How a New Contracting Tool is Shaking Up Federal Procurement

Other transaction authority presents an formidable challenge to the Federal Acquisition Regulation. That’s a good thing.

The Government Accountability Office recently upheld a first of its kind protest of a contract awarded under the non-traditional contracting methodology known as other transaction authority. The protest and GAO’s decision have stirred debate over the future of OTAs and their potential to fundamentally disrupt federal acquisition.

First, some background. OTAs enable certain federal agencies, most prominently the Defense Department, to enter into commercial contracts outside the constraints of the Federal Acquisition Regulation. Historically, OTAs have been used to engage commercial companies during the research and development of new technologies without burdening them with requirements and costs associated with the FAR, which can be a major disincentive for companies to work with the government.

But the attractiveness of OTAs was often limited by the fact that once a selected technology entered final development and production—in other words, was ready for market— the FAR came back into play, thus obviating some of the very benefits the initial OTA was intended to provide. Advocates have long argued that extending the authority through full production or deployment (known as “production authority”) was the key to their success and to enabling the government’s access to the full range of emerging capabilities. Two years ago, Congress decided to do just that, at least for Defense.  And that decision has, in turn, been instrumental in the dramatic spike in OTA activity since.

The GAO protest centered on a contract awarded through an OTA conducted by the Defense Innovation Unit/Experimental (DIUx) on behalf of U.S. Transportation Command. But within a few months, the Pentagon announced that the services provided under the contract would be extended across the department, increasing its value from roughly $65 million to over $900 million for departmentwide deployment. That created an uproar among traditional Defense contractors, and Oracle America filed a protest with GAO. The Pentagon quickly backed away from the expansion plan, but the protest remained.

The essence of GAO’s decision to uphold the protest was pretty clear-cut and easily addressed. GAO determined that under the Competition in Contracting Act, DIUx’s failure to make clear from the get-go that the resulting contract might be extended across the department was unfair to other interested parties. GAO did not question the use of the OTA process for the acquisition. The only real issue involved the expansion of its application. And on that point, DIUx acknowledged its error and clarified the resulting changes it is making to its own processes.

Normally, such a straightforward decision and response would have been the end of it. But in this case, it energized renewed debate over the use of OTAs and whether the protest decision signaled the beginning of the end of OTAs themselves, or whether they are being used appropriately. But make no mistake about it, the core issue here gets to the heart of the federal acquisition system itself: the Federal Acquisition Regulation.

This should not come as a surprise. After all, the dramatic growth in the use of OTAs represents the first time that the dominance of the FAR itself, and the community charged with executing it, has been so meaningfully and significantly challenged since the FAR’s creation in the mid-1970s, and possibly since the creation of its antecedent, the Armed Services Procurement Regulations of 1947. While there are other alternative acquisition methods, no alternative methodology can cover the scope, dollars and impacts of the OTAs recently awarded, in process, or planned.

Moreover, in granting the Defense Department production authority, Congress was clearly stating its willingness to give the department the chance to do business very differently. In so doing, it gave relief to growing frustrations over the limits of the existing FAR-based procurement system, which can make it exceedingly difficult for agencies to access commercial capabilities..

All of this suggests that any debate over the “appropriate” use of OTAs needs to be conducted in a contemporary, not historical, context. The most important questions are common to all federal procurements: are they delivering capability in a timely manner, at fair and reasonable prices, following a transparent and competitive process, and via contracts that are subject to reasonable degrees of accountability? But whereas those questions have typically been asked in the context of the FAR and how its requirements could be waived or reduced, with OTAs, the questions need to now be asked on their own merits, the FAR notwithstanding.  

That challenges some of the most basic precepts that have guided federal acquisition for decades and under which the entire federal acquisition community has been raised and trained. No one really believes the government will move entirely away from the FAR anytime soon. But there is real potential for a substantially increased number of acquisitions to be conducted through something other than a FAR-based process that is often perceived, fairly or not, to be overly constrained by excessive rigidity and risk aversion. As I noted in this space some months ago, with OTAs, the Defense customer is speaking and a new conversation has begun. At a time when the customer experience is assuming a new primacy, it’s a conversation that cannot be avoided. Indeed, it should be welcomed.