The Scary New Contracting Model That Isn’t Scary or New

This is part of a series about other transaction authority. Read the role of consortia and what agencies are buying. 

There is a new and scary but potentially game-changing acquisition model catching fire across government. The thing is, it doesn’t have to be scary and is not really all that new.

Long lead times and complex, overwrought requirements have made acquisition one of the main impediments to successful information technology procurements in the federal government, resulting in no shortage of handwringing over the rules included in the Federal Acquisition Regulation that govern most transactions. But there is another way, if program managers, contracting officials and agency lawyers are willing to take a chance.

Before there was a FAR, there were “other transaction authorities,” also known by the shorthand OTAs or OTs. This contracting method outside the usual federal process is not widely used and even less understood. But that’s beginning to change.

“Is there anything here to be worried about? No,” Douglas Maughan, director of the Homeland Security Department's Science and Technology Directorate’s Cyber Security Division, told Nextgov. “Even though it’s been around for a fairly lengthy period of time, it’s just not been used very much. So, people are afraid of it because they haven’t seen how it’s worked.”

‘Or Other Transactions…’

When NASA was founded in 1958, Paul Dembling, then-general counsel for the agency’s predecessor, the National Advisory Committee for Aeronautics, wrote a section into the Space Act describing the agency’s acquisition authority.

The legislation allowed NASA “to enter into and perform such contracts, leases, cooperative agreements or other transactions as may be necessary in the conduct of its work.”

“This was 1958 and NASA was a big deal,” said Ralph Nash, a government procurement law expert and founder of the Government Contracts Program at George Washington University’s National Law Center, where he is a former dean of graduate studies and professor emeritus.

“We were in a space race with the Russians and President [John] Kennedy said we would get to the moon in this decade,” he explained. “This was there to give them full flexibility.”

Three decades later—well after the establishment of the FAR—that same language was used to grant the Defense Department similar authorities.

Congress gave Defense contracting officials the tool in 1989 with the express goal of helping non-traditional—or at least not frequent—contractors to research new technologies alongside the department.

By 1994, that authority had been broadened beyond research to include prototyping and then updated again in 2017 to enable contracts to move into production after successful prototypes.

Over that time, several departments have been granted other transaction authorities, including Defense, Energy, Health and Human Services, Homeland Security and Transportation. Under these departments, five component agencies have also been given explicit OT authority: the Federal Aviation Administration, Transportation Security Administration, National Institutes of Health, Domestic Nuclear Detection Office and Advanced Research Projects Agency-Energy, or ARPA-E.

“Under these authorities, agencies may develop agreements that are not required to follow a standard format or include terms and conditions that are typically required when using traditional mechanisms,” according to a Government Accountability Office definition.

The Wild West of Procurement?

Homeland Security’s Science and Technology Directorate awarded its first OT contract for cybersecurity in February 2016 after launching its Silicon Valley Innovation program.

The directorate started the Silicon Valley program to “reach out to…non-traditional performers—the perfect example of what a startup is,” Maughan explained. “What we’re trying to do in the Silicon Valley program is, in partnership with components as well as critical infrastructure providers, we’re looking for early-stage companies that have technology that we could use to bring capability to our components or first responders or the private sector.”

That sparked the first broad agency announcement call in December 2015 seeking interesting applications of the internet of things to support first responders and secure critical infrastructure.

Those calls have continued, with S&T awarding 37 OT contracts in 2017. In total, the directorate has worked with 25 companies through the Silicon Valley program.

While the primary focus for OTs is on research and development, not all agencies are using them for that express purpose. For instance, TSA and NASA use them for other services, such as airport security, education and outreach, according to GAO.

Broadening OTs beyond research seems to increase their use accordingly. GAO reports that while most agencies do fewer than 75 OT transactions a year, TSA and NASA conducted 640 and 3,220, respectively, in 2014 alone.

Many in government have been reluctant to use their OT authorities precisely because of the lack of regulations governing their use. Since the contracts exist outside of the Federal Acquisition Regulation, they can be written with far less stringent requirements. But that also means there are fewer protections along the way to avoid a catastrophic contracting failure—one that could land a government official in front of a congressional committee.

But just because there aren’t as many regulations doesn’t mean there isn’t oversight, Maughan said.

