Understand the pros and cons of other transaction authorities (OTAs) and how you can incorporate them into your business development processes
OTAs (other transaction authorities) are the best thing since seedless watermelon.
Maybe, maybe not. But they are on fire.
By now, you’ve probably seen the influx of news and analysis of OTAs floating around the federal contracting community, and for good reason. OTAs are seeing dramatic increases in funding throughout the federal government, and particularly so in the Department of Defense (DoD).
All of this action raises questions, such as:
- What are OTAs and how did they come to be?
- What are their benefits and challenges?
- How can I profit from OTAs?
We have answers!
A brief history of OTAs
The recent increase in exposure and federal dollars going to OTAs might lead you to believe that this is a new contracting vehicle, but they’ve actually been around for a while now.
OTAs are believed to be initiated in 1958 with the expressed purpose of aiding NASA in the space race against the USSR. Essentially, OTAs provide an alternative for companies in complying with Federal Acquisitions Regulations (FAR), with the goal of rapidly implementing emerging technologies and prototypes.
NASA used this authority to partner with AT&T (see page 10 of this PDF for more details) to launch the first communications satellite that was fielded at no upfront cost to the government. By utilizing OT authority to apply commercially available technology to a government project without traversing a complicated acquisitions process, NASA proved that these alternative contracting vehicles showed promise.
Upon realizing the effectiveness of this contracting work-around, other agencies began petitioning for, and were granted, OT authority.
Currently NASA and four other federal departments have been granted OT authority: Defense, Health and Human Services, Transportation, and Homeland Security.
But recognizing the potential of OTAs took some time. The DoD wasn’t granted OT authority until 1989, at which time it was intended strictly to promote research alongside the department. That scope was expanded to include prototyping with the 1994 National Defense Authorization Act (NDAA).
It has been only in the last decade that the number of OTA contracts awarded, and the money assigned to them, really took off. In 2008, less than half a billion dollars was awarded through OTAs. In 2017, that number was over $2 billion.
Most of that increase was seen in the last three years, primarily because the 2016 NDAA authorized the awarding of follow-on contracts for production of prototypes developed during the OTA process.
Not only that, but in 2015 the Defense Innovation Unit Experimental (DIUx) was established with the specific purpose of awarding OTA contracts via the Army’s authority. These are the two main drivers that led the DoD to increase its spending obligations from $3.5 million in 2013 to$412 million in 2017.
By all accounts, the trend of increasing reliance on OTAs is set to continue. Some key indicators of this include:
- The 2018 NDAA included provisions that raised the contract limit for prototype projects from $250 million to $500 million.
- The Navy announced plans to use OTAs to acquire around $100 million worth of new cyber capabilities through the Information Warfare Research Project.
- The newly appointed Under Secretary of Defense for Acquisition and Sustainment, Ellen Lord, has explicitly stated a belief that her office will use OTAs as a method to streamline the contracting process.
Now that we’ve established that OTAs are here to stay, let’s look at some of the reasons why this vehicle is a potential boon for your government contracting business.
Benefits of OTAs for your company
OTAs hold tangible benefits for both you and your customers in the federal contracting environment, which explains why they have seen such an increase in visibility and use over the last several years.
The chief driver of these benefits is an exemption from the FAR. Notoriously onerous for small businesses, the FAR creates an environment that can discourage traditional businesses from applying for government contracts.
The FAR consists of over 1,800 pages (!) of rules and regulations covering the entire acquisition process, from proposal to delivery. Ain’t no one got time to read all that.
The two most notable benefits of these reduced requirements are 1) increased speed of contract awards, and 2) exemption from regulations that limit who can compete in the federal government contracting arena.
Increased Speed of Contract Awards
It’s hard to pin down just how long it will take before an RFP results in an actionable contract, but the general consensus? Waaaaay too long. You agree, right?
For example, the Marine Corps created guidelines that say procuring a services contract valued at less than $7M will take approximately 150 days. Bump that contract amount up a little bit to $10M and the number of days to award nearly doubles.
OTAs have led to dramatic improvements in speed to contract. The DIUx has been using a particular OTA called Commercial Solutions Openings to award contracts in under 60 days. Nice!
Government agencies (and contractors, I’m sure) are pleased with this increased speed to award and stress that moving fast is especially important for prototype projects and implementing commercially-available solutions.
The benefits of reduced lead times for your government contracting business can be massive. You’ll realize revenue earlier, be able to better plan your contract pursuits, have fewer idle resources, and minimize uncertainty.
Reduced Regulatory Requirements
OTAs are particularly valuable to “non-traditional” companies that either can’t or don’t want to do business with the government, but who may have innovative products and technologies that the government may be interested in.
There is a TON of red tape that you have to deal with in a traditional government contract bidding process. But when bidding for an OTA contract, many rules and regulations, such as the Competition in Contracting Act (CICA), the Procurement Integrity Act, the Contract Disputes Act, and many more, are not applicable.
Compliance with these acts can entail an enormous organizational cost and many times require expensive legal advisors to ensure that compliance is achieved.
By choosing the OTA route, contractors are legally sidestepping many of the barriers to entry that have been an issue with getting innovative products into the government’s hands.
Challenges of OTAs
Any system is going to have inherent challenges, and OTAs are no exception. Both the federal government and its contractors are going to be forced to overcome certain obstacles that arise from reliance on this alternate contracting vehicle.
The reality is that the benefits of OTAs also come with drawbacks, especially from the point of view of the government.
