A new Other Transactions (OT) Guide has been issued by the Under Secretary of Defense for Acquisition and Sustainment (USD, A&S). The new guide is a stark departure from the previous OT for Prototype Guide, issued in January 2017, which is rescinded. The previous Guide was fundamentally flawed, starting with the fact that it was issued by the Director, Procurement and Acquisition Policy, an official with no authority to mandate how the Secretaries of the military departments exercise their statutory Other Transactions authority. Although styled a guide the previous issuance contained a number of mandatory provisions. Some organizations, such as the Department of the Army, apparently took it as a binding directive and made compliance with that Guide mandatory in their delegations of authority.
The new Guide makes it clear that it is truly a guide. Its layout and style are a complete departure from the prior Guide and cannot be mistaken for regulation. It contains highlighted case studies, a glossary of definitions, and a collection of common misunderstandings and myths. These are highlighted in the main text.
The Guide’s introductory section contains general information discussing the Guide’s approach and content, history of other transactions, and the purpose of OTs. Even the introduction contains notable content. Unlike the previous Guide, which addressed only prototype OTs, the new Guide addresses both research (10 U.S.C 2371) and prototype OTs (10 U.S.C. 2371b) as well as follow-on production (sec. 2371b (f)). The stove piping of different authorities under different offices of primary responsibility has been abandoned. This seems to be symbolic recognition that taken together, the OT authorities can constitute a complete alternative to the traditional system under the Armed Services Procurement Act and Federal Acquisition Regulation (FAR) for DOD research, prototyping and follow-on production.
An interesting aspect of the Guide is that it contains only a few cryptic references to the Technology Investment Agreement (TIA) regulations, 32 C.F.R Part 37 (“when using” TIAs). There has been a wide spread misunderstanding throughout DOD that the TIA regulations apply to all section 2371 agreements. The TIA regulations themselves do not make such an assertion; quite the contrary (sec. 37.105). The TIA regulations apply to certain cooperative agreements and other transactions used for assistance under very specific and limited circumstances. The Guide’s few references to the TIA regulations highlights their limited scope and may result in a rejuvenation of use of section 2371, unencumbered by overly detailed and arcane regulations.
Here are some key points:
– The Guide indicates that OTs are neither inherently subject to or inherently exempt from DOD Instruction 5000.02, Operation of the Defense Acquisition System. Middle-tier of acquisition is mentioned as another place to use OTs. Not all programs even large ones need to be burdened by a one-size-fits all set of rules.
– By not denominating OT prototype project agreements, specifically as acquisition instruments as did the rescinded Guide, the new Guide implicitly recognizes that OTs (both research and prototype) have been structured with a variety of funding arrangements including, either entirely or in one phase of a project, unfunded by the government.
– The Guide emphasizes the importance of a cross functional team. A potentially significant change from the previous Guide is that while Agreements Officers need to be carefully selected and warranted, they need not be warranted FAR contracting officers. The skills required for OT contracting are not the same and, in some respects, fundamentally differ from the skills needed to operate in a highly regulated purchasing system such as under the FAR.
– Another difference between acquisition under the FAR and OT contracting, relates to the initiation of the contracting process. According to the definition of acquisition in FAR 2.101, the process begins at the point when agency needs are established, and requirements described. OTs start by assessing the problem to be addressed. According to the Guide, the government is “responsible for understanding and clearly articulating to performers the problem” it is trying to solve while “leaving open the innovative trade space for a wide-range of solutions.”
– The Guide makes clear funding is not restricted to Research, Development, Test and Evaluation (RDT&E) appropriations. The determination of fund type is independent of the choice of contracting mechanism.
– Follow-on production is the one area where mandatory policy language is used in the Guide. The potential for follow-on production “shall be included in the solicitation and any resulting OT Agreements”. This mandatory provision is in obvious reaction to the Oracle America protest decision which is addressed in a case study. It reflects the policy announced in the memorandum “Definitions and Requirements for Other Transactions…”, 20 November 2018, signed by the Under Secretaries for Acquisition and Sustainment, and Research and Engineering (USD, R&E).
– The Guide suggests there are a variety of ways of publicizing a problem set and soliciting solutions. Methods used should “maximize exposure of the problem to relevant technology providers”, both traditional and non-traditional. Prize competitions are mentioned as one of many approaches to providing competition for OTs. Different innovative statutory authorities can be coordinated or “stacked.”
– The section on Payments addresses payable milestones, advance payments (authorized), and has details when an OT agreement is structured with reimbursable costs. Legal considerations address the issue of identifying a legally responsible party or parties especially in the case of multi-party agreements.
The Guide has six appendices. These include a glossary, a timeline of OT legislative history, a comparison of the salient features of the types of OTs, common myths and facts about OTs, OT assistance and policy information, and intellectual property considerations. The glossary includes a notably broad definition of prototype project. It contains separate definitions of agreement and transaction. GAO conflated project, agreement and transaction in its flawed Oracle decision.
The appendix on OT assistance and policy is interesting. It contains a link to Defense Acquisition University website. Notably there is no reference to the Office of Defense Pricing and Acquisition Policy. These organizations have been tepid in support of OTs in the past. They seem to see OTs only as a niche authority; not their potential to provide a viable alternative to the highly regulated purchasing system under FAR for research, systems acquisition and sustainment. The same appendix lists sites from the Air Force and Army as potential OT resources. The Navy is not cited as providing any resource on OT.
While not perfect, the new Guide is a huge improvement over its rescinded predecessor. Stove pipes separating research OTs and prototype OTs have been removed. Research may result in a prototype. A prototype project may involve the kind of research specified in section 2371. Follow-on production is emphasized. In short, the flexibility of OTs has been recognized.
Unfortunately, the Guide fails to mention section 867, National Defense Authorization Act of 2018 directing DOD to create a preference for using OTs. None the less, the Guide sets the stage for a broader more comprehensive use of OTs. The new Guide is a step in the right direction. When armed with proper education and training, DOD’s acquisition work force now has the guidance to use OTs more effectively. Thinking about problems, potential solutions and win/win scenarios is permitted and encouraged by this Guide.
written by Richard L. Dunn
Dr. Gordon Roesler
Rick, thank you for this very informative precis. The takeaway seems to be that OTs are the vehicle for creativity. Some people and organizations nourish creativity while others crush it (and not just in contracting.) The future will show which organizations are which. Meanwhile, you have created an institute that can guide and train the creative ones to safe and successful engagements with industry.