The Defense Production Act and Other Transactions

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In the Government’s response to the pandemic, Operation Warp Speed, both Other Transactions (OTs) and the Defense Production Act (DPA) were used. In testimony before the Senate Armed Services Committee, a DOD witness seemed to lump use of these authorities together as part of DOD’s innovative approach to the crisis. Others have since suggested the DPA as a solution to various supply chain and industrial base problems, advocating its increased use. Whether expansion of the DPA beyond strictly national security matters is wise is beyond the scope of this article.

In the case of research and development (R&D), OTs or other non-procurement agreements are the appropriate contractual instrument, for (DOD) and other government agencies, to use in lieu of procurement contracts. This brief essay shows that for most uses of DPA funding, OTs not procurement contracts are the appropriate contractual instrument. As in the case with R&D many contracting offices will ignore the law and logic noted here. The main reasons for this is (1) most procurement personnel are un- or under educated in using an approach other than Federal Acquisition Regulation (FAR) contracts and (2) that senior leadership has neglected to direct business process reforms that could be of immense importance to increase the effectiveness and efficiency of their agency’s business operations.

This discussion is limited to actions taken pursuant to Title III of the DPA. The DPA authorizes the President to take certain actions to create, maintain, protect, or expand industrial base capabilities in support of the national defense. The key powers (10 U.S.C. 4533 (a)) granted to the President are:

The President may make provision- (1)
(A) for purchases of or commitments to purchase an industrial resource or a critical technology item, for Government use or resale;
(B) for the encouragement of exploration, development, and mining of critical and strategic materials, and other materials;
(C) for the development of production capabilities; and
(D) for the increased use of emerging technologies in security program applications and the rapid transition of emerging technologies-
(i) from Government-sponsored research and development to commercial applications; and
(ii) from commercial research and development to national defense applications.

Take note of the quoted language. Only subsection (a) (1) (A) includes the words “purchases of or commitments to purchase.” Other subsections relate to “encouragement”, “development”, “increased use”, “rapid transition” from “Government-sponsored research and development” to “commercial applications”, and “commercial research and development.”

Under FAR 2.101 acquisition means the acquiring by contract with appropriated funds of supplies or services by and for the use of the Federal Government through purchase or lease, whether the supplies or services are already in existence or need to be created. Acquisition begins at the point when agency needs are established, and requirements defined. The purpose of a FAR contract is to acquire supplies and services for the Federal Government with appropriated funds.

DPA actions typically include a purpose other than the Government’s acquisition of supplies and services. This may include the creation or expansion of private production facilities, developing new production methods or incorporating new technologies. For purposes other than the Government’s acquisition of supplies and services for its own use, a contractual instrument other than a FAR procurement contract would be appropriate. Use of a FAR procurement contract is inappropriate.

The failure of Government procurement offices to fully embrace OTs for R&D and prototyping and their unimaginative use of OT authorities in cases where they have been used shows a need for a separate contracting organization or for specialized teams protected from the business-as-usual bureaucracy. The same can be said for execution of DPA projects. Mindless application of FAR procurement contracts, including the associated overhead and compliance mentality of that system, are not appropriate for DPA contracting. The supply chain and sub-tier suppliers including innovative and small businesses should not be burdened with the non-value added rules imposed by the FAR and other Government specific requirements. The point of the DPA is to strengthen the national industrial base to support national security missions. It is not a jobs program for Government procurement personnel or intended to convert the national industrial base into a Government run enterprise.

written by Richard L. Dunn


  1. anonymous

    I was not aware of DPAs until I read this (thank you for sharing). I agree that using OTs has been extremely difficult for the reasons mentioned in the article. I would add that the same is true of all other non-FAR R&D agreement vehicles noted on the DAU Cone despite some authorizations for use.

    In my state an influx of State and SBA funding/resources are being directed to local non-profits, academia, small businesses and PTAC to start building R&D efforts for small businesses to work with our local military agencies on R&D projects. Unfortunately, not all decision makers despite their best efforts understand the full picture of what needs to happen, how or why it is important. They only seem to have small pieces of a larger puzzle. This seems some what true nationwide, but at least they are moving.

    The military leadership is starting to participate in more conversations. They have a more confident understanding of how they need to innovate with industry. However very little to no progress seems to be occurring despite best efforts because the legal and contracting arms much as is described in this article don’t seem to know how to execute or don’t think it is legal. A new specialized team or teams as described in the article could be extremely effective and efficient, but may be seen as a threat as witnessed in other innovation areas.

    Most existing contracting and legal representatives that have been engaged are either nonresponsive, say they don’t know how or don’t want to get in trouble, but would be more than willing to get education from their higher-level reporting chain of command to execute. Unfortunately, in my region, what is coming down on the military side is not enough. Despite a centered focus on one effort implemented very few know what to do with the initiative now in place. If used alone and fully leveraged, it would still not be enough to make the changes needed to support internationally evolving threats. Another Non-FAR vehicle did prove promising a few years ago, but was shut down seen as illegally implemented by decision makers who were not versed experts in use.

    Within local Contracting, Legal and Commands described above the following primary issues have been observed:

    1. Priority One – Satisfy “Today’s warfighter mission” (The 1980s version – try to make broken outdated equipment work better with old strategies that take years to implement in react mode)
    2. No sense of urgency or time to See What is Changing in the World Globally
    3. No additional resources given to Contract and Legal Teams to set up Innovation Teams to think about how to innovate acquisitions as has been done in other areas such as logistics, software, etc.
    4. No leverage to experiment with contracts or marginal acceptance of failure with higher stakes for Legal and Contacting personnel (exception – limited experimental teams).
    5. Inappropriate perception of programs circumventing “The System”
    6. Color of money restrictions based on a 1940s era outdated models
    7. Broken acquisition top down/bottoms up communication – Interpretation is 9/10th of the law despite accuracy with no knowledge or understanding of updated NDAAs, intent of changes made and for whom, or high profile thought leaders in the space.

    As an American and taxpayer, it is concerning and painful to watch all my state government and industry resources (in and out of state) being wasted due to this one one disconnect. This is a 10X concern and number one risk as we understand the international threat while watching epic failures occurring on a national scale in the international defense and economic competition for continued dominance. The few succeeding do so at great risk and seem in constant threat of being shut down. Why? In supply chain and Lean Process Improvement this starts the process. No follow-on steps can start until this obstacle is resolved. The entire team loses if we don’t get this right.

    Thank you for your contributions and knowledge to help get the U.S. back on course.