NSF watchdog warns of 'other transaction' pitfalls as funding decisions loom

Ahead of the National Science Foundation's infusion of $81 billion in funding from the CHIPS and Science Act of 2022, an inspector general's audit is cautioning the agency of common problems experienced with a popular contract it may use to develop new technology. 

As part of the legislation tasked with bolstering U.S.-based semiconductor production, The CHIPS Act also established the Technology, Innovation and Partnerships directorate within NSF and provided it with the authority to use Other Transaction Agreements, or OTAs, to help serve its mission of developing new practical technologies to address the nation's societal and economic challenges.

Because OTA's offer agencies more flexibility to design and develop prototypes with industry than a traditional Federal Acquisition Regulation-based procurement, they are becoming increasingly popular within federal agencies, particularly the Department of Defense. 

With key funding decisions looming, NSF's inspector general conducted an audit, published Friday, that examined OIG reports and recommendations over the past five years regarding the use of OTAs at the departments of Defense, Health and Human Services and Homeland Security, as well as the U.S. Agency for International Development to understand where the potential risks inherent to OTA occur to help guide future policies governing them.

Those risks broke down into three key issues: agencies obligating funding without complete information or documentation; agencies not complying with applicable laws or regulations — "such as validating that work was completed, cost sharing occurred or incurred costs were allowable" — and not properly securing, maintaining, tracking or reporting award information.

In four DOD reports dating back to 2021, inspectors general found issues such as the department not supporting source selection decisions by maintaining adequate documentation of decision rationale, ensuring that statements were properly supported or that source selection decisions were based on complete information.

In dealing with nontraditional contractors added to OTAs, one report found that DOD "did not always comply with authorizing language for OTAs related to verifying the organizational status of nontraditional defense contractors" due to a lack of sufficient guidance relating to the verification process. 

DOD, DHS and USAID faced challenges surrounding complying with applicable laws or regulations, often due to insufficient guidance. 

Guidance issues commonly occurred across the reports, with the audit citing problems with DOD personnel awarding consortium OTAs, negotiating fees with consortiums, tracking and reporting on OTAs related to follow-on production.

DOD, DHS and HHS also experienced troubles tracking and reporting award information, with perhaps the most glaring being Defense Department personnel not ensuring the security of controlled or restricted information sent to OTA consortia "because contracting personnel relied on consortium management organizations to vet members and ensure proper safeguarding of controlled and restricted data."  

Ultimately, the audit concluded that of a collective 39 recommendations featured in the reports studied, the steps that could be used to avoid the most common OTA problems were better documentation procedures and training for contracting employees, better policies on applying appropriate laws and regulations to OTAs and developing standards to track financial data, security reviews and ensuring timely reports to Congress.