The new Other Transactions (OT) Guide of 2017 has finally been issued a year
after the statute was made permanent as 10 U.S. Code 2371b and incorporated
important amendments; and, many years after the 2002 version became hopelessly
outdated due to numerous changes in statute and superseded forms and reporting
The new Guide purports to encourage innovation in application of the statute in
several of its provisions. There is much in the Guide that is useful or at least
unobjectionable. The Guide, however, contains fundamental flaws that tend to place
OT’s in a box that limits their flexibility and potential to contribute to addressing
war fighter needs. It limits 2371b to acquisition a word not appearing in the
statute. The statute authorizes DOD to “carry out prototype projects…” without
specifying the process.
The Federal Acquisition Regulation defines acquisition as: the acquiring by
contract with appropriated funds of supplies or services… by and for the use of the
Federal Government through purchase or lease… (FAR 2.101). Prototype projects
authorized by 10 U.S.C. 2371b are carried out under the authority of 10 U.S.C.
2371 except that 2371 (e) (2) does not apply. This means a 2371b OT can be used
even if a “standard contract, grant or cooperative agreement” could also be used.
In addition OT’s can be used for purposes that are neither procurement nor
assistance (grants and cooperative agreements).
The fundamental misinterpretation of the statute and its relationship to the
Federal Grant and Cooperative Agreement Act (specifying when various instruments
should be used) is at the route of several flawed provisions and concepts in the new
Guide. Prototype projects will often involve research and development. The Guide
ignores the policy found at FAR 35.002 which states: “unlike contracts for supplies
and services, most R&D contracts…” The Guide does not provide for “carrying out a
prototype project” where no government funds are provided to the private party.
For example, a private party might bring its product to a DOD test range to
demonstrate its military utility and pay the government for its expenses; or, enter
into a bailment agreement to allow the government to test its product.
The Guide emphasizes the exclusive acquisition nature of OT’s in several
provisions and specifically states OT’s may not be used to stimulate and support
R&D activities (“assistance”). The Guide mandates that Agreements Officers must
be warranted FAR contracting officer, as a group FAR contracting officers are poorly
trained and equipped to act as Agreements Officers. One provision (C220.127.116.11.2)
warns against using FAR terminology and yet numerous FAR terms are employed
such as “cost sharing”, “market research”, etc. terms which are not found in the
statute. This indicates that a real attempt to understand the statute has not been
made or has been burdened by too deep a background in FAR concepts and
The appendix identifies a sampling of questionable sections with a short description.
C1.1.2 & C1.6 – OTs declared to be exclusively acquisition instruments; misapplies
FG&CA concept of direct benefit
C1.3.2 & D.1.3 – mandates agreements officers must be warranted FAR contracting
C2.1.3 & C18.104.22.168 – baselines consideration of FAR provisions and assumes
contracting officers have skills to provide guidance on instrument selection
C1.3.3 – references “centers of excellence” in appendix 2 but three of the four
website links are to general organizational websites not offices that award OT’s;
only one of the organizations mentioned could actually be considered to use OT’s in
an innovative manner
C1.6 – rules out support/stimulate for prototype OT’s
D.1.7 – treats agreements with fixed milestone payments like cost-type if
milestones are subject to adjustment
C22.214.171.124.7 – fails to mention possibility of unfunded agreements
C2.18 – notes DOD need not take title to property but fails to apply that to
erroneous “acquisition” rationale
C126.96.36.199 – assumes applicability of DODI 5000-series