Misuse of OTAs by large contractors
While OT authority is granted with the intent of opening up the contracting process to non-traditional vendors, large defense contractors are finding ways to capitalize on these alternative vehicles.
Considering awards that were granted through OT authority in the years 2015-2017, only 33% of the dollars went to non-traditional contractors. While this is not an inherently negative consequence, it causes concern that OT authority is not achieving its intended results.
Large defense contractors are able to apply for OTA issued proposals when the government establishes a pressing need for the technology. What establishes this need is unclear and largely dependent on decisions made internally without any congressional oversight.
If large companies continue to exploit this loophole, it means that smaller contractors are going to face competitors that have a vastly superior pool of resources to pursue the contract. So if you think your proposal for OT-appropriated funds is going to be competing with only smaller, non-traditional contractors, you might have to think twice.
The reduced transparency of OTA awards is causing concern about risk mitigation and management amongst some government officials concerned with oversight.
Even reporting on OTA awards amounts is under scrutiny. There is a large discrepancy in the amount of OTA awarded contracts from the Pentagon’s numbers and those pulled from the Federal Procurement Data System. If the government is unable to determine how much money is being spent through this contracting vehicle, it does little to engender confidence in the system as a whole.
It is also unclear as to who owns the intellectual property created in these contracts. Because the nature of OTAs allows for this to be determined on a case basis, it further adds to the uncertainty of this contracting vehicle.
Perhaps the best way to understand the risk and challenges of OTAs is to look at the most publicized failure of this contracting vehicle: the REAN Cloud situation.
The REAN Cloud OTA debacle
The REAN Cloud cloud computing contract is a remarkable case study for the OTA process because it simultaneously highlights both the benefits and the potential challenges associated with the contracting vehicle.
In February, the DoD announced it was using OT authority to authorize a $950 million no-competition contract to REAN Cloud, an organization that helps companies transition to cloud-based data storage and application solutions. The large contract was a follow-up to a $2.5 million proof of concept awarded just 5 weeks after a call for proposals by DIUx.
Proponents of using OT authority in the acquisitions process were thrilled! This contract represented an ideal application of commercial technology to the defense sector.
The technology and services REAN Cloud offered would have accelerated DoD’s move to the cloud by an order of magnitude.
But it wasn’t meant to be.
Oracle expressed concern over ties REAN Cloud has to Amazon Web Services, one of Oracle’s primary competitors. They petitioned the Government Accounting Office (GAO) to look closely at the contract and determine whether it was properly awarded through OT authority.
Oracle’s main point of opposition was that the government was circumventing processes intended to ensure competitive bids for contracts. They argued that the Army had not required proper financial disclosure from REAN Cloud and that the award for the majority of the funds was made before a prototype stemming from the initial OTA award was ever completed.
If Oracle’s protest was sustained by the office, it would mean that the Army overstepped its authority to allocate the funds to this follow-on contract.
The GAO ultimately decided that the follow-on contract was awarded without fulfilling the legal requirements needed to classify it as an OTA. Specifically, they stated that the Army should not have awarded follow-on funds to an OTA for a prototype that was never fully completed. After review, the GAO decision means that the Army never had the authority to appropriate the funds in the first place. Furthermore, the Army was required to pay Oracle for the cost of submitting the protest.
The nearly billion-dollar contract was rescinded, and those who protested using OTAs for their lack of transparency and anti-competitive nature were vindicated.
What a mess.
How OTAs can fit into your business development strategy
The backsliding on the REAN Cloud computing notwithstanding, OTAs are poised to grow in both visibility and prominence in the federal contracting world.
The issue for you is how to incorporate this new acquisition method into your business development practices.
For most contractors, the answer is going to be joining a consortium.
The consortium method of obtaining OTA contracts is by far the most widely accepted and is responsible for a billion dollars of obligated funds over the last decade.
Essentially, a consortium is created by corporations who form a partnership around their area of expertise. The government can issue a baseline OTA for the consortium and present calls for white papers from its members.
For the DoD, some prominent consortiums are the System of Systems Consortium (SOSSEC), the Consortium for Energy, Environment, and Demilitarization, and C5.
As an example case, BCF Solutions Inc. was awarded an Indefinite Delivery / Indefinite Quantity contract with a ceiling of $538 million for strategic command and control services through SOSSEC, of which BCF was a member. Essentially, SOSSEC took the responsibility of being the single point of contact for the government to procure proposals for this award.
So if you’re looking to reap the benefits of OTAs, your best move is to find an appropriate consortium in your area of business and apply for membership, which typically entails filling out an application form and paying an annual fee.
Once you’re granted membership, you will be qualified to submit white papers at the government’s request. Sometimes the government might ask for more formal proposals based on the evaluation of the white papers, but these are nothing compared to traditional RFP-based behemoth proposals. The government will then select one or more awardees and will typically deliver funding through the consortium management organization. Win!
OTAs are becoming increasingly important to the acquisitions environment. Their application will likely grow as the government attempts to solve the problem of a slow and cumbersome acquisitions process.
If you have innovative technology that the government might be interested in, OTAs can be extremely beneficial for your organization. The speed at which contracts are awarded and the reduced regulatory requirements are huge benefits, so you should jump on that consortium bandwagon as soon as possible!
Has your contracting firm found success in OTA contracts? Do you have insights into consortium membership? If so, please comment below. We would love to hear your thoughts!
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