Contracts & Legal

Other Transaction Authority (OTA)

Other Transaction Authority (OTA) is the term commonly used to refer to the (10 U.S.C. 2371b) authority of the Department of Defense (DoD) to carry out certain prototypes, research, and production projects. Other Transaction (OT) authorities were created to give DoD the flexibility necessary to adopt and incorporate business practices that reflect commercial industry standards and best practices into its award instruments. As of the 2016 National Defense Authorization Act (NDAA) Section 845, the DoD currently has permanent authority to award OT under (10 U.S.C. 2371) for (1) Research, (2) Prototype, and (3) Production Purposes.

Guidebook: Other Transactions (OT) Guide – 2018

Overview: Other Transaction Authority (OTA) Overview

(1) Research Purpose allows for basic, applied, and advanced research projects. These OTs are intended to spur dual-use research and development (R&D), taking advantage of economies of scale without burdening companies with Government regulatory overhead, which would make them non-competitive in the commercial (non-defense) sector. Traditional defense contractors are encouraged to engage in Research OTs, particularly if they sought to adopt commercial practices or standards, diversify into the commercial sector, or partner with Non-Traditional Defense Contractors.

(2) Prototype Purpose allows for projects directly relevant to weapons or weapon systems proposed to be acquired or developed by the DoD.

The statutory authority provides that Other Transaction (OT) shall be used to: “carry out prototype projects that are directly relevant to enhancing the mission effectiveness of military personnel and the supporting platforms, systems, components, or materials proposed to be acquired or developed by the Department of Defense, or to the improvement of platforms, systems, components, or materials in use by the armed forces.”

(3) Production Purpose allows for a non-competitive, follow-on OTs to a Prototype OT agreement that was competitively awarded and successfully completed. This statute requires that advanced consideration be given and notice be made of the potential for a follow-on OT; this is a necessary precondition for a follow-on Production OT. As such, solicitation documents and the Prototype OT agreement shall include a notice that a follow-on Production OT is possible.

What are the authorities?

OTs are not covered by the Federal Acquisition Regulations (FAR) and are a highly flexible business tool, use of which requires the application of astute business acumen to ensure the smarter, more efficient acquisition of prototype systems for the DoD. OTs require a minimum of at least one nontraditional Defense Contractor participating to a significant extent in the project or a cost-sharing arrangement requiring that at least one-third of the cost of the OTA come from non-Federal sources. [1]

Each military service has authority to execute OTs up to $500M with authorization by their Service Acquisition Executive (SAE), and there are no limits on how many OTs may be executed by the services or the cumulative value of such awards. Beyond the $5000M threshold for individual OTs, USD(A&L) must provide authorization to proceed. There is no limit to the number or dollar value of OTs that the DoD may execute in the aggregate.

In accordance with statute, this authority may be used only when one of the following is met:  [1,2]

  1. The awardee is a non-traditional defense contractor OR a small business:
    • “Non-traditional defense contractor” is defined by statute as “an entity that is not currently performing and has not performed, for at least the one-year period preceding the solicitation sources by the Department of Defense for the procurement or transaction, any contract or subcontract for the Department of Defense that is subject to the full coverage under the cost accounting standards prescribed pursuant to Section 1502 of title 41 and the regulations implementing such section.”
    • “Small business” is defined under section 3 of the Small Business Act (15 U.S.C. 632).
  2. The awardee is a traditional defense contractor, but at least one of the following applies:
    • At least one non-traditional contractor is participating to a “significant” extent
    • The awardee provides a financial or in-kind cost share – typically, a 1/3 cost share is required. However, the Government should not generally mandate cost-sharing requirements for defense unique items.
    • The Service Acquisition Executive makes a written determination that exceptional circumstances justify the use of OTA for the purpose of executing innovative business models or structures that would not be feasible or appropriate with a FAR-based contract.

What constitutes a prototype project?

The terms “prototype” and “prototype project” are not defined in statute or regulation. However, in 2002, the Under Secretary of Defense for Acquisition, Technology, and Logistics stated:

“With regard to section 845 authority, a prototype can generally be described as a physical or virtual model used to evaluate the technical or manufacturing feasibility or military utility of a particular technology or process, concept, end item, or system. The quantity developed should be limited to that needed to prove technical or manufacturing feasibility or evaluate military utility. In general, Research, Development, Test & Evaluation (RDT&E) appropriations will be appropriate for OT prototype projects.”

What is an “Other Transaction” (OT)?

An OT is a common term that refers to any kind of transaction other than a contract, grant, or cooperative agreement that is authorized by 10 U.S.C. 2371.  Transactions pursuant to this authority can take many forms and generally are not required to comply with Federal laws and regulations that apply to procurement contracts, grants, and/or cooperative agreements.   To the extent that a particular law or regulation is not tied to the type of instrument used (e.g., fiscal and property laws), it would generally apply to an OT.

When to Use an Other Transaction (OT)?

Other Transactions are a great tool that should be utilized to the fullest extent possible but may not be the best option. The following is a list of where using a OT is best.

  • For advancing new technologies and processes thru prototyping or models to evaluate the feasibility of a new technology satisfying a need.
  • To promote and utilize non-traditional vendors
  • Need the flexibility of tailored agreements to leverage commercial capabilities and items.
  • Need the flexibility of funding and payment arrangements

Other Transaction (OT) Consortiums

OT consortiums are business structures put in place by the government to more effectively execute OT. OSD guidance states that contracting officers should not use specific templates for designing such structures. The intent, rather, is for the government to structure business arrangements that are most appropriate for each specific scenario.

Once a consortium is established, government customers may issue calls for whitepapers to the consortium. The government may then select a small number of companies to submit a more formal proposal. Ultimately, the government selects one or more awardees and delivers funding to the selected consortium member(s) – typically through the consortium management organization. The government may also propose new relationships between consortium members without re-soliciting white papers or proposals from the entire consortium.

Other Transaction (OT) Consortium Setup

The majority of OT Consortia have 3 components. These three components form the foundation in the execution of the consortia and each is a key player in its success. Normally a consortia is built around a common area of interest (cyber, space, software…). The three components are:

  • Government Sponsor: Develops the consortia and established its goals and objectives. Selects projects for an award based on developed criteria.
  • Consortia Manager: Develops and establishes the process and procedures that will be followed. Executes consortium member agreements with each member organization.
  • Consortium: A group of companies that have been selected to participate in the consortia. This group can change from year to year.

Website: Existing OTA Consortium

Key Questions to Answer When Setting up an Other Transaction (OT)

  • Is an OT the best possible approach?
  • Do we have the authorization to use OT?
  • What is the schedule for using an OT?
  • What type of funding will we use?
  • When are funds available?
  • What are the approval steps?
  • Does our organization have experience with executing OT?

AcqLinks and References:

Updated: 06/24/2021

Rank: G1

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