Not every federal research and development project results in a prototype, some basic and applied research is done in the quest for expanding knowledge and/or determining utility. For Department of Defense (DOD) R&D labs engaged in these activities, 10 USC 2371 (now 4021)is a statutory authority created to enhance DOD’s ability to engage in collaborative relationships, foster dual-use, and facilitate innovative arrangements. Section 2371 (now 4021) of title 10 U.S. Code is DOD’s original Other Transaction authority pioneered by DARPA dating from 1989. Agreements executed under the authority were the centerpiece of the successful Technology Reinvestment Project (TRP) as well as other dual-use and military specific projects. The TRP encouraged new entrants to participate in military science and technology development programs often in partnership with traditional defense companies. Due to DARPA’s successful use of early OT’s, Congress extended the authority to the rest of DOD in 1993. It also enacted prototype OT authority (originally “relevant to weapons or weapons systems”) to be conducted “under the authority” of section 2371 (now 4021).
Section 2371 provides authority for research and development projects primarily, though not exclusively, dual-use in nature. Dual-use means the project will likely have both government and commercial applications. Hence injection of private sector funding as well as government funding is base-lined (but not an absolute requirement). After the enactment and amendment of prototype OT authority (originally “section 845 – now section 4021) some confusion arose in DOD contracting organizations over the legislative intent of prototype authority. It was incorrectly seen by some as DOD’s primary dual-use OT authority, with a primary mission of outreach to non-traditional companies. As a result of that and some unhelpful regulations use of section 4021 began to fade.
Recent amendments to section 2371 indicate that Congress wants to see revitalization of the use of section 2371 (now 4021). This article will describe the recent statutory changes and highlights the potential of section 2371.
The National Defense Authorization Act (NDAA) 2022 amendment (section 821):
Modification of other transaction authority for research projects
In general section 2371 (now 4021), title 10 United States Code, is amended—
in subsection (e) –
by striking paragraph (2);
in paragraph (1), in the matter preceding subparagraph (A), by striking (1); and
by redesignating subparagraphs (A) and (B) as paragraphs (1) and (2), respectively; and
by amending subsection (h) to read as follows:
(h) Guidance: The Secretary of Defense shall issue guidance to carry out this section.
To summarize what the amendment does: (1) it eliminates the requirement for a determination that a standard contract, grant or cooperative agreement is not feasible or appropriate, and (2) changes the requirement for “regulations” to “guidance.” A subsection (b) not quoted above makes a conforming amendment to section 4022.
Articles on this website provide background and insights into the need for the changes made by the recent amendment. See Appropriate Contractual Instruments for R&D. The regulations that DOD promulgated to govern section 4021 (called a “mini-FAR” by some) while misguided, properly understood, apply to few section 4021 OTs (only those used for assistance). See 10 U.S.C 2371 (4021): Beyond TIAs.
A couple of amendments made by the Federal Acquisition Streamlining Act of 1994 which were not intended to limit the scope of 4021 may inadvertently have done so. The original version of the statute (sec. 251, P.L. 101-189) applied to “advanced research projects” in other words the kind of things DARPA did and does. The amendment changed this to “basic, applied and advanced research” on the basis that it may not have been generally understood that “advanced research projects” as practiced by DARPA included basic and applied research. This has led to the misunderstanding that section 4021 projects are limited by the definitions of those terms found in financial management regulations. Also dropped out without an intent to change meaning was the list of the types of partners eligible to participate in 4021 projects, namely: “any person, any agency or instrumentality of the United States, any unit of State or local government, any educational institution, and any other entity.” Person of course encompasses both an individual physical person as well as a legal person such as a corporation. Also interesting is “any agency…of the United States” of which there are a number of examples in 4021 multi-party agreements. The list clearly includes non-traditional organizations (“any person…any other entity”).
Section 2371 can be the centerpiece of a DOD dual-use strategy for conducting science and technology development projects. Congress has essentially told DOD to implement such a strategy. Congressional direction to engage in dual-use research and development is found in 10 U.S.C. 4811. Subsection (b) states:
Civil-Military Integration Policy.-The Secretary of Defense shall ensure that the United States attains the national technology and industrial base objectives set forth in subsection (a) through acquisition policy reforms that have the following objectives:
(1) Relying, to the maximum extent practicable, upon the commercial national technology and industrial base that is required to meet the national security needs of the United States.
(2) Reducing the reliance of the Department of Defense on technology and industrial base sectors that are economically dependent on Department of Defense business.
(3) Reducing Federal Government barriers to the use of commercial products, processes, and standards.
A dual-use approach implies that technology or products being developed may have commercial potential as well as meet government needs. If this is the case, why should the government pay for full freight for such developments? Section 4021 is used to attract private investment in technologies of interest to the government that also have commercial potential. This might be cost-sharing with the developer or third party funding. Making dual-use the default approach to DOD science and technology projects not only honors the civil-military integration policy of section 4811 quoted above but has the potential to reduce costs to the government of individual projects and thus increase the overall impact of DOD funding expended on science and technology developments.
The NDAA section 821 does away with the statutory requirement for regulations. This means the misguided TIA regulations (32 C.F.R. Pt. 37) are basically a dead letter. Instead, Congress calls for guidance. That guidance already exists. The DOD Other Transactions Guide (Nov. 2018) applies in part to research OTs as well as prototype OTs (sec. I.C.2, p.7).
One thing that has not changed is section 4021’s subsection (g). Education and training are essential for program and technical managers as well as supporting contracting and financial management personnel in order to realize the potential of OTs. It behooves practitioners of innovative contracting and other business innovations to understand both the why and how of the authorities Congress has provided. Confusion over the legislative intent of section 4021 and 4022 remains widespread in DOD.
DOD organizations with a research and development mission from science and technology to more mature development and demonstration should ensure access to the full array of innovative contracting techniques including sections 4021 and 4022 OT authority, procurement for experimental purposes (sec. 4023) and prize authority (sec. 4025). Organizations currently lacking such authority in their organizational charters or by special delegation, should request a delegation of authority. To fully utilize these authorities education and training is essential.
For those prepared to use them research OTs open a new world of possibilities. Research OTs allow the government to transcend the limitations of a buyer-seller relationship and traditional procurement contracts. They permit a variety of relationships and agreement structures to address mutually beneficial goals of the participants. They can be used to engage innovative companies and venture capital financing, accommodating them on their own terms. They permit multi-party agreements without a traditional prime-subcontractor structure. Agreements may be fully or partially funded by the government, unfunded, or funds may flow to the government for further research. They can be used as the first phase of SBIR projects seamlessly transitioning to second phase prototype or demonstration and potentially to commercialization. They can be used in ways yet to be imagined that fit the needs of a project and the parties.
written by Richard L. Dunn
10 USC 2371 (4021) song & music video