OTAs: Not Either – or

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– Richard L. Dunn

    Don’t worry this short essay is not about the philosophy of Soren Kierkegaard. Instead its purpose is to illustrate that Other Transactions (OTs) do not fit simply into one box called acquisition or another box called assistance. I see this – either/or – mistake made repeatedly in briefing materials by folks who otherwise appear to have studied OTs.

    In my 25 January 2017 article in The Government Contractor I criticized the DOD OT for Prototype guide, among other reasons, for indicating that prototype OTs were exclusively acquisition instruments. I elaborated on appropriate instruments for conducting R&D in a 12 July 2017 article in the same magazine. The July article made specific reference to key laws and regulations. Here I attempt to make the point as simply as possible.

    The Federal Grant and Cooperative Agreement Act purports to divide federal contracting into a binary world of procurement (aka acquisition) and assistance (grants and cooperative agreements). Whatever virtue this division may have in some contexts it has little relevance to the way R&D is conducted in DOD and some other agencies. Procurement is to be used for the principal purpose of acquiring property or services for the direct benefit and use of the federal government. Assistance instruments are used for the principal purpose to support or stimulate a recipient for a public purpose authorized by law.

    In the case of government R&D a more useful way to conceptualize what occurs comes from the law of bailment. A transaction may be for the benefit of bailor, bailee or for their mutual benefit. Contracted government R&D is almost always conducted for the mutual benefit of the government and performer. Its primary purpose is to “advance scientific and technical knowledge and apply that knowledge” to achieve agency and national goals (FAR 35.002). R&D contracts are said to be unlike “contracts for supplies and services” (ibid.).

    Consider a government program manager who is about to fund a project to determine whether certain materials and components have the necessary characteristics to be useful in a projected systems development. He discovers another organization has recently conducted a test project of exactly the same kind he was planning to run. A final report has been drafted but is not available for release. However, the other organization has a set of briefing charts that capture all the pertinent data from the project. These are shared with the program manager and provide him all the information he needs to make an informed decision. Note he did not need to purchase services. He did not need access to the “deliverable” – the paper report. Property and services were not the essence of what was needed. The need was for information, knowledge. This simplistic illustration confirms that acquiring property and services are incidental to, not the principal purpose of, contracted R&D.

    In the context of OTs the fact that DARPA has used 10 U.S.C. 2371b to enter into numerous unfunded agreements shows, contrary to DOD’s Prototype OT Guide, that prototype OTs are not exclusively an acquisition instrument. The definition of acquisition in FAR is acquiring supplies or services by contract with appropriated funds.

    The Technology Investment Agreement (TIA) regulations (32 C.F.R. Part 37) are limited to section 2371 OTs used for assistance which also have a patent clause that varies from a standard government clause. Section 2371 OTs as used by DARPA in the pioneering days of OTs were hardly ever used for assistance. This is consistent with the fact that very little of DOD’s R&D program is executed with assistance instruments. Most section 2371 OTs will not fall within the ambit of the TIA regulations.

    Applying an either/or mentality to OTs misses the point of OTs. They are flexible instruments not meant to be shunted into an artificial box whether called acquisition or assistance. They overlap acquisition and assistance and they transcend acquisition and assistance. Do not look for a box in which to fit OTs. Challenge your creative instincts to mold contractual arrangements in ways that are most effective for the conduct of a particular project.


*To learn more join us February 21-22, 2018 in Clearwater FL @ Other Transactions: Instruments for Innovation