OTHER TRANSACTIONS: Origins and Evolution – Part 1

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The growing volume of misinformation about Other Transactions (OTs) is fed by reporters and commentators who do a poor job; so-called experts of various ilks who pontificate on a subject about which they know only a limited amount; outright “business as usual” enemies of OTs; and, even relatively well-informed professionals who don’t know the OT story in depth.

Now-a-days most folks seem caught up in the moment, all they need to know is available on the internet, and what someone resembling an authority figure said must be right. In the case of understanding OTs history is important. Merely looking at the latest version of something may not actually inform you of its true purpose and value. Such is certainly the case with OTs.

Deep Background. The first shocker, at least for some folks deeply embedded in the current procurement or assistance systems, is that the Federal Government does not need any contracting statutes or regulations to enter into contracts. Abolish all contracting laws and regulations today and the Government could still execute contracts. The laws and regulations which Contracting Officers purport to know and should know are not essential grants of authority. They are for the most part regulatory restrictions. Our Nation operated without contracting laws in the early years of its existence. In 1831 a Supreme Court case validated the idea that the United States and its departments had inherent authority to engage in contracting for public purposes. This authority applies to contracts for supplies and services (things the Federal Acquisition Regulation/FAR addresses) as well as other contractual relationships. An agency mission and a Congressional appropriation of funds are all that is needed for the Government to contract, including for the procurement of goods and services. There are no other requirements. No contracting officer is needed. The agency head can enter into the contract or delegate the authority to some official in his agency. This paragraph will seem unremarkable to folks in industry but may, as suggested, be shocking to some government folks.

The potential of contracting to impact broad national goals as well as short term agency needs is illustrated by Eli Whitney’s 1798 contract for muskets in which he utilized interchangeable parts; pioneering an early version of mass production. The Army repeatedly forgave delays in delivery as Whitney perfected his method. His system eventually had national impact. Mass production made the United States the world’s dominant economic power by the end of the Nineteenth Century.

The Government understood that just buying stuff was not the only way to accomplish important public purposes through other parties. The Morrill Act of 1862 provided grants of land to states if they would establish engineering and agricultural colleges (with a proviso to also establish a course of military instruction). Later the Government used grants of land to spur the development of the railroad system – the nation’s first networked information system which delivered news among population centers within a day and even between east and west coast within a couple days. Telegraph lines were established alongside many rail beds.

Grants whether from Government or private foundations had many important effects. Robert Goddard’s experiments in rocketry complimenting his theoretical work in space flight, supported by a foundation, eventually became the Jet Propulsion Laboratory. JPL developed rocket propelled weapons for the Army in World War II and is today NASA’s deep space exploration center operated under contract.

The enactment of the Federal Grant statute in 1958, its repeal two decades later by the Federal Grant and Cooperative Agreement Act, and the confusion involved complicated by the addition of OTs is not a subject that needs more than a mention in this article. Some Government lawyers remain confused right up to the current day. Unfortunately, confusion sometimes results in a “no” when program officials propose an innovative contractual approach not governed by the procurement or assistance regulations.

Early Space Agreements. Many commentaries on OTs begin with a cryptic comment that OTs were pioneered by NASA. That is true, but generally there is no additional commentary about how they were used or how that might be like or distinguished from the way DOD OTs have been used. Paul Dembling, later NASA General Counsel, drafted the language in section 203 of the National Aeronautics and Space Act that authorized the NASA Administrator “to enter into and perform such…other transactions as may be necessary in the conduct of its work…” NASA did not immediately embrace this authorization as an important means of doing its business. Most of NASA’s contracted worked was accomplished using familiar procurement contracts.

In 1960 the American Telephone and Telegraph Co. (AT&T) approached NASA and advised that it was developing an active communications satellite and needed NASA’s space launch capability to get it to orbit. NASA had already developed a passive communications satellite (Echo). The Air Force had two active communications satellite systems under development- Relay, a repeater system, and the more ambitious Syncom. NASA, and the government more generally, was faced with the question whether it should cooperate with the private sector when the government already was investing in similar programs. The answer was affirmative. In 1962 Telstar I was launched by NASA under a Space Act OT agreement. The satellite was developed and paid for by AT&T which also reimbursed NASA for the cost of launching it. The world’s first active communications (TV and voice) satellite was privately owned and operated. Launch Service Agreements, the type of Space Act OT used, later became common place. The “rest of the story” is that the upgraded Holmdel horn antenna which tracked Telstar in orbit to receive its transmissions encountered background noise during its operations. Investigations into the source of this noise eventually led to the conclusion that it was “cosmic background radiation” which confirmed the Big Bang Theory. Arno Penzias and Robert Wilson received the Nobel Prize for this discovery. Additionally, the NASA Delta launch vehicle that put Telstar into orbit was a derivative of the Air Force Thor IRBM. In one program a military project, a civilian agency operation and the private sector all came together to inaugurate a new era in communications and incidentally enable a major scientific discovery.

In the years that followed commercial satellite launches became so common that eventually NASA was launching more satellites on a reimbursable basis that it was on government projects. Commercial users wanted more lift capacity. This broached the question should government money go to enhance launch capability which was primarily to be used for commercial launches. Once again, the solution was proffered from the private sector. A Space Act OT was crafted between NASA, Delta’s manufacturer McDonnell Douglas, and potential customer RCA as follows: (1) MD agreed to design and develop the uprated vehicle on their own funds and risk but with profit limitations; (2) MD agreed to recover its investment through a ‘not to exceed’ customer charge for each commercial launch, there would be no investment charge for government use of a vehicle; (3) NASA agreed to contract for production and launch services of the uprated vehicle as part of its on going Delta program and would provide technical monitoring; and (4) RCA agreed to contract with NASA for three launches and with MD for three development amortization payments. The agreement was highly successful, and the Delta 3914 was used on many launches for many years. The agreement became a model for upgrades to upper stages for expendable launch vehicles and the Space Shuttle.

The first private space launch took place in 1982. Space Services International conducted a launch from Matagorda, Texas that simulated a satellite deployment. A Space Act OT (which I negotiated) provided a rocket motor from a former Air Force Minuteman I missile which NASA was holding for possible use in a sounding rocket. The company reimbursed NASA for the acquisition cost of the motor and cost to refurbish a similar motor that was being held in long term storage. This was two years before a completely privately developed vehicle, Dolphin, was launched by Starstruck, Inc. These launches were many years before the Space Act OT that led to Elon Musk’s SpaceX developing its reusable Falcon 9.

NASA uses its OT authority to enter into a wide variety of agreements. Joint Endeavor Agreements that allowed private citizens to fly on the Space Shuttle were OTs. Most NASA OTs are small, and many involve cooperative endeavors without an exchange of funds on either side. In fact, NASA was exceedingly reticent to use Space Act OTs as a vehicle for funding a private party until DARPA blazed the way with its early OTs.

This brief rendition of NASA’s early Space Act OTs while hardly definitive goes far beyond what some “experts” know about the origins of OTs. It also shows, to those willing to see, the power of thinking and goal-orientation rather than merely rule following and blind adherence to “business as usual”.

written by Richard L. Dunn

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Part 2 will address the historical setting and imperatives that provide context for DARPA seeking and obtaining Other Transaction legislation, provide details of the legislative process, and describe early DOD uses of the authority.

***For more information consider attending, The Need for Speed: Rapid Fielding using Other Transactions, September 26-27, 2018 in Arlington VA.