September 18, 2018

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DoD Seeks Streamlined Procurements of Innovative Technologies – Other Transaction Agreements and the Commercial Solutions Opening Pilot Program

The Department of Defense (DoD) has once again emphasized its willingness to engage with commercial companies and other non-traditional contractors to try to expedite and simplify its procurement of innovative technologies. In particular, the Defense Information Systems Agency (DISA) indicated that it plans to enter directly into Other Transaction Authority (OTA) agreements, and DoD issued a class deviation for a commercial solutions opening (CSO) pilot program.

These developments, in connection with the continued promotion of OTA agreements by DoD’s Defense Innovation Unit Experimental organization (DIUx), provide commercial companies with additional incentives to enter into creative collaborations with the U.S. Government.

DISA OTAs

On June 29, DISA issued a News Release on its website to highlight the agency’s commitment to using its recently granted Other Transaction Authority to drive innovation and solutions to the warfighter. DISA recognized that the traditional procurement rules encompassed by the Federal Acquisition Regulation (FAR) and Defense Federal Acquisition Regulation Supplement (DFARS) can discourage potential partners and thus slow or prevent access to goods and services that would benefit our nation’s defense. As a potential solution for concerns associated with traditional procurement contracts, DISA explained that OTA agreements can provide more flexibility, which in turn permits the agency to “approach acquisitions in a commercial-like manner with some restrictions.”

As noted in an earlier post, there are many benefits for contractors that proceed with an OTA agreement in lieu of a traditional procurement contract. In addition to generally providing the benefit of a more rapid acquisition process, a significant advantage of an OTA agreement is that the FAR, DFARS, and many of their accompanying compliance obligations do not apply. For example, although DoD may want to include cost requirements in an OTA agreement, neither the cost principles in FAR Part 31 nor the Truth in Negotiations Act are applicable by law. DoD also retains flexibility to negotiate intellectual property rights that may deviate from default rights established under the Bayh-Dole Act, Part 27 of the FAR, and Part 227 of the DFARS.

The lack of set rules, however, may prove challenging for established contractors that have structured internal business systems based on FAR-based contract requirements and may not know where to begin in negotiating an OTA agreement. At the same time, entities that are not familiar with the FAR may have difficulty negotiating with DoD contracting officers who may try to impose the same forms and clauses that would otherwise apply under traditional procurement contracts. Small entities in particular may not have the resources to fully assess the consequences of agreeing, for example, that all costs incurred under an OTA agreement comply with FAR Part 31. Accordingly, both private and government negotiators need to understand that an OTA agreement is meant to be “commercial like” and can and should be drafted to meet the parties’ needs with or without reference to traditional contracting frameworks.

Although DISA has to date relied on other agencies to support its OTA agreements, it plans to enter into OTA agreements directly in the future using a CSO process that is similar to a process initially developed by DIUx. Only time will tell whether DISA will be able to retain sufficient flexibility in negotiations to maximize the benefits of OTA agreements while also addressing their challenges.

CSO Pilot Program

On June 26, three days before the DISA News Release, DoD issued a class deviation for a pilot program that allows contracting officers to use a simplified CSO process for standard procurement contracts to acquire “innovative commercial items, technologies or services.” The deviation permits DOD components to award traditional procurement contracts through a peer-reviewed process that will be deemed competitive without head-to-head competition between proposals. The pilot program implements Section 879 of the National Defense Authorization Act for Fiscal Year 2017, which represents another congressional push for DoD to use non-traditional processes to pursue cutting-edge technologies.

Much like the CSO process initially applied by DIUx and adopted by DISA for OTA agreements, the pilot program allows DoD contracting officers to select proposals received in response to a general solicitation that is similar to a broad agency announcement without being limited to basic or applied research projects. Instead, eligible projects only need to be “innovative,” covering completely new technologies, processes, or methods—including research and development—in addition to new applications of technologies, processes, or methods that are already in existence.

Specific limitations and requirements that traditionally apply to prototype projects and circumstances involving limited competition will not apply to the pilot program’s CSO process. However, awards valued at more than $100 million will be subject to prior approval and congressional reporting requirements. In addition, unlike OTA agreements, awards will need to be issued under the pilot program on a fixed-price basis.

Contracting officers will be required to post a notice of availability of a pilot program CSO at least annually and, in limited situations, may advertise a CSO in scientific, technical, or engineering periodicals. Proposals submitted in response to a CSO will not be evaluated against each other because they will not be submitted in response to a common performance work statement or statement of work. Thus, like awards resulting from the CSO process used by DIUx and DISA, as well as broad agency announcements generally, there can be more than one awardee working on similar projects.

Following DISA’s approach, contracting officers implementing the pilot program may ultimately reference CSO evaluation procedures that have already been established and tested by DIUx. Importantly, the pilot program’s concept of “innovative” development is based on criteria initially established by DIUx, and contracts awarded under the pilot program likely will support many of the same goals as OTA agreements.

The authority to enter into a contract under the pilot program is scheduled to expire on September 30, 2022, although existing pilot contracts in effect at that time will be permitted to continue performance until completed.

© 2018 Covington & Burling LLP

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About this Author

Susan B. Cassidy, Government Contracts Attorney, Covington Burling, Law Firm
Partner

Susan Cassidy advises clients on the complex rules and regulations imposed on government contractors, with a special emphasis on the defense and intelligence sectors. She combines a sophisticated knowledge of the FAR and DFARS with the practical insight gained from senior in-house positions at both dedicated defense and commercial item contractors.

Ms. Cassidy conducts internal investigations for clients on wide array of government contracts and national security compliance issues. She regularly advises on FAR mandatory disclosure obligations and represents...

202-662-5348
Jennifer Plitsch, Litigation attorney, Covington
Partner

Jennifer Plitsch is co-chair of the firm’s Government Contracts practice group where her practice includes a wide range of contracting issues for large and small businesses in both defense and civilian contracting. Her practice involves advising clients on contract proposal, performance, and compliance questions as well as litigation, transactional and legislative issues. She has particular expertise in advising clients on intellectual property and data rights issues under the Federal Acquisition Regulations and Bayh-Dole Act, and has significant experience in negotiation and compliance under non-traditional government agreements including Other Transaction Authority agreements (OTAs), Cooperative Research and Development Agreements CRADAs, Cooperative Agreements, Grants and Small Business Innovation Research agreements.

202-662-5611
Tyler Evans, litigation lawyer, Covington
Associate

Tyler Evans has experience working closely with clients to resolve issues arising from their participation in government contracting.

Mr. Evans’s practice covers multiple subject-matter areas, including contract negotiations, flow-down requirements, schedule contracts, small business issues, sourcing restrictions, compliance, cost disputes, and mergers and acquisitions. He has advised companies working in a broad range of industries, including life sciences, defense, information technology, energy, and construction.

202.662.5836