“It depends on your definition of oversight,” he said. “Even though it’s not FAR-based, we still have to do procurement documentation, we have to do a source-selection plan that says what are the criteria by which we’re going to evaluate proposals. For the most part, it’s the same as a traditional FAR-based contract, it’s just that the vehicle you’re using is not a FAR-based vehicle.”

Despite appearances, “It’s not the wild, wild west,” Maughan added. “You still have to make sure the government is making the decisions on what gets awarded. Even still, we have a contracting officer—who’s called an ‘other transaction authority officer’—so you’re still doing the same kinds of things with the contracting folks as part of the team.”

Funding Failure

The reluctance to use OTs is based on “fear of giving people a lot of discretion,” said Nash, the procurement law expert. “If you’re in a government agency and you’ve got an inspector general and you’ve got congressional oversight … there’s a tendency to be pretty cautious about how you do business.”

That said, “It’s the same oversight you have over any other transaction where you’re giving a company money,” Nash said. “The problem is, if you have a lot of discretion, you take away a lot of the rules, but you still have basic ethics problems. If you gave an OT to your father without telling anybody else about it, you’d have the same ethical violation you’d have with a contract or a grant.”

The other major roadblock is the fear of funding projects that don't pan out, Nash said.

“People have a hard time understanding that when you fund research, over half the time you’re funding failure,” Nash said. “You do not get 100 percent payout from research; and you shouldn’t expect it.” If you were to see a 100 percent success rate in funding research, that would just mean you weren't looking far enough into the future.

“There’s nothing wrong with failure,” Nash said.

Homeland Security’s Maughan agreed. “We have a lot of successes we can talk about with return on investment, but even the failures” have some return, he said. He cited a program to downsize a Defense Department radar system to fit on smaller drones used by U.S. Customs and Border Protection. The company awarded a contract ultimately failed to produce a working prototype, but everyone involved still consider it a successful venture.

The company was able to get funding to move their research forward and CBP learned what is feasible for the size of drones they use. “They were still really happy about being part of the program,” Maughan said. “We helped them move the technology down the roadmap toward a smaller device and that will help them in some of their DOD missions.”

“I think there’s still some return on investment," he added. "Our investment was less than $400,000 with them, so I think it falls into the category of: If you’re going to fail, fail quickly."

Had the office used a traditional contracting method for this project, it likely would have taken six to 12 months just to make an award, let alone discover that the idea would not work. Under the Science and Technology Directorate's OT authority, the time from application to award can be as short as 60 to 90 days.

Is It Worth It?

Overall, Maughan said he would recommend using OT contracts when appropriate but advised contracting officers to pick the right spots.

“It’s not a solution for every case,” he said. “If you’re trying to get startups with new innovation, then an OT might be good for you as an organization. There’s a little bit of risk working with a startup company—if you’re really just looking for a solutions provider and you’re not willing to take some risk, then an OT might not be for you.”

“It’s not the answer for all things,” he added.

Nash agreed and offered some advice to agencies interested in getting in on OTs.

“Let’s say you find a company out there that’s never done business with the government and that has some fascinating technology. You go to them and you say, ‘How could we sponsor you to do this? And we’ll give you all the money.’ Well, they may say, ‘The only way we’ll deal with you is this, this, this and this,’” Nash said. “We’re talking about intellectual property issues; we’re talking about accounting issues. And a normal contracting office might be pretty darn uncomfortable when they hear that because that’s not their norm.”

“You’ve got accounting problems. You want to make sure the company spends the money for what you gave them the money,” which can be particularly difficult, as one advantage of an OT contract is the company does not have to abide by government accounting standards. “But you need to make sure they have some systems.

“You need to worry about intellectual property—who’s going to have rights to it. And that would mean that if they said, ‘We’ll only do it if you take zero rights,’ that would be a problem. You might do it but you certainly would know that that’s a flashpoint that you would worry about. And then, of course, you’ve got to worry about audit rights because the government always wants to be able to audit and the contractor might not want to be audited.”

But these issues wouldn’t be news to a contracting officer who has spent any amount of time working in government, Nash said.

“The problem, I think, is, will your contracting office be willing to step outside of its normal FAR logic and really make it wide open?”