may establish a pilot program, to run until September 30, 2025, for using OT authority to carry out prototype projects that enhance the DoD’s ability to prototype the design, development, or demonstration of new construction techniques or technologies to improve military installation.
An essential condition a DoD prototype project must meet is that it be “directly relevant to enhancing the mission effectiveness” of military personnel and equipment or improving equipment in use. This encompasses an extensive range of eligible purposes for using OTA.
Additionally, an OTA prototype project must meet one of the following requirements regarding the participants:
1. At least one nontraditional defense contractor or a non-profit research institution participating to a significant extent; or
2. All significant participants in the transaction, other than the Government, are small businesses or nontraditional defense contractors; or
3. At least one-third of the total cost of the prototype project is to be paid using funds provided by sources other than the Government but not by paying funds directly to the Government; or
4. The senior procurement executive for the agency determines in writing that exceptional circumstances justify the use of an OTA to provide innovative business arrangements or structures that would not be feasible or appropriate under a contract, or to provide an opportunity to expand the defense supply base in a manner that would not be practical or feasible under a contract.
Who can be a nontraditional defense contractor?
A “nontraditional defense contractor” is defined by 10 USC §3014 as an entity “not currently performing and has not performed, for at least the one-year period preceding the solicitation of sources by the Department of Defense for the procurement or transaction, any contract or subcontract for the Department of Defense that is subject to full coverage under the cost accounting standards prescribed pursuant to section 1502 of title 41” of USC. A prime contractor, subcontractor, lower-tier supplier, or even an intra-company business unit can be a nontraditional defense contractor if it meets this definition.
What qualifies as significant participation in an OTA?
As to what qualifies as “significant participation,” there is no statutory definition. However, this requirement can generally be met by supplying new key technology or products, accomplishing a significant amount of the OTA effort, bringing about a material reduction in the cost or schedule, or increasing performance.
Thus, OTA allows the Government and Project Agreement Holder (PAH) – akin to “contractor” in a FAR contract - to negotiate the terms that reflect commercial industry standards and best practices to enable the Government to get and the PAH to provide access to state-of-the-art technologies, free from the procurement regulations.
